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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
Audit of EPA's
Fiscal 2005 and 2004
Consolidated Financial
Statements
Audit Report 2006-1-00015
November 14, 2005
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Abbreviations
CFC Cincinnati Finance Center
EPA Environmental Protection Agency
FFMIA Federal Financial Management Improvement Act
FMFIA Federal Managers' Financial Integrity Act
GAO Government Accountability Office
IFMS Integrated Financial Management System
IP AC Intra-Governmental Payment and Collection
OARM Office of Administration and Resources Management
OCFO Office of the Chief Financial Officer
OFM Office of Financial Management
OFS Office of Financial Services
OHR Office of Human Resources
OIG Office of Inspector General
OMB Office of Management and Budget
PAR Personnel Action Request
QA Quality Assurance
QAR Quality Assurance Review
RSSI Required Supplementary Stewardship Information
SSC State Superfund Contract
Cover photo: Provided by Wanda Whitfield, OIG.
New Orleans Riverwalk, New Orleans, Louisiana.
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^ U.S. Environmental Protection Agency 2006-1-00015
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At a Glance
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 consolidated financial
statements were fairly
presented in all material
respects.
• EPA's internal controls over
financial reporting were in
place.
• EPA management complied
with applicable laws and
regulations.
Background
The requirement for audited
financial statements was enacted
to help bring about improvements
in agencies' financial
management practices, systems,
and controls so that timely,
reliable information is available
for managing Federal programs.
For further information, contact
our Office of Congressional and
Public Liaison at (202) 566-2391.
To view the full report, click on the
following link:
www.epa.qov/oiq/reports/2006/
20051114-2006-1 -00015.pdf
Audit of EPA's Fiscal 2005 and 2004
Consolidated Financial Statements
EPA Receives Unqualified Opinion
We rendered an unqualified, or clean, opinion on EPA's Consolidated Financial
Statements for fiscal 2005 and 2004, meaning that they were fairly presented
and free of material misstatement.
Internal Control Reportable Conditions Noted
EPA converted to a new payroll system in fiscal 2005. While EPA was able to
resolve many issues arising from the conversion, we noted several reportable
conditions. Most significantly, EPA made inappropriate payments to separated
(transferred, retired, or resigned) employees and made excess salary payments
to current employees. These conditions occurred because EPA's automated
controls and manual processes were not effective in identifying and preventing
these overpayments, or alerting EPA officials to take corrective actions in a
timely manner.
In addition to these conditions, we noted seven other reportable conditions
including overstated State Superfund Contract unearned revenue and unbilled
Superfund oversight costs, improperly adjusted general ledger accounts,
inadequate documentation for adjustments made to entries in EPA's Integrated
Financial Management System (IFMS), and uncorrected data that IFMS
rejected.
Noncompliance With Laws and Regulations Noted
The Agency still is in noncompliance with laws and regulations relating to
implementing the cost accounting standard and reconciling intragovernmental
transactions, though we do not consider EPA to be in substantial
noncompliance.
Agency Comments and Office of Inspector General Evaluation
In a memorandum received on November 10, 2005, from the Chief Financial
Officer, the Agency agreed with the issues raised and stated it has begun to
evaluate the best methods to address each issue to achieve a timely resolution.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
November 14, 2005
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
Report No. 2006-1-00015
Attached is our audit report on the Agency's fiscal 2005 and 2004 consolidated financial
statements. Management is presenting the financial statements for fiscal 2005 and 2004 in a
consolidated format which is a change from prior years' presentations where the Superfund Trust
Fund was presented separately. The Agency continues to make improvements in cost
accounting; however, it is still not in full compliance with the managerial cost accounting
standard. In our view, the level of compliance does not meet the Office of Management and
Budget's definition of substantial noncompliance. The audit report also contains other findings
that describe issues the Office of Inspector General (OIG) has identified and corrective actions
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.
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
FROM: Paul C. Curt
Director, Financial Audit (2422T)
TO:
Lyons Gray
Chief Financial Officer (271 OA)
CC:
Luis A. Luna
Assistant Administrator for
Administration and Resources Management (3101 A)
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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) 566-0899.
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 2005 and 2004 Consolidated Financial Statements 1
Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis 2
Evaluation of Internal Controls 2
Tests of Compliance with Laws and Regulations 6
Prior Audit Coverage 8
Agency Comments and OIG Evaluation 9
Attachments
1. Reportable Conditions 10
2. Compliance with Laws and Regulations 27
Federal Financial Management Improvement Act Noncompliance Issues
3. Status of Prior Audit Report Recommendations 29
Appendices
I. EPA's Fiscal 2005 and 2004 Consolidated Financial Statements 31
II. Agency's Response to Draft Report 144
III. Report Distribution List 148
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Inspector General's Report on EPA's Fiscal 2005
and 2004 Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
We have audited the consolidated balance sheets of the U.S. Environmental Protection Agency
(EPA, or the Agency) as of September 30, 2005 and 2004, and the related consolidated
statements of net cost, net cost by goal, changes in net position, financing and custodial liability,
and the combined statement 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 generally accepted auditing standards; the standards
applicable to financial statements contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and Office of Management and Budget (OMB)
Bulletin 01-02, Audit Requirements for Federal Financial Statements. These standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
The financial statements include expenses of grantees, contractors, and other Federal agencies.
Our audit work pertaining to these expenses included testing only within EPA. Audits of grants,
contracts, and interagency agreements performed at a later date may disclose questioned costs of
an amount undeterminable at this time. The U.S. Treasury collects and accounts for excise taxes
that are deposited into the Superfund and Leaking Underground Storage Tank Trust Funds. 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.
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 aspects of the Agency's activities.
In our opinion, the consolidated financial statements present fairly, including the accompanying
notes, in all material respects, the consolidated assets, liabilities, net position, net cost, net cost
by goal, changes in net position, reconciliation of net cost to budgetary obligations, custodial
activity, and combined budgetary resources of EPA, as of and for the years ended September 30,
2005 and 2004, in conformity with accounting principles generally accepted in the United States
of America.
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Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis
We inquired of EPA's management as to its methods for preparing Required Supplementary
Stewardship Information (RSSI), Required Supplementary Information, Supplemental
Information, and Management's Discussion and Analysis, and reviewed this information for
consistency with the financial statements. The Supplemental Information includes the unaudited
Superfund Trust Fund financial statements for fiscal 2005 and 2004, which are being presented
for additional analysis and are not a required part of the basic financial statements. Management
has elected to omit certain disclosures required by OMB Circular A-136, Financial Reporting
Requirements, that accounting principles generally accepted in the United States have
determined are necessary. However, our audit was not designed to express an opinion and,
accordingly, we do not express an opinion on EPA's RSSI, Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis.
We did not identify any material inconsistencies between the information presented in EPA's
consolidated financial statements and the information presented in EPA's RSSI, Required
Supplementary Information, Supplemental Information, and Management's Discussion and
Analysis. OMB Circular A-136, Financial Reporting Requirements, requires agencies to report,
as Required Supplementary Information, their intra-governmental assets and liabilities by
Federal trading partner. We found that EPA was able to reconcile its records with its trading
partners, except for Health and Human Services (see Attachment 2 for additional details on this
issue).
Evaluation of Internal Controls
As defined by OMB, internal control, as it relates to the financial statements, is a process,
affected by the Agency's management and other personnel, designed to provide reasonable
assurance that the following objectives are met:
Reliability of financial reporting - Transactions are properly recorded, processed, and
summarized to permit the timely and reliable preparation of the financial statements and
RSSI in accordance with generally accepted accounting principles; and assets are
safeguarded against loss from unauthorized acquisition, use, or disposition.
Reliability of performance reporting - Transactions and other data that support
reported performance measures are properly recorded, processed, and summarized to
permit the preparation of performance information in accordance with criteria stated by
management.
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.
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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 2005 Performance and Accountability Report, we obtained an understanding of the
design of significant internal controls relating to the existence and completeness assertions, as
required by OMB Bulletin No. 01-02. Our procedures were not designed to provide assurance
on internal control over reported performance measures and, accordingly, we do not express an
opinion on such controls.
Reportable Conditions
Reportable conditions are internal control weaknesses coming to the auditor's attention that, in
the auditor's judgment, should be communicated because they represent significant deficiencies
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in the design or operation of internal controls 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 nine reportable conditions, as follows:
Payroll Internal Controls
EPA inappropriately made payroll payments to separated (transferred, retired, or
resigned) employees. EPA's controls over processing time and attendance records for
separated employees were not effective in identifying and preventing overpayments
because automated controls were not implemented and manual controls were not
followed. In particular, PeoplePlus' automated controls do not allow timekeepers to halt
all future payments or limit the number of default payroll payments to separated
employees with a single transaction. Manual processes, such as processing personnel
action requests and reviewing exception reports, did not effectively alert EPA officials to
take corrective actions in a timely manner. As a result of the identified weaknesses, EPA
made approximately $74,000 in payroll payments to separated employees for which the
Agency must attempt to recover the funds.
Excess Salary Payments
EPA employees received salary payments in excess of the biweekly maximum earnings
limitations prescribed in Federal regulations. Under 5 CFR §550.105, an employee may
receive premium pay only to the extent that the payment does not cause the total of his or
her basic pay and premium pay for any biweekly pay period to exceed the greater of: the
maximum biweekly rate of basic pay for a GS-15 (including any applicable locality-
based comparability payment under section 5304 or similar provision of law and any
applicable special rate of pay under 5 U.S.C. 5305 or similar provision of law), or the
biweekly rate payable for Level V of the Executive Schedule.
State Superfund Contract and Superfund Unbilled Oversight Accruals
We found errors on the third quarter State Superfund Contract calculation spreadsheet
and/or the Superfund unbilled oversight spreadsheet in 9 of 10 regions. These errors led
to overstating State Superfund Contract unearned revenue by $31 million and unbilled
oversight by $14 million. Although the Office of the Chief Financial Officer (OCFO)
required the regions to certify that they reviewed their accrual calculations, the
certification process did not prevent or discover the errors. As a result, EPA could not
ensure the accuracy of the unearned revenue and the unbilled oversight accounts.
General Ledger Account Adjustments for Receivables Transferred to
Cincinnati Finance Center
EPA's general ledger accounts for accounts receivable and allowance for doubtful
accounts were materially misstated because certain regional offices did not properly
adjust those accounts when transferring receivables to the Cincinnati Finance Center.
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Quality Assurance Reviews
While EPA made several advances to improve the financial management quality
assurance (QA) program performed by the regions and finance centers, problems
continue in its Quality Assurance Reviews (QARs). We found the QARs performed were
limited in scope and less comprehensive than the QA Guide suggests. We also found that
the reviews did not adequately document the work performed or other methods used to
evaluate internal controls and accounting events. Further, we found that QARs were not
performed for all applicable accounting events. As a result, there is limited assurance
that the QARs provide a sufficient basis to evaluate and certify the assessment of internal
accounting and administrative controls.
Distribution of Budget Clearing Accounts
The fiscal 2005 year-end distribution of amounts recorded in a budget clearing account
was overstated. The Agency treated charge backs on collections on certain Interagency
Agreements as if they were distributions rather than reductions in receipts.
Documentation of Adjustments to IFMS Entries
EPA made adjustments to entries in the Integrated Financial Management System
(IFMS), the Agency's accounting system, without proper and adequate documentation.
During our review of collections and receivables recorded in various EPA regions, we
found 33 adjustments to entries in IFMS - totaling $89,446,286 - that were not supported
by sufficient documentation, such as schedules of collections or IFMS screen prints. The
documentation did not always identify other relevant documents, such as the consent
decree, which was the basis for the adjustment. We also found three adjustments -
totaling $47,540,900 - where documentation supporting the change was not easily
accessible. EPA staff had documentation to support the adjustment, but did not attach it
to the entry or otherwise provide an audit trail to locate the support. These entries also
did not contain evidence of an adequate review to ensure the adjustments were reasonable
and supported.
Correcting Rejected Transactions
The OCFO did not correct PeoplePlus data that the IFMS rejected during the transfer
process in a timely manner. We identified nonprocessed transactions in a suspense file
that existed for several pay periods without management action. Federal requirements
stipulate that agencies promptly record, classify, and account for transactions to prepare
timely accounts and reliable financial reports. Without having the processes in place to
reconcile and correct data that failed to transfer from PeoplePlus to IFMS, the financial
statements could be misstated.
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Contingency Plans for Financial Applications
A review conducted by a contracted public accounting firm noted that contingency plans
did not fully comply with EPA or Federal guidelines for several OCFO applications at the
Research Triangle Park campus in North Carolina. The firm identified where EPA had
not documented: (1) key contingency plan elements, (2) critical hardware and software
requirements, and (3) primary and secondary contacts. These weaknesses occurred
because of inconsistency in training for relevant contingency planning officials.
Incomplete contingency plans could present significant challenges for EPA should an
unforeseen event occur, particularly since the organization may believe these systems
have sufficiently documented procedures to expedite recovery. Further, without adequate
planning, management may not be able to mitigate the negative effects of interrupted
operations and determine how long specific operations may be suspended or postponed.
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 reported
less significant matters regarding internal controls in the form of position papers during the
course of the audit. We will not issue a separate management letter.
Comparison of EPA's FMFIA Report with Our Evaluation of Internal Controls
OMB Bulletin No. 01-02, Audit Requirements for Federal Financial Statements, requires us to
compare material weaknesses disclosed during the audit with those material weaknesses reported
in the Agency's Federal Managers' Financial Integrity Act (FMFIA, or Integrity Act) report that
relate to the financial statements and identify material weaknesses disclosed by audit that were
not reported in the Agency's FMFIA report.
For reporting under FMFIA, material weaknesses are defined differently than they are for
financial statement audit purposes. OMB Circular A-123, Management Accountability and
Control, defines a material weakness as a deficiency that the Agency head determines to be
significant enough to be reported outside the Agency.
For financial statement audit purposes, OMB defines material weaknesses in internal control as
reportable conditions in which the design or operation of the internal control does not reduce to a
relatively low level the risk that errors, fraud, or noncompliance in amounts that would be
material in relation to the financial statements or RSSI being audited, or material to a
performance measure or aggregation of related performance measures, may occur and not be
detected within a timely period by employees in the normal course of performing their assigned
functions.
The Agency did not report, and our audit did not detect, any material weaknesses for fiscal 2005.
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
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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. A number of
ongoing investigations involving EPA's grantees and contractors 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, 2005, will be reviewed by the deputy ethics officials no later
than January 23, 2006. 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 inquires, 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.
Federal Financial Management Improvement Act Noncompliance
Under FFMIA, we are required to report whether the Agency's financial management systems
substantially comply with the Federal financial management systems requirements, applicable
Federal accounting standards, and the United States Government Standard General Ledger at the
transaction level. OMB Bulletin No. 01-02, as supplemented by an OMB memorandum dated
January 4, 2001, Revised Implementation Guidance for the Federal Financial Management
Improvement Act, substantially changed the guidance for determining whether 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.
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As described in Attachment 3, OCFO has redefined it cost accounting outputs and made other
improvements. However, during Fiscal Year 2005, 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. Subsequent to completing our audit work,
the Agency developed a report to show full costs of its outputs; we will evaluate that report
during Fiscal Year 2006.
We identified a FFMIA noncompliance related to reconciliation of intragovernmental
transactions. However, this noncompliance does not meet the definition of substantial
noncompliance as described in OMB guidance. Attachment 2 provides additional details, as well
as recommendations on actions that should be taken on this matter.
We have 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.
Prior Audit Coverage
During previous financial or financial-related audits, weaknesses that impacted our audit
objectives were reported in the following areas:
¦ Complying with FFMIA requirements.
¦ Reconciliation and reporting intragovernmental 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 Statements of Transactions.
¦ Documentation and approval of journal and standard vouchers.
¦ Reconciling Unearned Revenue for State Superfund Contracts.
¦ Managing Accounts Receivable.
¦ Recording of Marketable Securities.
¦ Accounting for Obligations.
¦ Accounting for Contractor-Held Property.
¦ Assessing automated application processing controls for IFMS.
¦ Security Screenings for Non-Federal Personnel.
¦ Change Control Procedures for IFMS.
¦ System Certification, Accreditation, and Development for Grant and Inter-Governmental
Systems.
¦ Compliance of financial system security plans.
Attachment 3, Status of Prior Audit Report Recommendations, summarizes the current status of
corrective actions taken on prior audit report recommendations with corrective actions in
process.
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Agency Comments and OIG Evaluation
In a memorandum dated November 10, 2005, 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.
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 9, 2005
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Attachment 1
Reportable Conditions
Table of Contents
1 - EPA Should Improve Payroll Internal Controls 11
2 - EPA Employees Received Excess Salary Payments 15
3 - Improvement Needed for State Superfund Contract and Superfund Unbilled
Oversight Accruals 16
4 - Regions Should Make General Ledger Account Adjustments for Receivables
Transferred to Cincinnati Finance Center 17
5 - EPA's Quality Assurance Reviews Need Further Improvement 19
6 - EPA Could Improve the Distribution of the Budget Clearing Accounts 21
7 - Documentation of Adjustments to IFMS Entries Needs Improvement 22
8 - EPA Needs to Improve Correction of Rejected Transactions 24
9 - EPA Needs to Improve Contingency Plans for Financial Applications 25
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1 - EPA Should Improve Payroll Internal Controls
EPA inappropriately made payroll payments to separated (transferred, retired, or resigned)
employees. Specifically, EPA's controls over processing time and attendance records for
separated employees were not effective in identifying and preventing overpayments because
automated controls were not implemented and manual controls were not followed. In particular,
PeoplePlus' automated controls do not allow timekeepers to halt all future payments or limit the
number of default payroll payments to separated employees with a single transaction. In
addition, manual processes, such as processing personnel action requests (PAR) and reviewing
exception reports, did not effectively alert EPA officials to take corrective actions in a timely
manner. As a result of the identified weaknesses, EPA made approximately $74,000 in payroll
payments to separated employees for which the Agency must attempt to recover the funds.
PeoplePlus Automated Controls Need Improvement
Automated controls in PeoplePlus do not allow timekeepers to stop all future payments to
separated employees by entering the "DTNPY" code just one time. To prevent PeoplePlus from
inappropriately paying separated employees, the system currently requires the timekeeper to re-
enter this code every pay period until the human resources department processes the PAR,
separating the employee from EPA. The DTNPY code is a time reporting code used for
separated employees to tell the system not to pay them. We also found that timekeepers did not
consistently enter the code into PeoplePlus each pay period, which contributed to several
instances where employees received payroll payments although they separated from EPA.
This problem is compounded by the fact that EPA does not limit the number of payments it
makes to separated employees. EPA's management chose to configure the PeoplePlus system to
pay employees for working their standard hours (e.g., 80 hours for a full-time employee) by
default, even if a timesheet was not submitted (entered and attested to by an employee,
timekeeper, or manager) for multiple pay periods. As a result of these two issues, a separated
employee could receive payroll payments after leaving EPA for every pay period that the
timekeeper does not enter the time reporting code into PeoplePlus until the human resources
department processes the PAR.
Processing of Personnel Action Requests Needs Improvement
The time required to process PARs resulted in delays in deactivating separated employees' time
and attendance records. The Office of Human Resources (OHR) developed procedures to
process personnel actions for term appointments and transferred employees without a PAR and
informal procedures to do the same for retiring employees. The procedures allow OHR to
initiate the necessary transaction to deactivate separated employees' future time and attendance
records. However, the procedures were not implemented across the Agency and not consistently
followed where they were implemented. As a result, the manual preparation of the PAR by the
EPA office and the OHR processing, in several cases, took from 1 to 3 months to complete.
Furthermore, in almost all the cases where the Agency made overpayments to separated
employees, the PAR was processed after the employee separated from EPA.
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Use of Exception Reports Needs Improvement
EPA offices did not effectively use the PeoplePlus-generated "Missing Time & Attendance"
report to identify employees without entered or certified and approved time and attendance
records. EPA implemented this standard report in PeoplePlus to provide offices a tool to manage
their employees' time and attendance records. However, offices did not run the reports in a
timely manner nor take actions to prevent inappropriate payments. Therefore, in May 2005, the
OCFO issued OFM Policy Announcement No. 05-05, Responsibility of Supervisors to Approve
Time and Attendance, to compensate employees despite missing or unapproved biweekly time
and attendance information.
Policy Announcement No. 05-05 states that "employees who fail to enter their time will be paid
based upon their standard hours (default hours). Employees who have entered time that was not
approved by his/her supervisor will be paid based upon the time reported (mass approval). When
employees are paid based upon their default hours or the mass approval process, supervisors
should ensure PeoplePlus corrections are made, and then indicate their approval by signing the
Time Certification Reports. The Regional Comptroller/Program Management Officer certifies
that the appropriate actions were taken by the supervisor and then sends, by fax, the appropriate
signed report to the Washington Finance Center before the end of the following pay period.
We examined the Mass Approval Time and Attendance Reports and Default Hours Reports for
the pay period ending July 9, 2005. We found that:
• The Washington Finance Center used the mass approval process to complete the
PeoplePlus pay calculation for 21 Headquarters and regional offices, but did not receive
required mass approval certifications from 10 offices and an 11th submitted the
certification late.
• For default hours, employees in 14 Headquarters and regional offices were paid based
on their standard hours; however, the required default hours certifications were not
received from 9 offices and 2 other offices submitted the certifications late.
We believe the failure of Agency managers to comply with Policy Announcement No. 05-05 is
an internal control weakness that could contribute to Agency employees being improperly
compensated.
Our review of Default Hours Reports identified other concerns. We found that:
• Separated employees were listed on multiple Default Hours Reports.
• The OCFO also did not generate or provide Default Hours Reports for program offices
for seven pay periods during fiscal 2005. Based on a preliminary review, Agency
officials estimated that there were 72 instances (totaling approximately $74,000) where
employees were paid after separation from EPA. This approximation is most likely
understated because the Agency's preliminary review excluded seven pay periods from
fiscal 2005.
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• Offices certified Default Hours Reports that contained separated employees, but did not
have the timekeeper correct each employee's time and attendance record to prevent
payment or annotate on the report that the employee had left the Agency.
Recommendations
We recommend that the OCFO and the Office of Administration and Resources Management
(OARM) work together to:
1. Develop and implement a policy that would hold the supervisors and Regional
Comptrollers/Program Management Officers accountable for ensuring that all required
procedures associated with the processing of payroll and personnel actions are properly
followed in a timely manner.
We recommend that the OCFO have the Director, Office of Financial Services (OFS):
2. Modify PeoplePlus and associated procedures to enable timekeepers to enter the
DTNPY code into PeoplePlus one time to stop the system from making any future
payments to separated employees.
3. Develop and implement procedures to facilitate identifying separated employees and
implement an automated control to limit the number of default payments to these
employees.
4. Complete the analysis of default payments for all fiscal 2005 pay periods to determine
the number of payroll payments to separated employees and take appropriate action to
collect the overpayment.
We recommend that the OARM have the Director, OHR:
5. Reinforce the use of established standard operating procedures to process PARs for
separated term appointments and transferred employees, and implement the process
across the entire Agency.
6. Formalize and implement the standard operating procedures for processing PARs for
retiring employees and implement the process across the entire Agency.
7. Reinforce with Agency Officials that they need to (1) forward written resignation
notices to OHR immediately upon receipt, and (2) prepare and forward PARs in a
timely manner to prevent overpayments.
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Agency Comment and OIG Evaluation
The OCFO and OARM generally concurred with our findings and recommendations. The
Agency indicated that it would continue to validate payroll system internal controls, enforce
existing procedures, and take further corrective action as needed. However, the Agency's
response did not address the need for an automated control. Based on the problems described
above, the current procedures have not been effective in identifying and preventing inappropriate
payments to separated employees. Therefore, we believe improvement is needed in this area and
that the Agency should implement automated controls to limit the potential harm caused by a
breakdown in the current manual procedures.
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2 - EPA Employees Received Excess Salary Payments
Because the internal controls for EPA's PeoplePlus system did not effectively identify and
prevent excess salary payments, Agency employees received salary payments in excess of the
biweekly maximum earnings limitations prescribed in Federal regulations. Under 5 CFR
§550.105, an employee may receive premium pay only to the extent that the payment does not
cause the total of his or her basic pay and premium pay for any biweekly pay period to exceed
the greater of:
1) The maximum biweekly rate of basic pay for a GS-15 (including any applicable
locality-based comparability payment under section 5304 or similar provision of law
and any applicable special rate of pay under 5 U.S.C. 5305 or similar provision of law);
or
2) The biweekly rate payable for Level V of the Executive Schedule.
We examined individual employee gross salary payments for two pay periods. We found 37
employees received salary payments totaling $14,891 in excess of the biweekly maximum
earning limitation for one pay period, and 24 employees received excess salary payments totaling
$5,152 for the other pay period. The Agency has recently advised us that it has developed a
manual process for checking for overpayments. However, due to the late receipt of this
information, we have not been able to verify the process or its effectiveness.
Recommendations
We recommend that the OCFO:
8. Develop and implement an automated control which would prevent employee salary
payments in excess of maximum earnings limitations.
9. Verify that all overpayments have been researched for their cause and amount, and if
due back to the Government, receivables established.
Agency Comment and OIG Evaluation
The OCFO agreed with the issues we raised and stated that it is initiating enhancements to
broaden the scope of automated controls to replace existing manual controls. It plans to continue
to evaluate the results as part of its payroll review process.
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3 - Improvement Needed for State Superfund Contract
and Superfund Unbilled Oversight Accruals
EPA needs to improve its oversight of State Superfund Contract (SSC) and Superfund unbilled
oversight accruals. We found errors on the third quarter SSC calculation spreadsheet and/or the
unbilled oversight spreadsheet in 9 of 10 regions. These errors led to overstating SSC unearned
revenue by $31 million and unbilled oversight by $14 million. Although the OCFO required the
regions to certify that they reviewed their accrual calculations, the certification process did not
prevent or discover the errors. As a result, EPA could not ensure the accuracy of the unearned
revenue and the unbilled oversight accounts.
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.
EPA developed a review and certification process as a result of last year's position paper entitled
"EPA Needs to Further Improve State Superfund Contracts' Unearned Revenue and Superfund
Unbilled Oversight Cost Accruals." However, the number of errors found during the cumulative
third quarter spreadsheets indicates that EPA's oversight of the accruals was not effective. For
SSC unearned revenue, we found errors in cumulative disbursements, cumulative billings, and
formula changes in the SSC calculation. For the unbilled oversight accruals, in addition to
missing formulas, we found errors in formulas, cost amounts, billing percentages, and untimely
accrual entries. EPA could have detected these errors with an effective review process. EPA
needs to reassess its oversight and develop further instruction for preparing and reviewing these
accrual calculations.
Recommendations
We recommended that the OCFO have the Director, OFM:
10. Provide more complete instructions and clarification to the regional offices to ensure
the regions have an adequate preparation and review process.
11. Supplement the regional review process for SSC and Unbilled Oversight accruals with
a centralized review function.
Agency Response and OIG Evaluation
OCFO agreed with the OIG recommendations. OCFO stated that it made considerable progress
towards assuring consistency with the SSC and Superfund unbilled oversight accrual issues.
OCFO stated it will explore options for centralizing these accrual processes.
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4 - Regions Should Make General Ledger Account Adjustments
for Receivables Transferred to Cincinnati Finance Center
EPA's general ledger accounts for accounts receivable and allowance for doubtful accounts were
materially misstated because certain regional offices did not properly adjust those accounts when
transferring receivables to the Cincinnati Finance Center (CFC).
The Agency is in the process of consolidating financial operations into four finance centers. As
part of this process, 5 of 10 regions had transferred accounts receivables to CFC by
September 30, 2005. During our review of CFC's allowance for doubtful accounts, we noted
that a Region had an allowance for doubtful accounts balance of $130,763,195 even though it did
not have a receivables balance. Another Region had erroneously reduced its receivable balance
in excess of the balance available, resulting in a negative balance of $2,914,484. Because of the
transfers to CFC, the accounts receivable and allowance balances at those accounting points
should have been adjusted to reflect a $0 balance.
These errors resulted because the regional accounts receivable staff did not properly review the
general ledger account balances or perform analytical reviews that would have exposed the
discrepancies. We did note that the agency has made the appropriate adjustments to the financial
statements to adjust the allowance for doubtful accounts.
The Government Accountability Office's (GAO) Standards for Internal Controls in the Federal
Government, dated November 1999, identified "control activities" as one of the five standards of
internal control. According to GAO, management reviews (analytical reviews) at the functional
or activity level are commonly performed internal control activities. GAO's Internal Control
Management and Evaluation Tool, dated August 2001, identified the following analytical
reviews as common control activities: 1) managers at all activity levels review performance
reports, analyze trends, and measure results against targets, and 2) both financial and program
managers review and compare financial, budgetary, and operational performance to planned or
expected results.
Recommendations
We recommended that the OCFO have the Director, OFM:
12. Require quarterly general ledger analytical reviews for finance centers and/or
accounting points with receivable balances or activity.
13. Ensure appropriate adjustments are made to general ledger account balances when
regional activity is transferred to finance centers.
Agency Comments and OIG Evaluation
The Agency agreed with the audit issues raised. The Agency stated it successfully transferred 5
of 10 regions' accounts receivable functions to one finance center. An account analysis
identified several accounting point balances that required adjustments that were subsequently
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reflected in the financial statements. As the Agency progresses in moving the accounts
receivable functions from the remaining five regions, OCFO agreed to continue to monitor
appropriate general ledger accounts.
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5 - EPA's Quality Assurance Reviews Need Further Improvement
While EPA made several advances to improve the financial management QA program performed
by the regions and finance centers, the Agency must continue to improve its QARs. The OCFO
updated the QA Guide in September 2005, increased oversight of the QA program, and provided
Federal Managers' Financial Integrity Act training to appropriate personnel. However, we found
the QARs performed were limited in scope and less comprehensive than the QA Guide suggests.
We also found that the reviews did not adequately document the work performed or other
methods used to evaluate internal controls and accounting events. Further, we found that QARs
were not performed for all applicable accounting events. As a result, there is limited assurance
that the QARs provide a sufficient basis to evaluate and certify the assessment of internal
accounting and administrative controls.
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. 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. In addition, the OCFO's Fiscal Year 2005 Quality Assurance Workplan guidance
recommends the regions and finance centers ensure that the QARs test the accounting events as
appropriate, and document the rationale for any accounting events not tested.
During our analysis, we found QARs performed in fiscal 2005 that were more limited in scope
than what was indicated in the QA Guide. The QA Guide provides specific control objectives
and test procedures for each accounting event. For example, for accounts receivable, the QA
Guide identifies 8 control objectives and 19 test procedures to evaluate internal controls.
However, one accounts receivable QAR addressed only one control objective and test procedure.
In another QAR, for property, only 1 control objective and test procedure were addressed, while
the QA guide identified 10 objectives and 21 test procedures.
In addition, the QAR work was not adequately documented. The QA Guide states that
workpapers should provide written evidence of the work performed, support the validity of
conclusions reached, and provide a record of the methodology used. The QAR workpapers we
reviewed did not document objectives of the review, the nature and extent of work performed,
conclusions reached, and appropriate cross-references to other workpapers. We also noticed that
the QAR workpapers we reviewed did not document other methods used to evaluate internal
controls and accounting events, such as monthly travel audits.
We found that a regional office performed QARs for only 7 of the 13 applicable accounting
events during the last 3 years. The QA Guide requires QARs to be performed for all applicable
accounting events at least once every 3 years.
Recommendations
We recommend that the OCFO have the Director, OFM, to continue to improve the QA program
by requiring field locations to:
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14. Perform more comprehensive QARs that define and address all the control objectives
for applicable accounting events.
15. Adequately document the work performed and methods used to evaluate internal
controls.
16. Perform a QAR for each applicable accounting event at least once every 3 years.
Agency Comments and OIG Evaluation
The Agency agreed with the audit issues raised. OCFO believes it has made significant progress
with the QA program and will conduct a training class in December 2005 for Agency finance
personnel.
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6 - EPA Could Improve the Distribution of the
Budget Clearing Accounts
The fiscal 2005 year-end distribution of amounts recorded in a budget clearing account was
overstated. The Agency treated charge backs on collections on certain Interagency Agreements
as if they were distributions rather than reductions in receipts.
The Cincinnati Finance Center records all Intra-Governmental Payment and Collection (IPAC)
transactions in a budget clearing account pending interagency agreement Project Officer
approval/disapproval. Once approved, the payment is removed from the clearing account and
recorded in the appropriate account. EPA is required by the U.S. Treasury to reconcile and
distribute budget clearing accounts by the end of the fiscal year. EPA has also adopted
procedures to allocate costs. EPA's Year End Closing Instructions state "the amounts being
recorded, at the end of the fiscal year need to be prorated among applicable appropriations in
order to provide a more realistic distribution of charges via IP AC."
At year end, the Cincinnati Finance Center distributed $37,608,039 from the clearing account to
expenditure accounts in various U.S. Treasury funds. Included in the distribution was
$15,334,554 that should have been recorded as cash receipts, but was processed through IP AC as
expenditures. As a result, the amounts recorded in expenditure and receivable accounts were
overstated, and the amount recorded in the cash receipt account was understated by $15,334,554.
Recommendations
We recommend the OCFO have the Cincinnati Finance Center:
17. Remove any receipt transactions from the year end distribution of the clearing
account.
We recommend the OCFO have OFM's Reporting and Analysis Staff:
18. Record an on-top adjustment to the financial statements to correct the $15,334,554
error and properly reflect expenditure, receivable, and receipt activity.
Agency Comments and OIG Evaluation
The Agency agreed with the audit issues raised and made the appropriate accounting adjustments
to the financial statements.
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7 - Documentation of Adjustments to IFMS
Entries Needs Improvement
EPA made adjustments to entries in the IFMS, the Agency's accounting system, without proper
and adequate documentation. During our review of collections and receivables recorded in
various EPA regions, we found 33 adjustments to entries in IFMS - totaling $89,446,286 - that
were not supported by sufficient documentation, such as schedules of collections or IFMS screen
prints. The documentation did not always identify other relevant documents, such as the consent
decree, which was the basis for the adjustment. We also found three adjustments - totaling
$47,540,900 - where documentation supporting the change was not easily accessible. EPA staff
had documentation to support the adjustment, but did not attach it to the entry or otherwise
provide an audit trail to locate the support. These entries also did not contain evidence of an
adequate review to ensure the adjustments were reasonable and supported.
EPA Comptroller Policy Announcement 93-02 requires "that all financial transactions recorded
in the accounting system be supported by adequate source documentation, and that this
documentation be easily accessible." These requirements apply to initial transactions entered
into IFMS and to adjustments made to the entries. According to Policy Announcement 93-02:
'"Adequately documented' means an independent individual competent in accounting and
possessing reasonable knowledge of EPA's operations should be able to examine the
documentation and reach substantially the same conclusions as the persons who made and/or
approved the entry."
'"Easily accessible' means the entry should contain sufficient information to identify the
supporting documentation, and the documentation should be organized and filed in a manner
to facilitate its retrieval."
The GAO Standards for Internal Controls in the Federal Government state that "all transactions
and other significant events are to be clearly documented, and the documentation is to be readily
available for examination." The Standards also state "qualified and continuous supervision is to
be provided to ensure that internal control objectives are achieved."
Lack of adequate supporting documentation may raise questions about the validity and integrity
of the financial information contained in IFMS. Failure to require adequate documentation
before adjusting entries are input in the Agency's accounting system increases the risk of fraud,
waste, and abuse by increasing the possibility that unauthorized or inaccurate information is
entered.
Recommendations
We recommend that the OCFO:
19. Require adequate documentation to support all adjustments to entries in IFMS. This
documentation should include an adjustment date and justification for the correction, be
easily accessible, and reference the original entry.
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20. Require all adjustments to entries in IFMS be properly reviewed to ensure the policies
are followed.
Agency Comments and OIG Evaluation
The Agency agreed with the audit issues raised.
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8 - EPA Needs to Improve Correction of Rejected Transactions
The OCFO did not correct PeoplePlus data that the IFMS rejected during the transfer process.
We identified nonprocessed transactions in a suspense file that existed for several pay periods
without management action. This occurred because the OCFO had not corrected and cleared
PeoplePlus transactions transferred to IFMS in a timely manner. Federal requirements stipulate
that agencies promptly record, classify, and account for transactions to prepare timely accounts
and reliable financial reports. Without having the processes in place to reconcile and correct data
that failed to transfer from PeoplePlus to IFMS, the financial statements could be misstated.
EPA accumulates nonprocessed data in a suspense file during data transfer between the two
systems. Our review determined that the OCFO had not timely corrected nonprocessed data for
the following group of items in the suspense file:
• Non-processed payroll transactions for 16 EPA employees remained in the suspense
file because the employees did not have assigned Fixed Account Numbers in
PeoplePlus. Our review indicated that some of the transactions go back as far as pay
period 2, which ended October 16, 2004. The total of these transactions is $177,786
and the OCFO took no action to correct/reprocess the transactions.
Recommendation
We recommend that the OCFO have the Director, OFS:
21. Establish and implement policies and procedures to ensure the identification and timely
processing of non-processed/rejected payroll transactions between PeoplePlus and
IFMS.
Agency Comment and OIG Evaluation
The Director, OFS, concurred with our recommendation and indicated that the office took action
to correct the payroll records for the 16 employees with missing Fixed Account Numbers.
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9 - EPA Needs to Improve Contingency Plans for
Financial Applications
A review conducted by a contracted public accounting firm noted that contingency plans did not
fully comply with EPA or Federal guidelines for several OCFO applications at the Research
Triangle Park campus in North Carolina. The firm identified where EPA had not documented:
(1) key contingency plan elements, (2) critical hardware and software requirements, and (3)
primary and secondary contacts. These weaknesses occurred because of inconsistency in
training for relevant contingency planning officials. Incomplete contingency plans can present
significant challenges for EPA should an unforeseen event occur, particularly since the
organization may believe these systems have sufficiently documented procedures to expedite
recovery. Further, without adequate planning, management may not be able to mitigate the
negative effects of interrupted operations.
The contracted public accounting firm's review identified the following specific contingency
plan weaknesses:
• The Budget Automation System is not referenced in the OCFO's Office of Budget
contingency plan. Agency officials did not fully document key contingency elements,
such as an emergency telephone list and a listing of vendors, suppliers, and other
service providers in the OCFO Annual Planning and Budget Division Disaster
Preparedness and Recovery Guide - Budget Automation System.
• The PeoplePlus contingency plan does not identify the primary and secondary contacts,
although the information is included in the Critical Applications Disaster Recovery
Plan. Neither plan specifies which of the two plans takes priority should an outage
occur.
• The firm noted inconsistency as to whether an application contingency plan was
prepared for applications not subscribing to the National Computer Center Disaster
Recovery Service. If a contingency plan was prepared, the level of detail within the
plan was not consistent. For example, the Travel Manager +, Financial Data
Warehouse, and Bank Card systems do not have separate contingency plans. Although
the security plans for these systems address contingency planning, these security plans
do not document detailed steps to recover application hardware, software, and
telecommunications, nor do the plans identify alternative processing locations for the
applications.
Recommendations
We recommend that the OCFO:
22. Have responsible office directors provide training to all application owners on the
importance of developing, maintaining, and testing contingency plans in accordance
with EPA and Federal guidelines and ensure the plans clearly define necessary recovery
steps for each application.
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23. Have the Director, Office of Budget, revise the Budget Automation System's
contingency plan to contain (a) complete contact information for key personnel, and
(b) alternate processing and return to normal operations procedures.
24. Have the Director, OFS, revise the PeoplePlus' contingency plan so it clearly describes
whether the PeoplePlus plan or the Critical Applications Disaster Recovery Plan takes
precedence during a recovery process.
25. Have the Director, OFM, revise contingency plans for all of their applications not
subscribing to the National Computer Center Disaster Recovery Services (e.g.,
Financial Data Warehouse), in accordance with relevant Federal and EPA criteria and
best practices.
Agency Comments and OIG Evaluation
The OCFO concurred with our recommendations and provided details on corrective measures
that would address some of the recommendations.
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Attachment 2
Compliance with Laws and Regulations
Table of Contents
Federal Financial Management Improvement Act
Noncompliance Issue 1
10 - EPA Should Continue Efforts to Reconcile Intragovernmental Transactions 28
1 We are reporting this noncompliance issue under FFMIA as it directly relates to FFMIA reporting requirements;
however, the issue does not meet the OMB criteria for substantial noncompliance under FFMIA.
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10 - EPA Should Continue Efforts to Reconcile
Intragovernmental Transactions
While EPA improved reconciliations of its intragovernmental transactions during fiscal 2005, the
Agency was unable to reconcile a material difference of $149 million with one Federal agency -
the Department of Health and Human Services. Without the proper confirmations from its
trading partners, EPA has limited assurance that intragovernmental balances are accurate. EPA
had experienced similar occurrences in the past that prohibited it from fully complying with the
applicable requirements.
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. OMB Circular A-136, Financial Reporting Requirements, which was
updated August 2005, requires Federal agencies to report intragovernmental assets, liabilities,
revenue, and certain reporting entities with their trading partners. 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.
The U.S. Treasury's Federal Intragovernmental Transactions Accounting Policies Guide was
updated in July 2005 and provides Government-wide accounting policies for Federal agencies to
account for and reconcile intragovernmental transactions. The Guide provides tools (procedures
and examples) to facilitate quarterly reconciliation of intragovernmental activities. EPA has
taken action to reconcile its intragovernmental activity on a quarterly basis. At yearend, the
Agency had one material difference of $149 million in unreconciled activity with the Department
of Health and Human Services.
Recommendation
We recommend that the OCFO:
26. Require OFM to continue its efforts in reconciling the Agency's intragovernmental
transactions to comply with Federal financial reporting requirements.
Agency Comments and OIG Evaluation
The Agency agreed with the audit issue raised and believes that the unreconciled amount was a
result of differing accounting methodologies between agencies. The Agency stated that will
continue efforts to reconcile the Agency's intragovernmental transactions to comply with Federal
financial reporting requirements.
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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:
EPA has made progress towards replacing IFMS. However, until EPA implements the
planned replacement automated accounting system that addresses past issues, we will
continue to disclose a reportable condition concerning documentation of the current
accounting system and its automated application processing controls.
• EPA Needs to Strengthen Practices Regarding Security Screening for Non-Federal
Personnel:
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. The Agency expects to issue policy on security certifications for
contractor and grantee personnel in October 2006.
• EPA Continues Actions to Improve Cost Accounting:
Since our last report, EPA has redefined its cost accounting outputs, improved the OCFO's
Reporting and Business Intelligence Tool, continued to make progress in its data
integration efforts, and has recently developed a report to show the full costs of its outputs.
However, because the Agency did not produce reports that show the full costs of its outputs
during fiscal 2005, the Agency was still not in full compliance with Statement of Federal
Financial Accounting Standards No. 4, Managerial Cost Accounting Concepts and
Standards for the Federal Government, although we do not consider the noncompliance to
be substantial.
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Audit Issue Areas with Corrective Actions in Process
• Further Improvement Needed for State Superfund Contract and Superfund Unbilled
Oversight Accruals:
EPA developed a review and certification process as a result of the fiscal 2005 Reportable
Condition, but oversight of the accruals was still not effective. Please see Attachment 1 for
additional information.
• EPA Did Not Promptly Record Marketable Securities:
The Agency began performing quarterly reconciliations of noncash assets in fiscal 2005 in
response to our finding in fiscal 2004. However, we found an instance where marketable
securities received from one company in settlement of debts for receivables at one region
were not recorded promptly. We made recommendations to the Agency during this year's
audit to improve its reconciliation procedures, but have not included it as a Reportable
Condition in Attachment 1 because we found only one nonmaterial instance of a problem.
• EPA Continues to Experience Difficulties in Reconciling Intragovernmental
Transactions:
EPA improved reconciliations of its intragovernmental transactions during fiscal 2005;
however, the Agency was unable to reconcile a material difference with one Federal
agency. Please see Attachment 2 for additional information.
• Weaknesses in Change Control Procedures for Integrated Financial Management
System:
EPA has a Plan of Action and Milestones to correct these weaknesses. The Agency reports
that a number of actions have been completed, and the remaining actions are targeted for
completion by March 31, 2006.
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Appendix I
EPA's Fiscal 2005 and 2004
Consolidated Financial Statements
Table of Contents
Management's Discussion and Analysis 32
Principal Financial Statements 63
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements 31 Appendix I
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MANAGEMENT'S
DISCUSSION AND
ANALYSIS
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
32
Appendix I
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The U.S. Environmental Protection Agency (EPA) and its state and local partners
are making great progress in improving air quality; ensuring clean, safe water; and
restoring and protecting the land. For example:
• Today, the air is the cleanest it has been in 30 years: total emissions of the six
principal air pollutants—lead, ozone, particulate matter, carbon monoxide, sulfur
dioxide, and nitrogen dioxide—decreased by more than 48 percent.
• More than 90 percent of the nation's population served by community water
systems receives drinking water that meets all health-based standards—up from
79 percent a decade ago.
• Two percent of America's children have blood lead levels above 10 micrograms
per deciliter, compared to 90 percent in the 1970s.
• In the last decade, more than 1,000 contaminated sites began cleanup
operations, and recycling and composting of municipal solid waste has increased
more than ten-fold.
• Industrial releases of 332 chemicals tracked since 1988 are down by nearly 50
percent, a reduction of 1.55 billion pounds.
• Pesticides that pose the greatest risks to human health and the environment
have been regulated to meet tough new health standards.
The nation's environment is steadily
improving; however, there is more to do and much
of it is very complex and costly. This report
reviews progress EPA made toward its goals
during FY 2005. It fulfills the requirements of the
Government Performance and Results Act and
other management legislation1 for reporting on
performance and demonstrating results.
To help measure EPA's annual progress, Agency leaders established 84 annual
performance goals at the beginning of FY 2005. The chapters that follow describe
EPA's progress toward meeting these annual goals. This report also presents a picture
of the Agency's financial activities and achievements during the year, because
managing taxpayer dollars efficiently and effectively is critical to delivering the greatest
results to the American people.
MISSION AND ORGANIZATION
EPA's mission is: "To protect human health and the environment." To achieve its
mission, the Agency assesses environmental conditions and works with its partners and
stakeholders to identify, understand, and solve current and future environmental
problems. EPA develops and enforces regulations that implement environmental laws
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
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
33
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to protect America's air, water, and land. It works with the regulated community to
provide assistance and incentives for complying with environmental laws.
EPA employs approximately 18,000 people across the country, including its
headquarters offices in Washington, DC, 10 regional offices, and more than a dozen
laboratories. The Agency's staff is highly educated and technically trained; more than
half are engineers, scientists, and policy analysts. In addition, EPA employs legal, public
affairs, financial, information management, and computer specialists. EPA
Administrator, Stephen L. Johnson, who was appointed by the President of the United
States, is the first career scientist to lead the Agency.
U.S. Environmental Protection Agency
The mission of the Environmental Protection Agency is to protect human health and the environment.
Assistant Administrator
for Air and Radiation
Assistant Administrator
for Administration and
Resource Management
Chief Financial Officer
Assistant Administrator
for Enforcement and
Compliance Assurance
Region 6
Dallas, TX
Region 4
Atlanta, GA
Region 7
Kansas City, ICS
Region 8
Denver, CO
Region 5
Chicago, IL
Assistant Administrator
for International Affairs
Region 10
Seatde, WA
Region 9
San Francisco, CA
Assistant Administrator
for Water
Region 2
New York, NY
Assistant Administrator
for Research and
Development
Region 3
Philadelphia, PA
Region I
Boston, MA
Assistant Administrator
for Prevention. Pesticides,
and Toxic Substances
Inspector General
Assistant Administrator
for Environmental
Information
Assistant Administrator
for Solid Waste and
Emergency Response
General Counsel
Deputy Administrator
Administrator
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EPA Offices
• Office of the Administrator - provides overall supervision of the Agency and is responsible directly
to the President of the United States.
• Office of Administration and Resources Management - manages EPA's human, financial, and
physical resources.
• Office of Air and Radiation - oversees the air and radiation protection activities, including national
programs, technical policies, and regulations.
• Office of the Chief Financial Officer - manages and coordinates EPA's planning, budgeting, and
accountability processes and provides financial management services.
• Office of Enforcement & Compliance Assurance - delivers compliance with U.S. environmental
laws and promotes pollution prevention.
• Office of Environmental Information - advances the creation, management, and use of
information as a strategic resource at EPA.
• Office of General Counsel - provides legal service to all organizational elements of the Agency.
• Office of Inspector General - conducts audits, evaluations, and investigations of Agency programs
and operations.
• Office of International Affairs - manages Agency involvement in international policies and
programs that cut across Agency offices and regions and acts as the focal point on international
environmental matters.
• Office of Prevention. Pesticides and Toxic Substances - regulates pesticides and chemicals to
protect public health and the environment, and promotes innovative programs to prevent pollution.
• Office of Research and Development - meets programs' research and development needs and
conducts an integrated research and development program for the Agency.
• Office of Solid Waste and Emergency Response - provides policy, guidance, and direction for
safely managing waste; preparing for and preventing chemical and oil spills, accidents, and
emergencies; and cleaning up and reusing contaminated property. Provides technical assistance to
all levels of government to safeguard the air, water, and land from the uncontrolled spread of waste.
• Office of Water - develops national programs, technical policies, and regulations relating to drinking
water, water quality, ground water, pollution source standards, and the protection of wetlands,
marine, and estuarine areas.
• Research Triangle Park (RTP). North Carolina - the Agency's center for research on how humans
and ecosystems are exposed to various pollutants, the extent of that exposure, and the health and
ecological effects which result from such exposure. RTP is also the hub of EPA's air pollution
programs under the Clean Air Act and home of the EPA National Computer Center.
• Regional Offices - EPA has 10 regional offices, each responsible for several states and territories.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
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HIGHLIGHTS OF FY 2005 PERFORMANCE
In FY 2005, with resource obligations of $10.13 billion and 17,486 full-time-
equivalent employees, EPA achieved significant results under each of the five long-term
environmental goals established in its 2003-2008 Strategic Plan. This section highlights
the Agency's accomplishments and continuing challenges under each of its strategic
goals. It also discusses progress under the Agency's homeland security programs and
the President's Management Agenda. Detailed performance information is presented in
Section II of this report.
Significant Environmental Accomplishments and Challenges
Goal 1: Clean Air and Global Climate Change. In FY 2005, EPA issued the
Clean Air Interstate Rule (CAIR), which when fully implemented is expected to
dramatically reduce pollution in the
eastern United States by cutting
power plant emissions of sulfur
dioxide by more than 70 percent and
nitrogen oxides by more than 60
percent. EPA estimates that CAIR
could result in annually preventing
approximately 17,000 premature
deaths, 1.7 million lost workdays,
500,000 lost school days,
22,000 nonfatal heart attacks, and
12,300 hospital admissions at full
implementation in 2015.2
EPA also released a rule
designed to reduce mercury
emissions from power plants. This
rule, known as the Clean Air Mercury
Rule (CAMR), is intended to provide
a flexible multi-pollutant approach to
reducing mercury emissions from
power plants. Like CAIR, the CAMR
limits emissions by using a market-
based, cap and trade program that
will permanently cap utility mercury
emissions in two phases. The first
phase is expected to reduce
emissions from 48 tons to 31 tons by
2010, and the second phase is
expected to achieve a reduction of
EPA Responds to Hurricanes
Katrina and Rita
In August and September of 2005 EPA emergency response personnel partnered
with the Federal Emergency Management Agency and state and local agencies to
assess damages, test health and environmental conditions, and coordinate cleanup
from Hurricanes Katrina and Rita. EPA served as the lead agency for cleaning up
hazardous materials, including oil and gasoline. National and regional Emergency
Operations Centers were activated 24 hours a day. Additional information about
EPA's hurricane response activities can be found at
www epa nov/katrina/index html.
• Environmental Health Needs & Habitability Assessment. EPA and the
Centers for Disease Control and Prevention (CDC) formed a joint task force to
advise local and state officials of the potential health and environmental risks
associated with returning to the city of New Orleans. The initial Environmental
Health Needs & Habitability Assessment was issued September 17, 2005.
• Air Sampling. Soon after Hurricane Katrina, EPA began collecting air quality
data to assess possible health risks to clean-up workers and inhabitants of New
Orleans.
• Water Sampling. EPA and local agencies sampled and performed a variety of
biological and chemical tests on floodwaters. EPA made the results of these
tests available to the public.
• Fuel Waivers. EPA issued emergency waivers of certain fuel standards in
affected areas to address disruptions to the fuel supply due to refinery and
pipeline infrastructure damage in the Gulf Region.
• Superfund Sites. EPA's emergency response team conducted initial
assessments of the status of Superfund sites in areas affected by Hurricane
Katrina. EPA teams are currently conducting more detailed, on-site inspections
at these sites.
• Disposal of Hazardous Waste and Other Debris Along with the U S Army
Corps of Engineers, EPA worked on the disposal of the enormous amounts of
hazardous waste and other debris left behind by Hurricane Katrina, establishing
several sites for debris collection. During September 2005, the EPA team
collected over 50,000 unsecured or abandoned containers of potentially
hazardous wastes.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
36
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70 percent from current levels. As a result of this action, the United States is now the
only country in the world to regulate mercury emissions from coal-burning power
plants.3
EPA launched a "Clean Diesel Campaign" in FY 2005 as well. The Clean Diesel
Campaign consists of both regulatory and voluntary efforts to reduce emissions from
new and existing diesel engines by 2014. Many geographic areas in the country have
not met the national standards for particulate matter and/or ozone. The campaign
contains components to help those areas reduce emissions of these pollutants from
diesel engines used in construction, agriculture and port equipment, waste haulers,
locomotives, fire trucks, and ambulances. EPA's campaign is expected to help reduce
the impacts of pollution on populations that are especially susceptible to the effects of
diesel exhaust, including children, the elderly, and the chronically ill.
EPA's CAIR and CAMR rules are critical components of the Agency's strategy to
achieve the greatest reductions in air toxics emissions. The Agency's Air Toxics
Program is also working to address requirements of the Clean Air Act Amendments
(e.g., issuance of final standards for 70 stationary area source categories of toxic air
pollution). EPA has completed 15 area source standards and is working to develop
standards for an additional 25 area source categories, projected for completion in 2008.
These 40 standards will address more than 90 percent of the 1990 baseline of toxic air
pollutant emissions from area sources. The Agency has been and will continue to
monitor progress in this area through its management integrity process, which tracks
important management challenges.4
In FY 2005, EPA helped owners and managers of office buildings understand
and achieve the benefits of good indoor air quality, thereby improving the health and
productivity of office workers. The national cost of poor indoor air quality, including lost
worker productivity, direct medical costs for those whose health is adversely affected,
and damage to equipment and materials, runs to tens of billions of dollars per year.5
EPA estimates that approximately 150,000 office workers experienced improved air
quality in their workplaces, meeting the Agency's FY 2005 annual performance goal.
Goal 2: Clean and Safe Water. The importance of safe drinking water supplies
for protecting public health has never been more evident than in the aftermath of
Hurricane Katrina, which occurred late in FY 2005. In early September, EPA, state and
local officials, systems operators, and volunteers worked around the clock to assist
more than 895 drinking water systems in repairing their infrastructure and restore
sources of safe drinking water for all people in the affected region. In FY 2006, EPA will
assess the impact of Hurricane Katrina on the Agency's progress towards achieving its
2008 drinking water protection goal.
EPA and its state partners attained water quality standards in eight percent of
waters previously identified by the states as impaired, exceeding the Agency's FY 2005
annual performance goal of two percent. Also in 2005, permits implementing effluent
guidelines under EPA's National Pollution Discharge Elimination System prevented the
discharge of 26 billion pounds of pollutants, nearly double the amount removed in 2002
before new storm water and Concentrated Animal Feeding Operations regulations as
well as new effluent guidelines took effect.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
37
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EPA issued the National Coastal Condition Report II (NCCR II) in January 2005.6
The second in a series of environmental assessments of U.S. coastal waters and the
Great Lakes, the report assesses 100 percent of the nation's estuaries in the contiguous
48 states and Puerto Rico. The NCCR II is based on data gathered by a variety of
federal, state, and local sources, including more than 50,000 samples taken between
1997 and 2000 in all continental seacoasts and Puerto Rico. The NCCR ll's data for
FY 2005 indicate that the overall ecological health of coastal waters improved, meeting
the Agency's FY 2005 annual performance goal.
Finally, in addition to improving the quality of drinking and surface water data and
information (see Section III of this report for more information on these data
improvements), EPA completed data collection for the first wadeable streams
assessment. This is the first time a national assessment of ecological conditions in
small streams has been conducted using a random sampling, statistically valid
approach. States worked with EPA to conduct monitoring using the same methods at
each sampling site so that the results can be compared across the country. A report on
small stream conditions, scheduled to be released in March 2006, will establish baseline
conditions for tracking ecological trends over time in small streams nationwide. EPA
intends to follow this report with nationwide assessments of lakes, large rivers,
wetlands, and other water types.
Goal 3: Land Preservation and Restoration. In FY 2005, EPA completed the
cleanup ("construction completes") of 40 sites on the Superfund National Priorities List
(NPL), for a cumulative total of 966 sites—more than 64 percent of the sites on the NPL.
At sites with groundwater contamination, migration of contamination was brought under
control at an additional 23 sites in FY 2005, for a cumulative total of 898, or 70 percent,
of such sites on the NPL.7 Among the challenges facing the Agency in FY 2006 is the
need to balance limited resources between beginning construction at an increasing
number of Superfund projects, and continuing long-term remedial actions at several
ongoing, large and complex sites.
Under the Resource Conservation and Recovery Act (RCRA) Program, the
Agency met its FY 2005 goal for increasing the number of RCRA hazardous waste
management facilities with permits or other approved controls in place, and EPA
expects to bring 95 percent of facilities under approved controls by FY 2008. Under the
RCRA corrective action program, more than 96 percent of high-priority RCRA
hazardous waste facilities have met Agency goals for having controls in place to prevent
any human exposures from occurring under current land and groundwater use, and
more than 78 percent have met goals for having controls in place to prevent
groundwater migration. Under the Agency's Leaking Underground Storage Tank
Program, 6,181 cleanups were completed by the end of March 2005.8 Data for the end
of the year, which were undergoing a quality assurance/quality control check at the time
this report was published, indicate that the Agency's state partners completed 14,583
underground storage tank cleanups, meeting the Agency's FY 2005 goal of 14,500.9
While recycling has increased in this country in general, recycling of specific
materials has grown even more: 42 percent of all paper, 40 percent of all plastic soft
drink bottles, 55 percent of all aluminum beer and soft drink cans, 57 percent of all steel
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
38
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packaging, and 52 percent of all major appliances are now recycled.10 To achieve
national recycling goals, the Agency continued to develop alliances with manufacturers,
communities, and governments to: (1) foster a new recycling infrastructure, which will
reclaim valuable materials, and (2) address the increasing variety and volume of
obsolete electronic products entering the waste stream. Although recycling rates were
lower than expected in FY 2003 (the last year for which the Agency has data), EPA
expects that these collaborative efforts will encourage higher recycling rates in future
years. In FY 2006, EPA will be initiating a challenge to major industries to encourage
the "early retirement" of devices containing mercury.
Goal 4: Healthy Communities and Ecosystems. To protect human health and the
environment from pesticide use, EPA reassessed risks posed by older chemicals and
established new risk mitigation measures where needed. By the end of FY 2005, the
Agency had reassessed 80 percent of the 9,721 pesticide tolerance levels requiring
reassessment under the Food Quality and Protection Act.11 In addition, EPA registered
14 new reduced risk pesticides, increasing the number of safer alternatives to older,
more dangerous pesticides to 143.12
EPA identifies and addresses risks posed by chemicals already in commerce
through its High Production Volume (HPV) Challenge Program. Under this program, the
Agency will complete work by the end of calendar year 2005 to provide the public with
critical health and environmental effects data on more than 2,200 chemicals
encountered in communities every day. In FY 2005, more than 360 chemical
companies and 100 industry consortia volunteered to provide data for 1,397 HPV
chemicals directly to EPA, and to provide data for 854 chemicals to the European
component of the program - the International Council of Chemical Associations HPV
Initiative13. Data for 300 of those chemicals will be publicly available by the end of
2005. EPA continues to encourage companies to sponsor additional HPV chemicals,
and is obtaining data on un-sponsored "orphan" chemicals by issuing Test Rules under
the Toxic Substances Control Act.
In FY 2005, EPA led a collaborative effort to develop guidelines on the potential
health effects from various levels of exposure to hazardous chemicals during an
accidental spill or a terrorist incident. The Agency partnered with nine federal agencies,
numerous state agencies, private industry, academia, emergency medical associations,
unions, and other organizations in the private sector as well as international participants
on this project. In FY 2005, Acute Exposure Guideline Levels (AEGLs) were proposed
for 32 highly hazardous chemicals, bringing the cumulative total to 165 chemicals.
These guideline levels are meant to address the millions of pounds of highly toxic
chemicals used in industry and routinely stored at fixed sites or shipped over road or rail
in single containers of 50,000 to 300,000 pounds or more. AEGL values, including
those proposed in 2005, were used in responding to the environmental devastation
caused by Hurricane Katrina.
In 2005, the Centers for Disease Control released data demonstrating major
reductions in the incidence of childhood lead poisoning—from approximately 900,000
children with elevated blood lead levels in the early 1990s to 310,000 children from
1999 to 2002.14 To virtually eliminate childhood lead poisoning by 2010, EPA focused
its FY 2005 outreach and education efforts on remaining "hot spots," often
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
39
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disadvantaged urban areas where the incidence of childhood lead poisoning remains
high. In FY 2006, the Agency will be revamping its strategies and expanding its
regulatory and voluntary tools to address the remaining population of children at risk for
lead poisoning.
EPA continues to make progress on improving and protecting the health of
ecosystems in the Great Lakes. The Great Lakes Index, indicating overall ecosystem
condition in the Great Lakes, improved in FY 2005. Long-term concentrations of PCBs
in predator fish and trends of toxic chemicals in the air are declining faster than
targeted. Cumulatively, 3.7 million cubic yards of contaminated sediments have been
remediated, including 345,000 cubic yards in 2004. However, phosphorus
concentrations in the Lake Erie Basin increased slightly. Although EPA has not met the
target of delisting three Areas of Concerns (AOC), significant progress has been made
towards delisting of two AOCs for FY 2006.
EPA and its partners also protected and restored 103,959 acres of estuarine
habitat within the 28 estuaries of the National Estuary Program in FY 2005. This
acreage includes critical estuarine, riparian, and coastal wetlands, which help support
many commercially valuable fisheries and the economic, environmental, and aesthetic
functions on which coastal populations depend for their livelihood. EPA faces
significant challenges in continuing to restore and protect estuaries as more difficult
projects remain.
Goal 5: Compliance and Environmental Stewardship. In FY 2005, more than
1.1 billion pounds of pollutants were reduced, treated, or eliminated as a result of
Agency enforcement actions. For example, EPA settled a Clean Air Act enforcement
case against the Ohio Edison Company that will reduce more than 212,000 tons per
year of emissions of harmful sulfur dioxide and nitrogen oxides from several of its
plants. The company is required to install pollution controls and carry out other
measures expected to cost approximately $1.1 billion. In addition, three enforcement
actions taken in FY 2005 under the Clean Water Act will significantly reduce pollutants
entering the Chesapeake Bay. One of the actions was taken with the District of
Columbia Water and Sewer Authority and will lead to the elimination of 3.2 billion
gallons a year of untreated sewage to the Anacostia and Potomac Rivers and cost the
company an estimated $1.5 billion15.
In an example of one of the Agency's criminal enforcement actions, criminal
prosecution was taken against the owners of AAR Contractors, Inc. for conducting
illegal asbestos operations at more than 1,500 sites, including schools, hospitals, and
churches, in upstate New York. More than 500 workers were exposed to potentially
deadly asbestos-related diseases. The company owners received the two longest jail
sentences in environmental crimes history, 25 and 19% years, along with almost $23
million in restitution16.
Finally, EPA has been working to replace the Agency's Permit Compliance
System (PCS), which tracks Clean Water Act results for use in permitting, compliance
and enforcement programs17. This project has been a top management challenge for a
number of years and the Agency is now close to resolving it. Actions taken include
working with states on interim solutions during development of the new system and
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
40
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adding capabilities to better track pollutant loadings, capture information on storm water
sources of pollution, and assess the health of individual watersheds. In September
2005, EPA completed development of the replacement system (ICIS-NPDES) and
officially moved into the testing phase. The first states are scheduled to begin
accessing the system by March 2006.
Homeland Security
Three years ago EPA assumed
significant new responsibilities in homeland
security work needed to protect human health
and the environment from intentional harm.
EPA now plays a lead role in supporting the
protection of critical water infrastructure and
coordinating development of national
capabilities and strategies to address chemical,
biological and radiological contamination from
a terrorist event. In FY 2005, the Agency
conducted the following key work to
understand and communicate the potential
health effects of exposure to hazardous
chemicals during an accidental spill or terrorist
incident; to help water systems understand and
address their vulnerability to intentional
attacks; and, to enhance the nation's
decontamination and emergency response
capabilities:
• Developing a Web-Based System to Identify Hazards and Characterize Risks in
Emergencies: In 2005, EPA began developing a Web-based system to quickly
identify hazards, assess exposure to humans, and characterize risks during an
emergency response. This Emergency Consequence Assessment Tool (ECAT)
will help in preparing for and rapidly responding to terrorist incidents by
integrating a variety of relevant information on the hazards and exposures for a
specific situation. ECAT will be expanded to include a variety of scenarios and
contaminants and will eventually be used to inform the general public and
scientific community.
• Protecting Critical Water Infrastructure from Terrorist Acts: EPA continued to
assist the nation's drinking water systems in protecting their infrastructure from
terrorist and other intentional attacks. By the end of FY 2005, all of the 467
publicly and privately owned drinking water systems serving at least 100,000
people, and 100 percent of the nation's 444 medium-sized drinking water
systems (those that serve 50,000 to 99,999 people) had completed vulnerability
assessments. Furthermore, approximately 95 percent of the nation's small-sized
community drinking water systems that serve populations of 3,301 to 49,999
people had completed vulnerability assessments. The Agency will continue to
EPA's FY 2005 Progress
in Homeland Security
• Developed a Web-based system to
quickly identify hazards and
characterize risks in emergencies.
• Completed vulnerability assessments
for nearly all of nation's drinking water
systems.
• Worked with other federal agencies to
establish a National Decontamination
Team and Strategy.
• Trained EPA field responders in
detecting, analyzing, and responding to
chemical, biological, and radiological
agents.
• Established health effects guidelines for
32 highly hazardous chemicals.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
41
Appendix I
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work with the small drinking water systems and its partners to ensure 100
percent of these systems have completed vulnerability assessments.
• Enhancing the Nation's Decontamination Capabilities: During FY 2005, EPA
worked with other federal agencies, including the Department of Homeland
Security, to enhance the nation's decontamination capabilities by establishing a
National Decontamination Team and by developing and implementing a National
Decontamination Strategy. Additionally, EPA improved capabilities for
characterizing chemical components that might be intentionally released during
incidents of national significance by standardizing analytical method validation
and determining laboratory training requirements.
• Training EPA Field Responders: In 2005, EPA improved the Agency's capability
to respond to multiple chemical, biological, and radiological incidents. EPA field
responders and National Response System personnel received extensive
response-related training: scientific and technical training for detecting, analyzing
and responding to chemical, biological, and radiological agents and training in
managing incident command system responses.
• Establishing Health Effects Guidelines for Exposure to Hazardous Chemicals: In
FY 2005, Acute Exposure Guideline Levels (AEGLs) were proposed for 32 highly
hazardous chemicals. Some of these guideline levels are critical for responding
to terrorist incidents when making decisions on evacuation, shelter-in-place,
worker entry, decontamination, protective equipment, and monitoring and
detection efforts.
The President's Management Agenda
Since 2001, the President's Management Agenda (PMA) has challenged federal
agencies to improve performance, manage for results, and better serve the American
people (see www.whitehouse.gov/results). During FY 2005, EPA made progress under
each of the seven PMA initiatives: Human Capital, Competitive Sourcing, Expanded
E-Government, Improved Financial Performance, Budget and Performance Integration,
Eliminating Improper Payments, and Research and Development.
Each quarter, the Office of Management and Budget (OMB) releases an
executive scorecard that rates progress and overall status under each of the PMA
initiatives using a color-coded "stop-light" system. As of September 2005, the EPA
achieved three green scores for progress on implementation and one green score on
the status of Improved Financial Performance initiatives. In addition to tracking PMA
progress on a quarterly basis, each federal agency establishes yearly goals for where
they would be "Proud to Be" on the status of PMA initiative implementation. The Proud
to Be milestones and goals are set every July and assessed during the third quarter
PMA Scorecard process. More information about the Agency's work under the PMA is
available at www.epa.gov/pmaresults.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
42
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EPA's FY 2005 Progress Under
The President's Management Agenda
(Scorecard ratings current as of the 4th Quarter of FY 2005)
INITIATIVE
Human Capital
STATUS18
Yellow
PROGRESS
Yellow
PROUD TO
BE II (07/05)
RESULTS
"Yellow" EPA
did not meet its
goal of "Green"
for P2B2
EPA has set a
goal of "Green"
for P2B3
HIGHLIGHTS
• In FY 2005, EPA transitioned its employees to a new five-level
Performance Appraisal and Recognition System (PARS). During
Q4, EPA trained all Agency leaders on the new system, and
assessed the system against OPM required elements to identify
areas in need of improvement.
• EPA revised and updated the HC Accountability plan to integrate
assessments of office level HC activities and compliance with the
Merit System Principles.
• EPA analyzed the results of the FY 2004 Federal Human Capital
Survey and developed and began implementing a plan of action for
disseminating results and targeting areas for improvement to
leadership Agency-wide.
• As of the end of the Q4 FY 2005, EPA demonstrated that 100
percent of Agency employees are covered by the PARS.
EPA's Challe
understanding
environmenta
employees ap
nges in Hun
of the connf
goals. Addit
propriately,
ian Capital - /
sction between
ionally, the Age
>ased on the re
cultural change
personal "on the j
ncy must clearly c
suits they deliver £
s needed to strengthen EPA executives', managers', and employees'
ob" performance and the Agency's ability to meet its strategic
ifferentiate levels of performance among employees and reward
ind the way those results contribute the Agency's overall mission.
Competitive
Sourcing
Yellow
Yellow
"Yellow" EPA
met its goal for
P2B2
EPA has set a
goal of "Green"
for P2B3
• The Agency completed six "streamlined" competitions for small
activities that covered about 26 Full Time Equivalent (FTE)
positions in the areas of information technology and clerical
services. The Agency retained the work in all six competitions.
• EPA also announced an additional seven "streamlined"
competitions encompassing the work of about 39 FTE performing
information technology services.
• The Agency completed a standard competition for vendor
payments, which involved 26 FTE. As a result, the work will
continue to be performed by EPA employees at the Finance Center
in NC and achieve about $3.5 million in savings over the next five
years.
• EPA completed creation of a Competitive Sourcing Plan identifying
and scheduling approximately 800 FTE for competition between
2005 and 2008.
EPA's Challe
means of mor
organizationa
commitments
nges in Con
e efficiently a
function, ma
ipetitive Sourc
nd effectively d
nagers involve
:ing - EPA must
elivering governm
d in the competitio
Dvercome cultural reluctance to consider competitive sourcing as a
ent services. Once decisions are made to compete a particular
ns must be held accountable for timely follow-through on their
Expanded E-
Government
Yellow
Yellow
"Green" EPA
met its goal of
"Green" for
P2B2"
EPA has set a
goal of "Green"
for P2B3
• Cost, schedule and performance for adherence with earned value
management for major IT investments are less than 10%.
• EPA's E-Gov Implementation Plan is approved and accepted.
• 100% of EPA's IT systems are secure.
• EPA's IT systems are installed in accordance with security
configurations.
• E-Rulemaking deployed four agencies in the Federal Docket
Management System. Late deployment of the fifth agency is the
sole reason for the yellow score in progress and status.
• To date E-Payroll completed scheduled modifications and testing
of all necessary interfaces to ensure a migration to the Defense
Finance and Accounting Service by March 2006.
EPA's Challenges in E-Gov - Successful performance in Human Capital, Competitive Sourcing, Budget and Performance
Integration, Financial Performance, and Research and Development Investment will require development and integration of
government-wide solutions embedded in numerous E-Gov projects. These interdependencies create special challenges for
ensuring that EPA adopts E-Gov solutions as part of its strategic plan for success in each PMA area.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
43
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INITIATIVE
STATUS18
PROGRESS
PROUD TO
BE II (07/05)
RESULTS
HIGHLIGHTS
Improved
Financial
Performance
•
Green
•
Green
"Green" EPA
met its goal of
"Green" for
P2B2"
EPA has set a
goal of "Green"
for P2B3
• EPA maintained a green rating for both progress and status for all
four quarters of FY 2005. EPA is one of only three federal
agencies to maintain a green rating for 10 or more successive
quarters (since FY 2003).
• The Agency delivered its FY 2005 Performance and Accountability
Report with audited financial statements by the required November
15, 2005, deadline and met all required deadlines for the its
quarterly financial statements.
• EPA is expanding the use of financial information by integrating
additional financial information into EPA's decisionmaking
processes, with an initial focus on grants.
EPA's Challe
nges in Imp
roved Financic
il Performance -
No challenges at this time.
Budget and
Performance
Integration
Yellow
•
Green
"Yellow" EPA
did not meet its
goal of "Green"
for P2B2.
EPA has set a
goal of "Green"
for P2B3.
• The Agency received green progress scores for all four quarters in
FY 2004.
• EPA worked cooperatively with OMB on the FY 2005 Program
Assessment Rating Tool (PART) process, completing 43 PART
assessments to date.
• At the conclusion of the FY2005 PART Appeals process, EPA has
developed efficiency measures for 35 of 43 completed PART
programs.
• Held meetings with EPA's senior leadership throughout the year to
discuss the integration of budget, performance, and in particular
the PART as a means to better manage the Agency's resources
and deliver environmental results.
• EPA has developed a process in alignment with the Enacted
Budget identifying impacts of Congressional action on planned
performance; specifically related to the targets associated with
EPA's GPRA/PART annual and long-term performance measures.
EPA senior leaders assess these impacts as part of their
decisionmaking.
EPA's Challe
measures tha
to have at lea
measures.
nges in Bud
gauge the e
st one OMB-
get and Perfoi
fficiency of an
approved efficie
mance Integratic
environmental pro
ncy measure. Cu
>n (BPI) - EPA must continue to develop appropriate OMB-approved
gram's administration. Each program evaluated by the PART is required
rrently 35 of 43 PARTed programs have OMB-approved efficiency
Eliminating
Improper
Payments
Yellow
•
Green
EPA did not
have a goal for
P2B2.
EPA has set a
goal of "Green"
for P2B3.
• EPA successfully demonstrated that it has a low incidence of
erroneous payments and was upgraded to a "yellow" status and
"green" progress score during FY 2005.
• EPA's FY 2005 error rate for its two State Revolving Funds was
0.16 percent, which surpassed the target error rate of 0.45 percent.
• EPA documented its approach for conducting a statistical sample
of sub-recipient payments in two states in FY 2006.
EPA's Challenges in Eliminating Impro
per Payments: No challenges at this time.
Research and
Development
Investment
Criteria
•
Red
Yellow
"Red" EPA did
not meet its
goal of "Yellow"
for P2B2
EPA has set a
goal of "Yellow"
for P2B3
• EPA held four independent, external reviews of the following
research programs: Drinking Water, Human Health, Ecological and
Particulate Matter.
• The Agency participated in the FY 2005 (formerly known as the
FY 2007) PART process with two new PART assessments for
Human Health Research and Drinking Water Research, and two
PART reassessments for PM Research and Ecological Research.
• EPA's FY 2007 Annual Research Planning process expanded to
include regular discussions about resources and performance in
the context of the R&D Investment Criteria.
EPA's Challenges in Research and Development — EPA's research and development programs do not yet have acceptable
performance and efficiency measures for research programs. This has resulted in less than successful performance on the PMA
Scorecard for the Research and Development Investment Criteria Initiative and a negative impact on EPA's performance on the
Budget and Performance Integration Initiative. EPA continues to work with its research community and OMB to develop measures
that are meaningful to environmental program managers and clearly illustrate performance overtime.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
44
Appendix I
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Summary of Performance Data
EPA's FY 2005 Performance Results
Data Available After
November 15,2005
33 APGs
17 APGs
Goals Met. In its FY 2005 Annual Plan, EPA committed to 84 annual
performance goals (APGs). In FY 2005, the Agency met 34 of these APGs, 67 percent
of the APGs for which data were available at the time this report was published.
FY 2005 results to date reflect a decrease in the number of APGs met from FY 2004
results; last year, EPA met 76 percent of its APGs for which data were available. EPA
has significantly exceeded its targets for a number of its FY 2005 APGs. For example,
the Agency restored eight percent of the nation's impaired waterbodies in accordance
with Water Quality Standards, significantly exceeding its FY 2005 goal of two percent
(APG 2.13). This achievement is partly due to the work EPA and states have done to
refine water quality assessments, which now more accurately reflect improvements in
impaired waterbodies. In another case, EPA greatly exceeded its cumulative goal of
reducing by 11 percent the households on tribal lands lacking access to basic
sanitation. By increasing coordination with other federal agencies to more effectively
fund and implement infrastructure programs, the Agency and its partners have achieved
a cumulative 34 percent reduction in the number of households lacking access to
wastewater sanitation (APG 2.15).
Goals Not Met. Despite their best efforts, however, EPA and its partners were not
able to meet all planned targets for FY 2005. EPA did not meet 17 of the 51 FY 2005
APGs for which performance data were available. The Agency is considering the
various causes of these shortfalls as it adjusts its annual goals and program strategies
for FY 2006 and beyond.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
45
Appendix I
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There are a number of reasons for these missed goals. In some cases the APGs
were new in FY 2005—a part of EPA's effort to develop more meaningful goals and
measures—and the Agency overestimated its ability to achieve annual results. For
example, EPA anticipated improvements in water quality to reduce the levels of
contaminants in fish, leading to a one percent decrease in waterbodies with fish
consumption advisories (APG 2.8). EPA fell short of achieving this APG, and the
Agency is assessing the information it has received to determine a more realistic future
target.
External factors also contributed to missing APGs. For example, the Agency had
anticipated reducing nitrogen, phosphorus, and sediment loadings from entering the
Chesapeake Bay (APG 4.18). However, such external factors as continued growth in
human and farm animal populations in the region and rainfall levels affect the Agency's
success in reducing existing nutrient loading levels. In other cases, EPA relies on the
efforts of its federal, state and local partners to help achieve annual goals, and the
actions of the Agency's partners are a significant factor in performance results. For
example, the Agency and its partners did not meet the goal for improving water and
sanitation systems in the US-Mexico border region; funding for this effort was delayed
pending development of a new system for setting project priorities in the region (APG
4.12). EPA recognizes that, as a result of missing several such APGs, the Agency may
not be on track for reaching its longer term objective for protecting ecosystems. Despite
these difficulties, EPA and its partners continue to work together to ensure progress in
meeting these goals and achieving the objective.
Improved data can also contribute to missed goals. For example, EPA set a
cumulative goal that by FY 2005 water quality assessed in 80 percent of the water
segments in each of 462 watersheds across the nation would meet water quality
standards (APG 2.12). In fact, however, the number of watersheds meeting these
standards has decreased slightly since FY 2002. EPA attributes this regression to new
data that more accurately reflect watershed condition, including adjustments for fish
consumption advisories and increased environmental stresses on watersheds that not
only impair waters that were once clean, but also further degrade waters already
impaired. As its data improve, EPA is gaining a more accurate picture of environmental
baseline conditions and progress achieved. Based on this information, the Agency
expects to continue adjusting its performance goals and targets to achieve results.
Summary of FY 2005 Fterformance Results by Goal
Result Goal 1 Goal 2 Goal 3 Goal 4 Goal 5 ESP Total
I
Met 5 6 2 13 2 6 | 34
I
Not Met 0 2 3 7 4 1 j 17
I
|
DataAvsiaDie 1
i
After November
15.2005 14 10 2 6 1 0 | 33
|
Total 19 18 7 26 7 7 J 84
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
46
Appendix I
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Data Unavailable. Because final end-of-year data were not available when this
report went to press, EPA is not yet able to report on 33 of its 84 APGs, an increase
over the 25 APGs for which data were not available in EPA's FY 2004 report. This
difference is largely due to the Agency's increased focus on achieving longer-term
environmental and human health outcomes, rather than activity-based outputs.
Environmental outcome results may not become apparent within a federal fiscal year,
and assessing environmental improvement often requires multiyear information. As a
result, EPA may not yet have the data required to determine whether an FY 2005 APG
such as improving water quality to reduce contaminates in fish, leading to higher
consumption of safe fish (APG 2.8), has been met. Many variables are involved in
evaluating progress toward this goal, including the bioaccumulative nature of mercury,
which affects the time it takes fish to rid their bodies of this contaminant.
In many cases, reporting cycles—including some which are legislatively
mandated—do not correspond with the federal fiscal year on which this report is based.
Data reported biennially or on a calendar year basis, for example, are not yet available
for this report. In some cases, such as for certain compliance and enforcement
information, the Agency has adjusted data collection and QA/QC processes to meet the
November 15 date for submitting this report. To provide as much information as
possible on its progress toward achieving its goals, however, EPA continues to present
the most current data available.
Furthermore, EPA obtains performance data from local, state, and tribal
agencies, all of which require time to collect the information and review it for quality.
Often, EPA is unable to obtain complete end-of-year information from all sources in time
to meet the deadline for this report. The Agency is working to reduce such delays in
reporting, however, by capitalizing on new information technologies to exchange and
integrate electronic data and information, improve data quality and reliability, and
reduce the burden on its partners.
Data Now Available. The Agency is now able, however, to report data from
previous years that became available in FY 2005. Final performance results data
became available for 20 of the 25 FY 2004 APGs on which the Agency did not report in
its FY 2004 Annual Report. Of these 20 FY 2004 APGs, EPA met 14. For example, the
Agency met its FY 2004 goals for reducing greenhouse gas emissions and SO2
emissions, as well as sulfur and nitrogen deposition and ambient concentrations. EPA
can now report achieving 56 (76 percent) of the 79 FY 2004 APGs for which it has data.
For FY 2003, EPA can now report achieving 45 (79 percent) of the 64 APGs for which it
has performance data. Delays in reporting cycles and targets set beyond the fiscal year
continue to affect one APG in FY 2003, FY 2002, and FY 1999.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
47
Appendix I
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ERVs Updated Fterformance Ftesults
(Annual Fferformance Goals for Which Rnal Data A re Available)
100
80
w
I60
o
-E
840
4
20
Note: During FY 2005, final performance results data became available for a
number of AFGsfrom prior years 20 for FY 2004, three for FY 2003,
one for FY 2002, one for FY 2001, two for FY 2000, and one for FY 1999.
Improving Measures and Adjusting Targets. EPA is continuing to develop better
and more meaningful measures of its performance. In FY 2005, for example, the
Agency introduced more than 30 new or improved performance measures. Equipped
with better data, EPA is also adjusting performance targets to reflect an improved
understanding of current conditions and the outcomes to be achieved. For example, the
Agency is adjusting its target for the improvement in air quality over time for the fine
particle (PM2.5) standard (APG 1.3). This goal was established in FY 2004 using initial
targets while the Agency collected baseline data. Based on the FY 2004 results which
significantly exceed the target, however, the Agency will adjust its target for FY 2006.
Similarly, in FY 2006 EPA will be adjusting targets for reducing exposure to unhealthy
levels of ozone (APG 1.6). EPA will continue to benefit from improved data, revising
annual performance measures and adjusting targets to provide a more useful
assessment of its progress.
IMPROVING RESULTS
EPA is continuing its efforts to focus more clearly on the results it wants to
achieve, orient its programs around environmental outcomes, and develop better
measures for assessing performance. Building on previous years' work, the Agency
strengthened its collaboration with states and tribes to improve joint planning and
priority-setting; develop innovative, effective approaches to environmental problems;
and track and assess progress. In addition, EPA is working to expand its use of
program evaluation; address data gaps and other information issues; strengthen its
strategic planning; and resolve its management challenges reported by the Office of
Inspector General (OIG) and Government Accountability Office.
Strengthening Collaboration with Partners
Protecting human health and the environment is a shared responsibility. In
FY 2005, EPA continued important work with its partners in environmental protection -
states, tribes, and other federal agencies - to ensure a national focus on the most
important problems and the most efficient and effective use of scarce resources.
w
Not Met
Met
1999 2000 2001 2002 2003 2004
R93al Year
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
48
Appendix I
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• In FY 2005, EPA and the Environmental Council of the States (ECOS)
established a "Partnership and Performance Workgroup" to continue the
Agency's work to improve joint state-EPA planning and priority-setting. The
workgroup explored ways to support state strategic planning, expand the use of
Performance Partnership Grants as a planning and management tool, and
improve states' and EPA regional offices' dialogue on regional planning and
priority-setting.
• EPA also funded a second Cooperative
Agreement with ECOS for conducting pilot
projects in 15 states to strengthen states'
capabilities to manage for results and
improve joint regional-state planning. For
example, an Illinois pilot project is
developing a stakeholder consultation
process for considering innovative
environmental programs.
• The Agency enhanced its Annual
Commitment System (ACS), launched in
FY 2004 to assist EPA managers in
engaging states and tribes in setting annual
regional performance goals. In FY 2005, the Agency improved the system to
track actual regional performance against agreed-upon program measures and
commitments. EPA's regional offices are also able to use the ACS to track state
and tribal contributions to regional performance.
• On September 26, 2005, EPA Administrator Steven Johnson reaffirmed the
Agency's formal Indian Policy, established in 1984. By this action, EPA
recognized that the United States has a unique legal relationship with tribal
governments based on the Constitution, treaties, statues, Executive Orders, and
court decisions. This relationship includes recognition of the right of tribes as
sovereign governments to self-determination, and an acknowledgment of the
federal government's trust responsibility to tribes.
• In FY 2005 EPA continued to work with tribes on a government-to-government
basis to protect the land, air, and water in Indian country. In June, the Grand
Traverse Band of Chippewa Indians hosted the seventh National Tribal
Environmental Conference for Environmental Management, attended by more
than 750 tribal, federal, and state officials to share solutions on ongoing
environmental and public health problems in Indian country.
Enhancing Tribal Environmental Management
• EPA is providing funding to enhance tribal
capacity for environmental management.
Strengthening tribal programs improves the
Agency's program implementation and
enables tribes to develop holistic multimedia
programs that reflect their traditional use of
natural resources.
• As of FY 2005, 96 percent of tribes (549
tribes) have access to EPA funds for hiring
environmental program staff, managing
environmental activities, and implementing
multimedia environmental programs in Indian
country.19 This represents an increase of
approximately 7 percent a year since 1996,
when 36 percent of tribes had access.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
49
Appendix I
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Achieving Results Through Grant Programs
Grants are a key tool for achieving EPA's mission. Each year EPA awards approximately one-half of its budget in
grants to state, tribal, and local governments; educational institutions; and nonprofit organizations. The Agency has
been working to ensure the grants EPA awards support its strategic goals, and that results achieved through grants are
closely tracked and monitored.
In FY 2005, EPA issued a policy for awarding grants (EPA Order No.: 5700.7) that requires EPA offices to:
• Link results to EPA's Strategic Plan.
• Describe expected outputs and outcomes in grant announcements, work plans, and performance reports.
• Consider how the results from completed grant projects contribute to the Agency's programmatic goals and
objectives.
In addition, for the first time, this report lists specific grants that contributed to the achievement of EPA's FY 2005 annual
performance goals (see Section II).
Using Program Evaluation and the PART
EPA uses the results of program assessments, audits, and evaluations to adjust
approaches, improve results, allocate resources, and ensure the most effective and
efficient use of taxpayer dollars. In recent budget processes, for example, EPA senior
managers used the results of Program Assessment Rating Tool (PART) assessments to
identify opportunities for program improvement, justify resource requests, and guide
decisionmaking.
The PART is a series of diagnostic questions used to assess and evaluate
programs across a set of performance-related criteria, including program design and
purpose, strategic planning, program management and results. To date, EPA and OMB
have conducted PART reviews for 43 of the Agency's programs. PART reviews in 2005
included both new assessments of the indoor air, lead, oceans, surface water
protection, oil spill and other programs, and reassessments from previous years.
The PART assessment was first used in 2002 in developing EPA's FY 2004
budget. During that year, only 1 of EPA's 11 assessed programs was rated able to
demonstrate results. In EPA's third year of PART assessments (2004 for the FY 2006
budget) 24 of 32 programs were rated "adequate or "moderately effective." This
improvement in PART ratings shows EPA's commitment to designing and implementing
programs that maximize resource efficiency and deliver environmental results. Section
II of this report lists PART assessments conducted under each of the Agency's five
strategic goals, identifies performance measures associated with the PART, and reports
FY 2005 results for the measures where data are currently available. Future PART
measures are listed in a separate table in Section II, along with the year EPA expects to
begin reporting data against them. Ratings for programs assessed during 2005 for the
FY 2007 budget will be available in February 2006. Additional information on PART
assessments and EPA's progress in making program improvements will be available in
February 2006 at www.whitehouse.gov/omb/part.
EPA and its OIG also conducted other types of program evaluations and audits
(Appendix B contains a list by strategic goal of program evaluations and audits
completed in FY 2005). For example, working with the Compliance Committee of
ECOS and representatives from state agencies, EPA completed an evaluation of an
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
50
Appendix I
-------
enforcement tool—the State Review Framework—which the Agency developed to
assess state enforcement performance. The evaluation found that, overall, the
framework is effective as a tool for evaluating state enforcement and compliance
assurance programs on a nationwide basis. The evaluation also recommended ways to
improve data collection and state performance interpretation under the framework. EPA
intends to make the recommended improvements and apply the framework across all
50 states to: (1) evaluate whether state enforcement and compliance assurance
programs are providing a consistent level of environmental and public health protection
across states; and, (2) work collaboratively with states to ensure that authorized state
agencies meet agreed-upon enforcement performance goals.
The Agency's OIG contributes to EPA's mission to improve human health and
environmental protection by assessing the effectiveness of EPA's program
management and results, developing recommendations for improvement, and ensuring
that Agency resources are used as intended. In FY 2005, an OIG report found that air
toxic monitoring was conducted in only ten percent of areas with the estimated highest
health risks from exposure to toxic air pollutants. EPA has since begun using the
National Air Toxics Assessment to identify and prioritize high-risk areas to be monitored.
The Agency also modified its air toxics grant criteria to better address high-risk areas
and emphasize methods for analyzing ambient air toxics conditions.
Improving Environmental Indicators. Performance Measurement, and Data Quality
In June 2003, EPA's Draft Report on
the Environment established baseline
information on environmental conditions in the
United States and their potential effects on
human health. Since then, the Agency has
been working to improve the indicator
information, fill key gaps in environmental
data, and make the information more
accessible to the public.
In FY 2005, EPA issued for public comment a set of indicators for the Agency's
next Report on the Environment, to be released in 2006. A scientific peer-review
conducted in July elicited expert opinion on whether the indicators are supported by
data that are technically sound, meet the established indicator definition and criteria,
and help answer key questions on the current state of the environment. Over the next
year, EPA plans to use these indicators in developing the Agency's long-term measures
of success for its 2006-2011 Strategic Plan. More information on the Agency's
"Indicators Initiative" is available at www.epa.gov/indicators.
Data in
FY 2005 Performance and Accountability Report
Are Complete and Reliable
EPA determined that the performance
information in this report is complete and reliable
and no material inadequacies are present, as
defined by OMB Circular A-11 20 For more
information on the data sources used in FY 2005
performance measures, see Section II of this
report. Appendix C contains additional
information on the quality of the data in this
report.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
51
Appendix I
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EPA also continued to focus annual performance goals and measures on
environmental outcomes and program efficiencies, instead of on activity-based outputs.
In EPA's FY 2006 Annual Performance Plan, approximately 65 percent of the annual
performance goals track environmental or intermediate outcomes.
In addition, the Agency
worked to align its annual
performance measures with
new performance and efficiency
measures developed during
OMB's 2005 PART process. In
FY 2005, EPA developed a
strategy for implementing new
PART measures while reporting
on the goals and measures in
the Agency's FY 2005 Annual
Plan. This process is another
step in EPA's ongoing efforts to
establish a set of measures that
clearly defines environmental
outcomes and achieves EPA's
Budget and Performance
Integration goals under the
PMA.
In FY 2005, EPA continued to improve its ability to collect and use reliable and
complete performance and financial data. EPA worked to detect and correct errors in
environmental data, standardize reporting, and exchange and integrate electronic data
and data quality information among its federal, state, and local data-sharing partners.
Over the past year, the Agency completed all corrective actions for an Agency-level
weakness in data management practices. Recent efforts include ensuring that data
management policies and procedures are planned, maintained, and revised as
appropriate. For example, the Agency changed the structure and operating procedures
of its Quality Information Council to better fulfill its role as the information policymaking
body.
Considering Future Trends and Looking Ahead
As EPA looks to the future, Agency managers are focusing on several priorities.
First, the Agency is striving to accelerate the pace of environmental progress by looking
beyond rules and regulations to consider other solutions. Effective legislation, such as
Clear Skies, puts mechanisms in place to achieve large-scale national protections. The
Agency is committed to working cooperatively with its partners to support legislation
over regulation, results over methods, and partnerships over conflicts to accelerate
progress and usher in a new area of environmental protection.
EPA is also working to foster a culture of environmental stewardship through
partnerships and innovative approaches to environmental issues. In the coming years,
the Agency will promote collaboration, voluntary programs, and outreach as tools for
Improved Performance Measures
Developed in FY 2005
These new measures will help EPA describe trends over time, and
demonstrate the results of specific environmental programs.
• Tribal Access to Safe Drinking Water: EPA will measure the
number of households on tribal lands lacking access to safe
drinking water.
• Water Pollutant Loadings Per Program Dollar Spent: EPA
will estimate loadings of water pollutants removed per
program dollar spent, including discharges to surface water
such as municipal storm water and combined sewer
overflows.
• Contamination Levels at Superfund Sites: EPA will determine
whether contamination levels at a Superfund site fall within
the levels specified by EPA as safe, or if they do not, whether
adequate controls are in place to prevent unacceptable
human exposure to contamination.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
52
Appendix I
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strengthening stewardship. EPA will also focus on opportunities to leverage
environmental protection actions to create opportunities for economic growth. Efforts
such as Brownfields, for example, not only reduce pollution, but revitalize valuable land
and strengthen local economies. In the coming years, while the Agency will maintain its
vigilance in enforcing existing laws and regulations, it will also strive to approach new
challenges with flexibility and enthusiasm.
To meet these challenges and make informed decisions in a rapidly changing,
complex world, EPA leaders need to be aware of the environmental consequences of
future social, economic, and technological change. Several years ago, the Agency
began conducting "futures analysis" to help its leaders anticipate future environmental
challenges and plan strategically to avoid problems.
In FY 2005, EPA continued to identify significant environmental and industrial
trends, demographic issues, and transformative technologies that have implications for
environmental protection. EPA senior managers and staff identified areas for increased
focus under each of the Agency's five strategic goals—for example: (1) international
increases in transboundary pollution, especially particulate matter; (2) water scarcity
and its impact on water quality; (3) increased levels of pharmaceuticals in the waste
stream due to the nation's aging population; and, (4) the environmental implications of
genomics. In the spring of 2005, the Agency sought input on future issues from state
environmental commissioners at an ECOS meeting and from tribal environmental
professionals at the Seventh National Tribal Conference on Environmental
Management. All of this input will be vital as the Agency considers the most significant
future issues and develops its 2006-2011 Strategic Plan.
INTERNAL CONTROLS, FINANCIAL MANAGEMENT SYSTEMS, AND
COMPLIANCE WITH LAWS AND REGULATIONS
This section discusses EPA's progress in strengthening its management
practices and the internal controls the Agency relies on to assure the integrity of its
programs and operations. It includes the Administrator's unqualified Statement of
Assurance for FY 2005.
Federal Managers' Financial Integrity Act
The Federal Managers' Financial Integrity Act (FMFIA) requires agencies to
establish and maintain management controls and financial systems that provide
reasonable assurance that federal programs and operations are protected from fraud,
waste, abuse, and misappropriation of federal funds. FMFIA holds agency heads
accountable for correcting deficiencies and requires them annually to identify and report
internal control and accounting systems problems and planned remedies.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
53
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Based on EPA's self-
assessment of its internal controls and
financial systems, Agency managers
have determined that the Agency's
controls are achieving their intended
objectives. The Administrator's
unqualified Statement of Assurance for
FY 2005 follows.
To identify management issues
and monitor progress in addressing
them, EPA's senior leaders use a
system of internal program evaluations
and independent audit reviews
conducted by the Government Accountability Office, EPA's OIG, and other oversight
organizations to assess program effectiveness. In FY 2005, for the 4th year, EPA has
no material weaknesses to report under FMFIA. Material weaknesses are reportable
conditions that could significantly impair or threaten fulfillment of the Agency's mission
and must be reported to the President and Congress. While the Agency reported no
new material weaknesses, EPA currently has a
number of less severe, internal Agency-level
weaknesses for which it is tracking progress.
During the year, EPA added two new Agency-
level weaknesses to its list and closed two of
its existing Agency-level weaknesses in the
areas of data management and water
permitting. Half of the Key Management
Challenges identified by OIG are also current
Agency-level weaknesses. The Reports
Consolidation Act of 2000 requires the
Inspector General to identify, briefly assess,
and report annually the most serious
management and performance challenges
facing the Agency (see Section III of this
report).
OMB has recognized EPA's efforts to maintain effective and efficient internal
controls. Since September 2003, EPA has maintained a green status score for
Improved Financial Performance under the President's Management Agenda. EPA has
also received a progress score of green for Budget and Performance Integration for all
but one consecutive quarter since June 2002.
Fiscal Year 2005
Annual Assurance Statement
I am pleased to give an unqualified statement of
assurance that the Environmental Protection Agency's
(EPA) programs and resources are protected from fraud,
waste, abuse, and mismanagement. Based on EPA's
annual self-assessment of its internal controls, I can
reasonably assure that there are no material weaknesses
in the Agency's control.
October 28. 2005
Stephen L. Johnson Date
Administrator
EPA's Key Management Challenges
Reported by
the Office of Inspector General
1. Linking Mission and Management
2. Agency Efforts in Support of Homeland
Security
3. Superfund Evaluation and Policy
Identification
4. Information Resources Management and
Data Quality
5. EPA's Use of Assistance Agreements to
Accomplish Its Mission
6. Challenges in Addressing Air Toxics
Programs
7. Human Capital Management
8. Information Systems Security
Section III of this report provides more
detailed information on OIG's Key
Management Challenges and EPA's
response.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
54
Appendix I
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5-Year Trend of Material and Agency Weaknesses
20
18
16
« 14
V
H 12
4
2
0
Inspector General Act Amendments of 1988
The Inspector General (IG) Act Amendments require federal agencies to report to
Congress on their progress in carrying out audit recommendations.
EPA's Audit Follow-up Activities: In FY 2005, EPA was responsible for
addressing OIG recommendations and tracking follow-up activities on 396 audits. The
Agency achieved final action (completing all corrective actions associated with an audit)
on 248 audits, including Program Evaluation/Program Performance, Assistance
Agreement, Contracts, and Single audits. EPA's FY 2005 audit management activities
are summarized below.
• Final Corrective Action Taken. EPA completed final corrective actions on 55
audits with disallowed and better use dollars. Of these 55 audits, OIG
questioned costs of more than $14.8 million. After careful review, OIG and the
Agency agreed to disallow approximately $7.9 million of these questioned costs.
In addition, the Agency also completed final corrective action on 193 audits.
• Final Corrective Action Not Taken. At the end of FY 2005, 148 audits were
without final action and not yet fully resolved. (This total excludes audits with
management decisions under administrative appeal by the grantee.)
• Final Corrective Action Not Taken Beyond One Year. Of the 148 audits, EPA
officials had not completed final action on 30 audits within 1 year after the
management decision (the point at which OIG and the Action Official reach
agreement on the corrective action plan). Because the issues to be addressed
may be complex, Agency managers often require 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. In FY 2005, 33 audits were in administrative appeal.
// a Material—
16 Agency _
Ji.i.l.i
2001 2002 2003 2004
Fiscal Year
2005
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
55
Appendix I
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EPA Audits Involving Disallowed Costs and Funds Put to Better Use: As
required by the IG Act Amendments, the following table presents information on audits
that involve disallowed costs and funds put to better use.
Disallowed Costs & Funds Rjt to Better Use
October 1,2004 September 30,2005
Catecpry
Disallowed Costs
Number \telue
Funds Flit to Better Use
Number Value
A. Audits with management decisions but without final action at
the begnning of FY 2005.
67 $74,329,390
0 $ 0
B. Audits for which management decisions were made during FY
2005:
(i) Management dedsionswith disallowed costs (45)
(ii) Management dedsionswith no disallowed costs (192)
237 $ 4,488,195
4 $2,868,844
C. Total audits pending final action during FY 2005. (A+E!)
304 $78,817,585
4 $2,868,844
D. Final action taken during FY 2005:
(i) Ftecoveries
a) Offsets
b) Collections
c) \telue of Roperty
d) Other
(ii) W rite-offs
(iii) Fteinstated throucfi yantee appeal
(iv) Value of recommendationscompleted.
(v) Value of recommendations management decided
should/could not be completed.
245 $ 7,560,083
$ 939,846
$ 3,849,707
$ 0
$ 1,526,025
$ 388228
$ 856277
3 $ 866,548
$ 0
$ 0
E Audit reports needing firal action A the end of FY 2005. (C-D)
59 $71257,502
1 $2,002296
EPA uses audit management as a tool in assessing its progress and its ability to
meet its strategic objectives. The Agency is continuing to strengthen its audit
management practices and is working to address issues and complete corrective
actions in a timely manner.
Federal Financial Management Improvement Act
The Federal Financial Management Improvement Act of 1996 (FFMIA) requires
that agencies' financial management systems substantially comply with federal financial
management system requirements, applicable federal accounting standards, and the
U.S. Government Standard General Ledger. In response to the FY 1999 financial
statement audit, EPA implemented an FFMIA remediation plan to improve the Agency's
financial management systems in order to comply with federal financial system
requirements. Currently, EPA has completed all but two corrective actions: security
certification policy for contractor personnel, and security certification policy for grantee
personnel. EPA anticipates completing these actions by the first quarter of FY 2007.
The Agency continues to improve cost accounting and reconciliation of
intragovernmental transactions. EPA has no substantial noncompliance findings.
The Agency is in the process of developing a modern financial system
infrastructure to help EPA better manage the resources that support our environmental
mission, more accurately measure the true costs of environmental programs, and better
inform the public. The new system will be implemented in FY 2008. Detailed plans for
this project are available at www.epa.gov/ocfo/modernization/index.htm.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
56
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Federal Information Security Management Act
Federal Information Security Management Act (FISMA) directs federal agencies
to conduct annual evaluations of information security programs and practices. It
provides a comprehensive framework for ensuring the effectiveness of information
security controls over information resources that support Federal operations and assets.
Agencies must report annually to OMB on the effectiveness of their information security
programs, which includes an independent evaluation by the Inspector General.
Agencies also report quarterly to OMB on the status of remediation of weaknesses
found.
EPA's FISMA Report for FY 2005, dated October 7, 2005, highlights the results
of the Agency's annual security program reviews and was completed by EPA's Chief
Information Officer, senior agency program officials, and Inspector General. The report
reflects EPA's continued efforts to ensure that information assets are protected and
secured in a manner consistent with the risk and magnitude of the harm resulting from
the loss, misuse, or unauthorized access to or modification of information. In FY 2005,
EPA reported no significant deficiencies in its information security systems under
Government Management Reform Act - Audited Financial Statements
The Government Management Reform Act (GMRA) of 1994 amended the
requirements of the Chief Financial Officers (CFO) Act of 1990 by requiring the annual
preparation and audit of agency-wide financial statements. EPA's statements are
audited by the Inspector General, who issues an audit report on the principal financial
statements, internal controls, and compliance with laws and regulations.
For six consecutive years, the Agency submitted timely financial statements with
a clean audit opinion—another important aspect of accountability. These statements
(presented in Section IV of this report) provide a snapshot of the Agency's financial
position at the end of fiscal year.
FISMA.
Financial Highlights
FINANCIAL ANALYSIS
Maintained green status score for Improved
Financial Performance PMA initiative.
EPA's financial management strategy
focuses on running environmental programs in a
fiscally responsible manner to assure that
resources are used wisely and effectively to
protect human health and the environment. In
FY 2005, the Agency continued its efforts to
improve its financial management systems and
processes, data quality and accessibility, and
accountability. These improvements strengthen
EPA managers' ability to use financial analyses
as well as performance information to make
Earned an unqualified audit opinion on the FY
2005 financial statements.
Supported E-Government and Human Capital
PMA initiatives.
Maintained "green" progress score for
Budget/Performance Integration and Eliminating
Improper Payments PMA initiatives.
Maintained a less than one percent erroneous
payment rate.
Made progress integrating budget and
performance data.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
57
Appendix I
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priority-setting decisions that influence resource planning and environmental results.
(See Section IV for more detailed information on financial strategies and initiatives.)
Measuring Financial Management Results
The Agency measures its financial management effectiveness against external
and internal standards. External standards include the President's Management
Agenda (PMA) initiatives, the Program Assessment Rating Tool (PART), audited
financial statements, and Government-wide Financial Performance Metrics. Internally,
the Agency tracks its performance in key financial management areas: processing
payments and reconciling cash, as well as managing accounts receivable, obligations,
budgets, contracts, Superfund billings, and property.
EPA has maintained its green score for the PMA Improved Financial
Performance initiative by continuously setting and meeting higher performance goals.
In FY 2005, EPA produced accurate and timely accelerated interim quarterly financial
statements, completed Quality Assurance Reviews to ensure the accuracy of Agency
financial data, and automated preparation of the Statement of Net Costs by Goal.
The PMA initiative on Eliminating Improper Payments is focused on identifying,
preventing, and eliminating erroneous payments. As required by the Improper
Payments Information Act (IPIA) of 2002 and the Office of Management and Budget
(OMB) Memorandum M-03-07, EPA samples and annually reports on improper
payments in the two State Revolving Funds (SRFs) previously covered under OMB
Circular A-11, Section 57. For FY 2005, the Agency assessed a statistical sample of
direct state payments and judgemental sub-recipient payments. EPA's samples
identified a less than 1 percent error rate in payments. The chart below provides 2
years of actual performance as well as planned reduction targets.
Improper Payment Reduction Outlook for FY 2004-FY 2007
(dollars in millions)
FRDGRAM
FY 2004
OUTLAYS
FY 2004
Improper
Foments %
FY 2004
Improper
Foments
FY 2005
OUTLAYS
FY 2005
Improper
Foments %
FY 2005
Improper
Foments
FY 2006
Improper
Foments %
FY 2007
Improper
Foments %
FY 2008
Improper
Foments %
Clean Water
and Drinking
Water STs
$2,182
.47%
$10.3*
$1,928
Actual 0.16%
Tsrgst .45%
$3.1
.40%
.35%
.30%
'Approximately $10 million of the $10.3 million identified as erroneous payments was attributable to states prematurely
drawing down funds for allowable expenses.
In FY 2005, the Agency met or exceeded the standard for four of the
government-wide performance metrics and has an action plan to improve performance
for the other five metrics. Additionally, EPA generally met or exceeded internal
performance goals. Over 99.9 percent of the Agency's contracts were paid on time and
EPA received $330 thousand in purchase card rebates from the purchase card
contractor. The chart below presents results for three internal Agency performance
measures that support the EPA's E-government and improved financial performance
priorities. To further improve efficiency and consistency, EPA is realigning major
accounting functions and customer service responsibilities from 14 locations to four
Finance Centers of Excellence. The Agency reached the 50 percent mark in the
consolidation this year and plans to complete it by December 2006.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
58
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Financial Management Fterformance Measures
99.1 99.2 99.0 99.4
C 80—
3earanic salaiy Fayments
3ectranic Travel Payments
3igble Debts FWerred
Treanry
Fiscal Year
Resources and Outlays
In FY 2005 EPA received $8.03 billion in Congressional appropriations.21 EPA
Financial Trends22 (shown belowj shows a 5-year snapshot of the Agency's used
resources. The Statement of Budgetary Resources, included in Section IV, presents
additional information on the Agency's resources. The next chart below shows EPA's
FY 2005 obligations by Congressional appropriation.
EPA Financial Trends
(Detafrom 3£ement of Budgstary Resources as of 11/1(^05)
Obligations
Total Outlays
Fiscal Year
FY 2005 Obligations by Appropriation (Dollars in Millions)
(Data from Sstement of Budgetary Rssources as of 11/10/05)
State & Tribal Assistant Grants
$3,608.5 (35.6%)
Super fund
$1,544.9 (15.3%)
All Other
$4,971.0(48.1%)
Total
$10,124.4 (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. The chart below depicts EPA's costs (expenses for services rendered or
activities performed) by spending category.23
FY 2005 Cost CategDries
(D^a as of 11/10/05—Reconcilesto a^ement of Net Cost)
A Other
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
59
Appendix I
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The majority of EPA's costs are for grant programs (see chart below). The Clean
Water and Drinking Water SRF grants supporting the Agency's Clean and Safe Water
goal account for 43 percent of EPA's grant awards. Other major environmental grant
programs include assistance to states and tribes, consistent with EPA's authorizing
statutes, and research grants to universities and nonprofit institutions.
FY 2005 Major Grant Categories
(Data as of 11/10/05—reconcilesto a^ement
of N et Cost & Sewardship Report)
SUperfund
3.4%
Innovative Financing: Partnerships and the Environmental Finance Program
EPA leverages federal funds through several innovative environmental financing
efforts, mutually beneficial public-private partnerships, such as SRFs and the
Environmental Finance Program, and Superfund program cost recoveries.
EPA uses collaboration and partnerships with the states to wisely manage its
resources for keeping the nation's water clean and safe. As of early FY 2006, the Clean
Water SRF had leveraged nearly $23 billion in federal capitalization grants into more
than $52 billion in assistance to municipalities and other entities for wastewater projects.
As of early FY 2006, the Drinking Water SRF had leveraged $6.5 billion in federal
capitalization grants into more than $11 billion in assistance for drinking water
infrastructure. (Note: The current FY 2005 Drinking Water SRF data includes
information from 50 DWSRF Programs, including partial data from New York. The
remaining data for New York is expected at the end of November 2005).
The Environmental Finance Program helps regulated parties find ways to pay for
environmental activities. The program works to lower costs, increase investments, and
build financial capacity. It provides leveraged financial outreach to governments and
the private sector via an Environmental Financial Advisory Board, an online database,
and a network of nine university-based Environmental Finance Centers (EFCs). To
date, this network has provided educational, technical, and analytic support in 48 states.
For every dollar that EPA has invested in it, the network has invested 3.67 dollars in
project work (see chart below). Additional information on the program is available at
www.epa.gov/efinpaae.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
60
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B=CN Funding Sburces
One of the Agency's compliance and enforcement success stories is its
Superfund program, which leverages funding to increase cleanup of contaminated sites.
Under Superfund, EPA may recover the cost of cleanups. Since 1980, EPA has
collected $3.34 billion in cost recoveries ($63 million collected in FY 2005). 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, 2005, EPA had established 540 special accounts with
$1.5 billion in receipts. These accounts have earned $206 million in cumulative
interest.24
New Financial Management Initiatives
Committed to providing managers with timely, accurate information critical for
managing resources wisely, the Agency
leverages technology and updates its systems
to produce the information needed to make
sound decisions. In the near term, the
enhanced internal control requirements in OMB
Circular A-123 will strengthen EPA's existing
management integrity efforts and provide a
platform to broaden our scope and expand our
focus on programmatic efficiency and
effectiveness. This activity will complement
efforts planned or underway to achieve
economies of scale and develop and enhance
financial information tools to meet the
decisionmaking needs of EPA managers.
Additionally, the Agency is expanding the use of financial information by
integrating additional financial information into EPA's decisionmaking processes, with
an initial focus on grants data. EPA also successfully conducted the first Competitive
Sourcing "Standard Competition" for vendor payment services. The Agency's Research
Triangle Park Finance Center bested the private sector contractors' bids for providing
these services, resulting in savings to the Agency of $3.5 million over 5 years.
Leveraging Technology
• E-government - leveraging technology to
gain efficiencies across government
• Financial accountability - integrating
budget and performance data, providing more
precise information about program costs, and
identifying areas for improvement
• Modern resource management systems -
implementing 21st century tools to manage
Agency resources
• Data warehousing and reporting -
searching data for latent correlations and
providing easy access to useful data
• Security - protecting data against today's
threats
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
61
Appendix I
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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 Announces Landmark Clean Air Interstate Rule (Agency Press Release, 3/10/05).
3 EPA Announces First-Ever Rule to Reduce Mercury Emissions from Power Plans (3/15/05).
4 For more information on the toxics program see www.epa.gov/ttn/atw/urban/urbanpg.html.
5 Clearing the Air: Asthma and Indoor Air Exposures. ISBN 0-309-06496. January 2000.
6 A copy of the report can be found at www.epa.gov/owow/oceans/nccr2.
7 More information on EPA's Superfund Program can be found at www.epa.gov/superfund/index.htm.
8 Memorandum from Cliff Rothenstein, Director, EPA Office of Underground Storage Tanks to
Underground Storage Tanks/Leaking Underground Storage Tanks Division Directors in EPA Regions 1-
10, June 2, 2005, "FY 2005 Semi Annual Mid-Year Activity Report."
9 Preliminary end-of-year data provided by EPA's Office of Underground Storage Tanks, November 9,
2005.
1 n
Additional information about EPA's recycling programs can be found at www.epa.gov/epaoswer/non-
hw/muncpl/recvcle.htm.
For additional information on EPA authorities for conducting work under the Food Quality Protection Act
go to www.epa.gov/pesticides/regulating/tolerances.htm.
For additional information on pesticide registration and assessment go to
www.epa.gov/pesticides/index.htm.
For additional information on the high production chemical program go to
www.epa.gov/chemrtk/volchall.htm.
Centers for Disease Control, National Center for Health Statistics. National Health and Nutrition
Examination Survey: 1999-2002: May 2005. More information is available at
www.cdc.gov/mmwr/preview/mmwrhtml/mm5420a5.htm.
More information can be found at www.epa.gov/compliance/resources/cases/civiI.
16 More information can be found at www.epa.gov/compliance/resources/cases/criminal.
17 More information on PCS is available at www .epa.g ov/complian ce/d ata/svste ms/wate r/pcssvs .html.
10 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 based on criteria determined by OMB.
19 US EPA, American Indian Environmental Office. "Target 1 Program Performance Report." Goal 5,
Objective 5.3 Reporting System.
20 It is important to note that the Safe Drinking Water Information System (SDWIS) has been identified as
an Agency-level Weakness under the Federal Managers Financial Integrity Act, with corrective action to
be completed in 2007. The data are not considered materially inadequate, however, per OMB's definition.
The Verification and Validation section of the Annual Performance Plan and Congressional Justification
has details on data limitations associated with SDWIS.
21 Public Law 108-447 H.R. 4818.
22 Section IV, FY 2005 Statement of Budgetary Resources.
23Section IV, FY 2005 Statement of Net Costs.
24 EPA's Integrated Financial Management System.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
62
Appendix I
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PRINCIPAL
FINANCIAL
STATEMENTS
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
63
Appendix I
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Principal Financial Statements
Financial Statements
1. Consolidated Balance Sheet
2. Consolidated 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. Consolidated Statement of Financing
7. Statement of Custodial Activity
Notes to Financial Statements
Note 1.
Summary of Significant Accounting Policies
Note 2.
Fund Balances 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 Liabilities
Note 15.
Cashout Advances
Note 16.
Unexpended Appropriations
Note 17.
Amounts Held by Treasury
Note 18.
Commitments and Contingencies
Note 19.
Exchange Revenues, Statement of Net Cost
Note 20.
Environmental Cleanup Costs
Note 21.
State Credits
Note 22.
Preauthorized Mixed Funding Agreements
Note 23.
Custodial Revenues and Accounts Receivable
Note 24.
Statement of Budgetary Resources
Note 25.
Recoveries and Resources Not Available, Statement of Budgetary Resources
Note 26.
Unobligated Balances Available
Note 27.
Offsetting Receipts
Note 28.
Statement of Financing
Note 29.
Costs Not Assigned to Goals
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
64
Appendix I
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Notes to Financial Statements (continued)
Note 30. Transfers-In and Out, Statement of Changes in Net Position
Note 31. Imputed Financing
Note 32. Payroll and Benefits Payable
Note 33. Other Adjustments, Statement of Changes in Net Position
Note 34. Nonexchange Revenue, Statement of Changes in Net Position
Note 35. Other, Statement of Financing
Required Supplementary Information (Unaudited)
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 Condensed Statements (Unaudited)
Required Supplementary Stewardship Information (Unaudited)
Supplemental Information (Unaudited)
1. Superfund Financial Statements and Related Notes
2. Financial Management Plans and Reports (OMB Circular A-l 1, Section 52.4a)
3. Improper Payments Information Act of 2002 (IPIA) Report
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
65
Appendix I
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1.
Environmental Protection Agency
Consolidated Balance Sheet
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
ASSETS
Intragovernmental
Fund Balance With Treasury (Note 2)
Investments (Notes 4 and 17)
Accounts Receivable, Net (Note 5)
Other (Note 6)
Total Intragovernmental
Cash and Other Monetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivable, Net - Non-Federal (Note 7)
Property, Plant & Equipment, Net (Note 9)
Other (Note 6)
Total Assets
FY 2005
FY 2004
12,139,207 $
12,065,145
4,811,065
4,534,498
66,060
42,770
2,335
1,320
17,018,667 $
16,643,733
10
10
374,668
414,495
39,347
48,927
708,716
673,363
2,789
1,508
$ 18,144,197 $ 17,782,036
LIABILITIES
Intragovernmental $ $
Accounts Payable & Accrued Liabilities (Note 8)
119,836
104,664
Debt Due to Treasury (Note 10)
21,744
24,101
Custodial Liability (Note 11)
142,347
52,216
Other (Note 12)
106,530
78,121
Total Intragovernmental
$ 390,457 $
259,102
Accounts Payable & Accrued Liabilities (Note 8)
730,278
881,851
Pensions & Other Actuarial Liabilities (Note 14)
39,380
40,281
Environmental Cleanup Costs (Note 20)
6,989
8,407
Cashout Advances, Superfund (Note 15)
270,811
259,361
Commitments & Contingencies (Note 18)
1,950
1,625
Payroll & Benefits Payable (Note 32)
190,394
180,746
Other (Notes 12 and 13)
98,064
103,916
Total Liabilities
$ 1,728,323 $
1,735,289
NET POSITION
Unexpended Appropriations (Note 16)
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
11,007,589 $
10,860,136
5,408,285
5,186,611
16,415,874
16,046,747
18,144,197 $
17,782,036
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
66
Appendix I
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2.
Environmental Protection
Consolidated Statement of Net Cost
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005 FY 2004
COSTS
Intragovernmental
With the Public
Total Costs
Less:
Earned Revenues, Federal (Note 19)
Earned Revenues, Non-Federal (Note 19)
Total Earned Revenues
1,238,395 $
1,205,696
7,259,027
7,649,867
8,497,422 $
8,855,563
105,653 $
66,262
357,824
280,099
$ 463,477 $ 346,361
NET COST OF OPERATIONS $ 8,033,945 $ 8,509,202
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
67
Appendix I
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3.
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Period Ending September 30, 2005
(Dollars in Thousands)
Land
Healthy
Compliance &
Preservation &
Communities &
Environmental
Clean Air
Clean & Safe Water
Restoration
Ecosystems
Stewardship
Costs:
Intragovernmental
S 186,667
$ 209,631
S 376,717
$ 280,492
S 174,321
With the Public
803,822
3,297,570
1,639,157
992,360
539,857
Total Costs
990,489
3,507,201
2,015,874
1,272,852
714,178
Less:
Earned Revenue, Federal
20,295
15,444
42,567
15,638
12,000
Earned Revenue, non Federal
2,205
2,570
312,487
32,509
1,353
Total Earned Revenue
22,500
18,014
355,054
48,147
13,353
NET COST OF OPERATIONS
$ 967,989
$ 3,489,187
$ 1,660,820
$ 1,224,705
$ 700,825
Not Assigned to
Goals
Consolidated Totals
Costs:
Intragovernmental
$ 10,567
$ 1,238,395
With the Public
(13,739)
7,259,027
Total Costs
$ (3,172)
$ 8,497,422
Less:
Earned Revenue, Federal
(291)
105,653
Earned Revenue, non Federal
6,700
357,824
Total Earned Revenue
S 6,409
$ 463,477
NET COST OF OPERATIONS
$ (9,581)
$ 8,033,945
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements 68 Appendix I
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3.
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Period Ending September 30, 2004
(Dollars in Thousands)
Land
Healthy
Compliance &
Gean and
Preservation
Communities
Environmental
Gean Air
Safe Water
& Restoration
& Ecosystems
Stewardship
COSTS
Intragovernmental !
S 168,684 $
177,573 $
; 411,593 $
1 257,208 3
> 159,492
With the Public
774,151
3,835,046
1,610,080
885,982
557,567
Total Costs !
S 942,835 $
4,012,619 $
1 2,021,673 $
1 1,143,190 3
> 717,059
Less:
Earned Revenue, Federal !
S 21,092 $
6,320 $
; 19,877 $
; 7,117 3
> 13,857
Earned Revenue, Non-Federal
970
1,996
227,936
33,556
1,498
Total Earned Revenue !
S 22,062 $
8,316 $
1 247,813 $
1 40,673 3
> 15,355
NET COST OF OPERATIONS
920,773
4,004,303
1,773,860
1,102,517
701,704
Not Assigned
Consolidated
to Goals
Total
COSTS
Intragovernmental !
S 31,146 $
1,205,696
With the Public
(12,959)
7,649,867
Total Costs !
S 18,187 $
8,855,563
Less:
Earned Revenue, Federal !
S (2,001) $
66,262
Earned Revenue, Non-Federal
14,143
280,099
Total Earned Revenue !
S 12,142 $
346,361
NET COST OF OPERATIONS
$ 6,045 $
8,509,202
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
69
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4.
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
Cumulative Cumulative
Results of Results of Unexpended Unexpended Consolidated Consolidated
Operations Operations Appropriations Appropriations Totals Totals
FY 2005 FY 2004 FY 2005 FY 2004 FY 2005 FY 2004
Net Position-Beginning of Period $ 5,186,611 $ 5,124,926 $ 10,860,136 $ 10,768,236 $ 16,046,747 $ 15,893,162
Prior Period Adjustments
Beginning Balances, as Adjusted $ 5,186,611 $ 5,124,926 $ 10,860,136 $ 10,768,236 $ 16,046,747 $ 15,893,162
Budgetary Financing Sources:
Appropriations Received
Appropriations Transferred In/Out
(Note 30)
Other Adjustments (Note 33)
Appropriations Used
Nonexchange Revenue (Note 34)
Transfers In/Out (Note 30)
Trust Fund Appropriations
7,787,245
318,662
11,136
8,162,544
299,725
(19,807)
Total Budgetary Financing Sources $ 8,117,043 $ 8,442,462 $
8,005,446 $
4,702
(75,450)
(7,787,245)
147,453 $
8,322,860 $ 8,005,446 $
152
(68,568)
(8,162,544)
4,702
(75,450)
318,662
11,136
!,322,860
152
(68,568)
299,725
(19,807)
91,900 $ 8,264,496 $
8,534,362
Other Financing Sources:
Transfers In/Out (Note 30) $ 436 $ (436)$ - $ - $ 436 $ (436)
Imputed Financing Sources (Note 31) 138,140 128,861 - - 138,140 128,861
Total Other Financing Sources
$ 138,576 $
128,425 $
$
$
138,576 $
128,425
Net Cost of Operations
(8,033,945)
(8,509,202)
-
-
(8,033,945)
(8,509,202)
Net Change
221,674
61,685
147,453
91,900
369,127
153,585
Net Position - End of Period $ 5,408,285 $ 5,186,611 $ 11,007,589 $ 10,860,136 $ 16,415,874 $ 16,046,747
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
70
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5.
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received
Borrowing Authority
Net Transfers
Unobligated Balances:
Beginning of Period
Net Transfers, Actual
Spending Authority from Offsetting Collections:
Earned and Collected
Receivable from Federal Sources
Change in Unfilled Customer Orders:
Advance Received
Without Advance from Federal Sources
Transfers from Trust Funds Collected
Transfers from Trust Funds, Anticipated
Total Spending Authority from Collections
Recoveries of Prior Year Obligations (Note 25)
Temporarily Not Available Pursuant to Public Law (Note 25)
Permanently Not Available (Note 25)
Total Budgetary Resources (Note 24)
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct
Reimbursable
Total Obligations Incurred (Note 24)
Unobligated Balances:
Apportioned (Note 26)
Unobligated Balances Not Available (Note 26)
Total Status of Budgetary Resources
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net
Obligated Balances, Net - Beginning of Period
Accounts Receivable
Unfilled Customer Orders from Federal Sources
Undelivered Orders, Unpaid
Accounts Payable
Total Outlays (Note 24)
Disbursements
Collections
Less: Offsetting Receipts (Note 27)
Net Outlays
8,032,620
436
1,348,725
2,996,708
557,692
5,311
37,615
118,144
69,572
(20,890)
767,444
174,641
(11,141)
(78,244)
13,231,189
9,573,696
550,737
10,124,433
3,018,689
88,067
13,231,189
9,182,350
11,207,776
64,972
422,012
(10,636,009)
(987,090)
9,254,011
9,918,889
(664,878)
(1,334,508)
7,919,503
FY 2004
;,353,924
5,554
,336,786
:,865,677
(1,538)
471,777
(23,156)
(31,207)
7,288
67,959
(16,293)
476,368
194,775
(8,254)
(71,203)
13,152,089
9,745,606
409,775
10,155,381
2,903,849
92,859
13,152,089
9,484,238
11,420,719
80,554
303,869
(10,467,637)
(1,124,560)
9,697,183
10,205,713
(508,530)
(1,350,841)
8,346,342
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6.
Environmental Protection Agency
Consolidated Statement of Financing
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005
FY 2004
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred
$ 10,124,433 $
10,155,381
Less: Spending Authority from Offsetting
Collections and Recoveries
(942,084)
(671,143)
Obligations, Net of Offsetting Collections
$ 9,182,349 $
9,484,238
Less: Offsetting Receipts (Note 27)
(1,334,508)
(1,350,841)
Net Obligations
$ 7,847,841 $
8,133,397
Other Resources:
Imputed Financing Sources (Note 31)
138,140
128,861
Net Other Resources Used to Finance Activities
$ 138,140 $
128,861
Total Resources Used To Finance Activities
$ 7,985,981 $
8,262,258
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated
$ (33,501) $
192,871
Resources that Fund Prior Period Expenses (Note 28)
(1,120)
(13,855)
Budgetary Offsetting Collections and Receipts that Do Not
Affect Net Cost of Operations:
Liabilities for Guarantees of Subsidy Allowances
4,337
4,142
Offsetting Receipts Not Affecting Net Cost
87,031
93,304
Resources that Finance Asset Acquisition
(137,277)
(106,185)
Total Resources Used to Finance Items Not Part of the Net
Cost of Operations
$ (80,530) $
170,277
Total Resources Used to Finance the Net Cost of Operations
$ 7,905,451 $
8,432,535
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Components Not Requiring/Generating Resources:
Depreciation and Amortization
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
6.
Environmental Protection Agency
Consolidated Statement of Financing
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
WILL NOT REQUIRE OR GENERATE RESOURCES IN
THE CURRENT PERIOD
Components Requiring or Generating Resources in Future
Periods:
Increase in Annual Leave Liability (Note 28)
Increase in Environmental and Disposal Liability (Note 28)
Increase in Unfunded Contingencies (Note 28)
Up/Downward Reestimates of Subsidy Expense (Note 28)
Increase in Public Exchange Revenue Receivable
Other (Note 35)
Total Components of Net Cost of Operations that Requires
or Generates Resources in the Future
FY 2005
FY 2004
3,889 $
99
1,244
1,525
22,425
3
-
(101,645)
(59,937)
1,969
-
(94,160) $
(36,268)
39,760
47,791
182,894
65,144
222,654 $
112,935
128,494 $
76,667
8,033,945 $
8,509,202
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7.
Environmental Protection Agency
Statement of Custodial Activity
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005 FY 2004
Revenue Activity:
Sources of Collections
Fines and Penalties
$ 141,087 $
162,948
Other
(53,836)
24,463
Total Cash Collections
$ 87,251 $
187,411
Accrual Adjustment
63,565
(24,865)
Total Custodial Revenue (Note 23)
$ 150,816 $
162,546
Disposition of Collections:
Transferred to Others (General Fund)
$ 87,334 $
187,194
Increases/Decreases in Amounts to be Transferred
63,482
(24,648)
Total Disposition of Collections
$ 150,816 $
162,546
Net Custodial Revenue Activity (Note 23)
$ - $
-
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
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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 consolidated financial statements have been prepared to report the financial position and
results of operations of the U. S. Environmental Protection Agency (EPA or Agency) 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 Financial Reporting Requirements, OMB Circular A-136, and the EPA's
accounting policies which are summarized in this note. In addition to the reports required by
OMB Circular A-136, 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 2005, the accompanying financial statements are grouped and presented in a consolidated
manner. The accompanying financial statements include the accounts of all funds described in
this note by their respective Treasury fund group.
General Fund Appropriations (Treasury Fund Groups 0000 - 3999)
a. State and Tribal Assistance Grants (STAG) Appropriation: The 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 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.
b. Science and Technology (S&T) Appropriation: 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 2005, Superfund research costs
were appropriated in Superfund and transferred to S&T to allow for proper accounting of the
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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.
c. Environmental Programs and Management (EPM) Appropriation: 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.
d. Buildings and Facilities Appropriation (B&F'): The B&F 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.
e. Office of Inspector General (OIG) Appropriation: The 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.
f Payments to the Hazardous Substance Superfund Appropriation: 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.
g. Asbestos Loan Program: The Asbestos Loan Program is accounted for 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 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.
h. Allocations and Appropriations transferred to the Agency: 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
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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.
i. Treasury Clearing Accounts: 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.
j. General Fund Receipt Accounts: 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.
Revolving Funds (Treasury Fund Group 4000 - 4999)
a. Federal Insecticide, Fungicide and Rodenticide Act (FIFRA): The 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.
b. Tolerance Revolving Fund: 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).
c. Asbestos Loan Program: The Asbestos Loan Program is accounted for under Treasury fund
group 4322 for loan disbursements, loans receivable and loan collections on post FY 1991 loans.
Refer to General Fund Appropriations paragraph g. for details.
d Working Capital Fund (WCF): The 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 primarily of Agency
program offices and a small portion from other federal agencies. Accordingly, those revenues
generated by the WCF from services provided to Agency program offices and expenses recorded
by the program offices for use of such services along with the related advances/liabilities, are
eliminated on consolidation.
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Special Funds (Treasury Fund Group 5000 - 5999)
a. Environmental Services Receipt Account: 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.
b. Exxon Valdez Settlement Fund: 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.
c. Pesticide Registration Fund: 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.
Deposit funds (Treasury Fund Group 6000 - 6999)
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.
Trust Funds (Treasury Fund Group 8000 - 8999)
a. 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.
b. Leaking Underground Storage Tank (LUST) Trust Fund: The 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
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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
2011.
c. Oil Spill Response Trust Fund: 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.
d. Miscellaneous Contributed Funds Trust Fund: 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
General Funds
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 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.
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.
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Clearing accounts and receipt accounts receive no appropriated funds. Amounts are recorded to
the clearing accounts pending further disposition. Amounts recorded to the receipt accounts
capture amounts collected for or payable to the Treasury General Fund.
Revolving Funds
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 and other
federal agencies to offset costs incurred for providing Agency administrative support for
computer support and postage.
Special Funds
The Environmental Services Receipt Account obtains fees associated with environmental
programs that will be appropriated to the S&T and EPM appropriations.
Exxon Valdez uses funding collected from reimbursement from the Exxon Valdez settlement.
Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit accounts
pending further disposition.
Trust Funds
Congress adopts an annual appropriation amount for the Superfund, LUST and the Oil Spill
Response Trust Funds to remain available until expended. A transfer account for the Superfund
and 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 Superfund and 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.
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.
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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."
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.
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.
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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.
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).
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
The majority of receivables for non-Superfund 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.
Superfund accounts receivable represent recovery of costs from PRPs as provided under
CERCLA as amended by SARA. However, cost recovery expenditures are expensed when
incurred since there is no assurance that these funds will be recovered (see Note 5).
The Agency records 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
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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.
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.
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.
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.
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.
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
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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 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 is 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.
Software for Working Capital Fund, a revenue generating activity, is capitalized if the purchase
price was $100 thousand or more with an estimated useful life of 2 years or more. All other
funds capitalize software 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 2004 and FY 2005, there was no outstanding interest payable to
Treasury since payment was made through September 30.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
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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."
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.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
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Note 2. Fund Balances with Treasury
Fund Balances with Treasury as of September 30, 2005 and 2004, consist of the following:
FY 2005 FY 2004
Entity Non-Entity Entity Non-Entity
Assets Assets Total Assets Assets Total
Trust Funds:
Superfund $ 213,797 $ " $ 213,797 $ 199,406 $ " $ 199,406
LUST 17,613 " 17,613 14,825 - 14,825
Oil Spill & Misc. 9,169 " 9,169 10,222 - 10,222
Revolving Funds:
FIFRA/Tolerance 7,970 - 7,970 4,913 - 4,913
Working Capital 69,401 - 69,401 53,560 - 53,560
Cr. Reform Finan. 489 - 489 492 - 492
Appropriated 11,655,287 - 11,655,287 11,639,189 - 11,639,189
Other Fund Types 157.303 8.178 165.481 136.646 5.892 142.538
Total $ 12,131,029 $ 8,178 $ 12,139,207 $ 12,059,253 $ 5,892 $ 12,065,145
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 2005
FY 2004
Unobligated Amounts in Fund Balances:
Available for Obligation
Unavailable for Obligation
Net Receivables from Invested Balances
Balances in Treasury Trust Fund (Note 17)
Obligated Balance not vet Disbursed
Non-Budgetary FBWT
Totals
3,018,690
88,066
(2,278,343)
19,965
11,136,112
154,717
12,139,207
2,903,849
92,861
(2,471,574)
201,438
11,207,766
130,805
12,065,145
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 2005 and
FY 2004 no differences existed between Treasury's accounts and EPA's statements for fund
balances with Treasury.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
86
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Note 3. Cash
As of September 30, 2005 and 2004, cash consists of an imprest fund of $10 thousand.
Note 4. Investments
As of September 30, 2005 and 2004 investments consist of the following:
„ Unamortized interest Investments, Market
Cost (Premium) Receivab|e Ne, Va|„e
Discount
Intragovernmental Securities:
Non-Marketable FY 2005 $ 4,762,154 $ (16,261)$ 32,650$ 4,811,065 $ 4,811,065
Non-Marketable FY 2004 $ 4,459,647 $ (47,536)$ 27,315$ 4,534,498 $ 4,534,498
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, 2005 and 2004, consist of the following:
FY 2005 FY 2004
Intragovernmental Assets:
Accounts & Interest Receivable $
66,060 $
42,770
Non-Federal Assets:
Unbilled Accounts Receivable $
89,818 $
93,440
Accounts & Interest Receivable
1,092,376
1,015,721
Less: Allowance for Uncollectibles
(807,526)
(694,666)
Total $
374,668 $
414,495
The Allowance for Uncollectible 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.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
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Note 6. Other Assets
Other Assets for September 30, 2005 and 2004, consist of the following:
Intragovernmental Assets:
FY 2005
FY 2004
Advances to Federal Agencies $
1,102 $
767
Advances to WCF
827
-
Advances for Postage
406
553
Total Intragovernmental Assets $
2,335 $
1,320
Non-Federal Assets:
Travel Advances $
(898) $
(1,008)
Letter of Credit Advances
9
271
Grant Advances
1,710
1,164
Other Advances
946
830
Operating Materials and Supplies
183
200
Inventory for Sale
204
51
Securities Received in Settlement of
635
-
Debt
Total Non-Federal Assets $
2,789 $
1,508
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 loan present value is the gross loan receivable
less the subsidy present value. The amounts as of September 30, 2005 and 2004, are as follows:
FY 2005 FY 2004
Loans Value of Loans Value of
Receivable, Allowance* Assets Related Receivable, Allowance* Assets Related
Gross to Direct Loans Gross to Direct Loans
Direct Loans
Obligated Prior to
FY 1992
Direct Loans
Obligated After FY
1991
Total $ 44,545 $ (5,198) $ 39,347 $ 55,709 $ (6,782) $ 48,927
* 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).
18,118
18,118$ 25,243
25,243
26,427 (5,198) 21,229 30,466 (6,782)
23,684
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
88
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Subsidy Expenses for Credit Reform Loans (reported on a cash basis):
Downward Subsidy Reestimate - FY 2005
Interest Rate
Re-estimate
$ (233) $
Technical
Re-estimate
(203) $
Total
(436)
Upward Subsidy Reestimate - FY 2005
129
128
257
FY 2005 Totals
$ (104)
(75)
(179)
Downward Subsidy Reestimate - FY 2004
$ (2,660) $
(2,894) $
(5,554)
FY 2004 Totals
$ (2,600) $
(2,894) $
(5,554)
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, 2005 and 2004.
FY 2005 FY 2004
Intragovernmental:
Accounts Payable to other Federal Agencies $
774 $
1,808
Liability for Allocation Transfers
19,878
31,286
Accrued Liabilities, Federal
99,184
71,570
Total Intragovernmental $
119,836 $
104,664
Non-Federal:
FY 2005
FY 2004
Accounts Payable, Non-Federal $
105,027 $
93,262
Advances Payable, Non-Federal
24
19
Interest Payable
7
41
Grant Liabilities
449,206
594,124
Other Accrued Liabilities, Non-Federal
176,014
194,405
Total Non-Federal $ 730,278 $ 881,851
Note 9. General Plant, Property and Equipment
Plant, property and equipment consist of software; real, EPA-Held and Contractor-Held personal,
and capital lease property.
As of September 30, 2005 and 2004, Plant, Property and Equipment consist of the following:
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
89
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FY 2005 FY 2004
Acquisition Accumulated Net Book Acquisition Accumulated Net Book
Value Depreciation Value Value Depreciation Value
EPA-Held Equipment 3
> 194,410 $
(109,683) $
84,727 $
188,844 $
(112,793) $
76,051
Software
146,132
(19,777)
126,355
105,634
(14,881)
90,753
Contractor Held Equip.
56,746
(22,706)
34,040
61,571
(19,385)
42,186
Land and Buildings
558,689
(122,012)
436,677
547,876
(114,184)
433,692
Capital Leases
50,111
(23,194)
26,917
49,956
(19,275)
30,681
Total J
5 1,006,088 $
(297,372) $
708,716 $
953,881 $
(280,518) $
673,363
Note 10. Debt
The debt due to Treasury consists of the following
as of September 30, 2005 and 2004:
All Other Funds
FY 2005
FY 2004
Beginning
Net
Ending
Beginning
Net
Ending
Balance
Borrowing
Balance
Balance
Borrowing
Balance
Intragovernmental:
Debt to Treasury
$ 24,101
$ (2,357)
$ 21,744
$ 21,189
$ 2,912$
; 24,101
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.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
90
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Note 12. Other Liabilities
Other Liabilities consist of the following as of September 30, 2005:
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Taxes
WCF Advances
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Resources Payable to Treasury
Non-Current
Unfunded FECA Liability
Payable to Treasury Judgment Fund
Total Intragovernmental
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
Liability for Deposit Funds, Non-Federal
Non-Current
Other Liabilities
Capital Lease Liability
Total Non-Federal
Covered by
Budgetary
Resources
Not Covered by
Budgetary
Resources
12,731
17,392
4,737
41,207
60
(82)
1
76,046
59,388
(70)
8,484
22,000
30,484
30
38,716
Total
59,318
38,746
12,731
17,392
4,737
41,207
60
(82)
1
8,484
22,000
106,530
59,388
(70)
30
38,716
98,064
Other Liabilities consist of the following as of September 30, 2004:
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Taxes
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Resources Payable to Treasury
Subsidy Payable to Treasury
Non-Current
Unfunded FECA Liability
Payable to Treasury Judgment Fund*
Total Intragovernmental
Covered by
Budgetary
Resources
Not Covered by
Budgetary
Resources
10,760
3,522
32,724
3
(30)
1
437
8,704
22,000
Total
47,417
30,704
10,760
3,522
32,724
3
(30)
1
437
8,704
22,000
78,121
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
91
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Covered by Not Covered by
Other Liabilities - Non-Federal Budgetary Budgetary Total
Resources Resources
Current
Unearned Advances, Non-Federal $ 56,824 $ - $ 56,824
Liability for Deposit Funds, Non-Federal 5,601 - 5,601
Non-Current
Capital Lease Liability - 41,491 41,491
Total Non-Federal $ 62,425 $ 41,491 $ 103,916
Note 13. Leases
Capital Leases:
The Capital Leases:
Summary of Assets Under Capital
Real Property
Personal Property
Software License
Total
Accumulated Amortization
FY 2005 FY 2004
$ 40,913 $ 40,913
2,761 2,606
6,437 6,437
$ 50,111 $ 49,956
$ 23,194 $ 19,275
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. These charges are expended out of the EPM appropriation.
EPA also has capital leases terminating in FY 2007 for seven shuttle buses. These leases are
expended out of the EPM appropriation.
EPA has two capital leases expended out of the Working Capital Fund. The capital leases are for
an IBM Supercomputer and MicroSoft Office software. These leases terminate in 2006 and
2009, respectively.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
92
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During FY 2005, EPA entered into a capital lease for a Storage Area Network. The lease
terminates in FY 2007 and payments are expended from the EPM appropriation. The total future
minimum capital lease payments are listed below.
Future Payments Due:
Fiscal Year
2006
2007
2008
2009
2010
After 5 Years
Capital Leases
$ 8,888
8,147
7,866
6,295
6,101
64,912
Total Future Minimum Lease Payments $ 102,209
Less: Imputed Interest (63,493)
Net Capital Lease Liability $ 38,716
Liabilities not Covered by Budgetary Resources
(See Note 12) $ 38,716
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.
EPA has three direct operating leases for land and buildings housing scientific laboratories
and/or computer facilities. 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, originally
expired in FY 2001, was extended until FY 2007. These charges are expended from the EPM
appropriation. The total minimum future operating lease costs are listed below.
Operating Leases, Land and
Buildings
Fiscal Year
2006 $ 87
2007 81
2008 74
2009 74
2010 74
Beyond 2010 624
Total Future Minimum Lease Payments $ 1,014
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
93
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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, 2005 and 2004, consists of the following:
The FY 2005 present value of these estimated outflows are calculated using a discount rate of
4.528 percent in the first year, and 5.02 percent in the years thereafter. The estimated future costs
are recorded as an unfunded liability.
Note 15. Cashout Advances
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
As of September 30, 2005 and 2004, the Unexpended Appropriations consist of the following:
FY 2005 FY 2004
FECA Actuarial Liability $ 39,380 $ 40,281
Unexpended Appropriations:
Unobligated
Available
Unavailable
Undelivered Orders
$ 1,887,884 $ 1,911,797
40,328 39,591
9,079,377 8,908,748
$ 11,007,589 $ 10,860,136
FY 2005
FY 2004
Total
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
94
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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 (Unaudited)
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.
The following reflects the Superfund Trust Fund maintained by Treasury as of September 30,
2005 and 2004. 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.
SUPERFUND FY 2005 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance
$ - $
7,212 $
7,212
Total Undisbursed Balance
-
7,212
7,212
Interest Receivable
-
4,180
4,180
Investments, Net
2,204,850
88,163
2,293,013
Total Assets
$ 2,204,850 $
99,555 $
2,304,405
Liabilities & Equity
Equity
$ 2,204,850 $
99,555 $
2,304,405
Total Liabilities and Equity
$ 2,204,850 $
99,555 $
2,304,405
Receipts
Corporate Environmental
$ - $
3,663 $
3,663
Cost Recoveries
-
62,978
62,978
Fines & Penalties
-
2,428
2,428
Total Revenue
-
69,069
69,069
Appropriations Received
-
1,247,477
1,247,477
Interest Income
-
52,540
52,540
Total Receipts
$ - $
1,369,086 $
1,369,086
Outlays
Transfers to/from EPA, Net
$ 1,261,913 $
(1,261,913) $
-
Total Outlays
1,261,913
(1,261,913)
-
Net Income
$ 1,261,913 $
107,173 $
1,369,086
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
95
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In FY 2005, the EPA received an appropriation for Superfund of $1,260.6 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, 2005 and 2004, the Treasury Trust Fund has a liability to EPA for previously appropriated
funds of $2,204.9 million and $2,402.1 million, respectively.
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
$ 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 EPA
$ 1,256,790 $
(1,256,790) $
-
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
During FY 2004, 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 at the end of FY
2004.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
96
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LUST (Unaudited)
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FYs
2005 and 2004 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.
LUST FY 2005 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance $
$
12,754 $
12,754
Total Undisbursed Balance
-
12,754
12,754
Interest Receivable
-
28,470
28,470
Investments, Net
86,584
2,398,823
2,485,407
Total Assets $
86,584 $
2,440,047 $
2,526,631
Liabilities & Equity
Equity $
86,584 $
2,440,047 $
2,526,631
Total Liabilities and Equity $
86,584 $
2,440,047 $
2,526,631
Receipts
Highway TF Tax $
$
182,953 $
182,953
Airport TF Tax
-
11,034
11,034
Inland TF Tax
-
456
456
Refund Gasoline Tax
-
(1,760)
(1,760)
Refund Diesel Tax
-
(2,643)
(2,643)
Refund Aviation Fuel
-
(342)
(342)
Refund Aviation Tax
-
(30)
(30)
Cost Recoveries
-
1,455
1,455
Total Revenue
-
191,123
191,123
Interest Income
-
77,666
77,666
Total Receipts $
$
268,789 $
268,789
Outlays
Transfers to/from EPA, Net $
69,440 $
(69,440) $
-
Total Outlays
69,440
(69,440)
-
Net Income $
69,440 $
199,349 $
268,789
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
97
Appendix I
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EPA Treasury
Combined
Undistributed Balances
Uninvested Fund Balance $
$
13,256 $
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 $
2,330,423
Liabilities & Equity
Equity $
89,725 $
2,240,698 $
2,330,423
Total Liabilities and Equity $
89,725 $
2,240,698 $
2,330,423
Receipts
Highway TF Tax $
$
180,763 $
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 $
255,759
Outlays
Transfers to/from EPA, Net $
75,552 $
(75,552) $
-
Total Outlays
75,552
(75,552)
-
Net Income $
75,552 $
180,207 $
255,759
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 Fiscal 2005 and 2004 Consolidated Financial Statements
98
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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, 2005, there are currently four CERCLA Section 106(b) administrative
claims and one contract claim. If the claimants are successful, the total losses on the
administrative and judicial claims could amount to approximately $38.2 million. The
Environmental Appeals Board has not yet issued final decisions on any of the 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, 2005, there are five 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 $5.9 to $15.9 million. The largest claim
(estimated range from $2 to $12 million, deemed reasonably possible) is a Fifth Amendment
taking claim arising out of a Clean Water Act enforcement action.
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, 2005, there are no material claims pending in the Treasury Judgment Fund.
However, EPA has a $22 million liability to the Treasury Judgment Fund for a payment made by
the Fund to settle a contract dispute claim.
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.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
99
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Note 20. Environmental Cleanup Costs
As of September 30, 2005, EPA has two sites that require clean up stemming from its activities.
Costs amounting to $18 thousand may be paid out of the Treasury Judgment Fund. (The $18
thousand represents the lower end of a range estimate, of which the maximum of the range will
total $30 thousand.) Both claimants' chance of success is characterized as reasonably possible.
Additionally EPA has one site ($80 thousand) characterized as remote chance of success. EPA
also holds title to a site in Edison, New Jersey which was formerly an Army Depot. While EPA
did not cause the contamination, the Agency could potentially be liable for a portion of the
cleanup costs. However, it is expected that the Department of Defense and General Services
Administration will bear all or most of the cost of remediation. In addition, EPA has one site
that has an unfunded environmental liability of $30 thousand
Accrued Cleanup Cost:
The EPA has 13 sites that will require future clean up associated with permanent closure. The
estimated costs will be approximately $7 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 2005 estimate for unfunded cleanup costs decreased by $1.4 million from the FY 2004
estimate. This decrease is due in large part to completion of cleanup at one facility. EPA could
also be potentially liable for cleanup costs, at a GSA-leased site; however, the amounts are not
known.
Note 21. 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, 2005, the total remaining state credits have
been estimated at $10.1 million. The estimated ending credit balance on September 30, 2004 was
$5.4 million.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
100
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Note 22. 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 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, 2005, EPA had 15 outstanding preauthorized
mixed funding agreements with obligations totaling $31 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. 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 2005 FY 2004
Fines, Penalties and Other Miscellaneous Receipts $ 150,816 $ 162,546
Accounts Receivable for Fines, Penalties and Other
Miscellaneous Receipts
Accounts Receivable
$ 167,533 $
103,847
Less: Allowance for Uncollectible Accounts
(51,954)
(51,630)
Total
$ 115,579 $
52,217
Note 24. Statement of Budgetary Resources
Budgetary resources, obligations incurred, and outlays, as presented in the audited FY 2005
Statement of Budgetary Resources, will be reconciled to the amounts included in the FY 2006
Budget of the United States Government when they become available. The Budget of the United
States Government with actual numbers for FY 2005 has not yet been published. We expect it
will be published by March 2006, 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 are included in EPA's FY 2005 financial statement disclosures.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
101
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FY 2004
Statement of Budgetary Resources
Funds Reported by Other Federal Entities
Adjustments to Unliquidated Obligations, Unfilled
Customer Orders and Other
Expired and Immaterial Funds*
Superfund payment received from BPD recorded in
68X2050
Rounding Differences**
Reported for Budget of the U. S. Government
Budgetary
Resources
Obligations Outlays
13,152,089
622
19,899
(86,572)
(1,257,536)
498
10,155,381 $ 9,697,183
(6,727)
6,322 6,108
8,644 (7)
1,380
(284)
11,829,000 $ 10,165,000 $ 9,703,000
* 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 25. 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:
FY 2005
FY 2004
Recoveries of Prior Year Obligations-downward
adjustments of prior years' obligations
$ 174,641 $
194,775
Temporarily Not Available-rescinded authority
(11,141)
(8,254)
Permanently Not Available:
Payments to Treasury
Rescinded authority
Canceled authority
(2,793)
(64,018)
(11,433)
(2,641)
(49,099)
(19,463)
Total Permanently Not Available
$ (78,244) $
(71,203)
Note 26. Unobligated Balances Available
The availability of unobligated balances consists of the following as of September 30, 2005 and
2004. 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.
Unexpired Unobligated Balance
Expired Unobligated Balance
Total
FY 2005
3,011,341
95,415
3,106,756~
FY 2004
2,903,849
92,859
2,996,708"
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
102
Appendix I
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Note 27. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt
accounts offset gross outlays. For FYs 2005 and 2004, the following receipts were generated
from these activities:
Trust Fund Recoveries
Special Fund Environmental Service
Downward Re-estimates of Subsidies
Trust Fund Appropriation
Total
FY 2005
FY 2004
66,419 $
20,176
436
1,247,477
1,334,508
74,063
13,688
5,554
1,257,536
1,350,841
Note 28. 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 2005 and 2004, the following line items are reconciled to the
increases or decreases in those liabilities.
Statement of Financing lines: FY 2005 FY 2004
Resources that fund prior period expenses (1,120) (13,855)
Components requiring or generating resources in
future periods:
Increases in environmental liabilities 99 1,244
Increase in contingencies 1,525 22,425
Increase in annual leave liabilities 3,889
Up/downward re-estimates of subsidy exp. 3
Total $ 4,396 $ 9,814
Increases (Decreases) in Liabilities Not Covered
by Budgetary Resources and Reconciling Items
Unfunded Annual Leave Liability $ 4,092 $ (7,029)
Unfunded Contingent Liability 325 1,607
Unfunded Judgment Fund Liability - 22,000
Unfunded Workers Compensation Liability (220) 664
Actuarial Workers Compensation Liability (901) (3,815)
Unfunded Clean-up Costs Liability 1,269 61
Unfunded Environmental Liability 30
Allowance for Subsidy - (3,097)
Subsidy re-estimates (199) (577)
Total $ 4,396 $ 9,814
Note 29. Costs Not Assigned to Goals
FY 2005's Statement of Net Cost by Goal has $3 million in gross costs not assigned to goals.
This amount is comprised of decreases of $0.2 million in overhead costs, $22 million in
operating expenses, $0.7 million in unfunded expenses; offset by increases of $16 million in
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
103
Appendix I
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undistributed payroll costs, $0.3 in depreciation expenses, $0.6 million in other expenses, and $3
million in loss on disposition of assets.
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.
Note 30. Transfers-In and Out, Statement of Changes in Net Position
Appropriation Transfers, In/Out:
For FYs 2005 and 2004, 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:
Fund/Type of Account
FY 2005
FY 2004
GSA Building Fund
$ - $
(1,538)
Appalachian Regional
-
60
Commission
S&T
(992)
-
EPM
5,694
1,630
Total Appropriation Transfers
$ 4,702 $
152
Net Transfers from Invested
1,328,667
1,332,342
Funds
Transfers to Other Agencies
4,736
(5,157)
Allocations Rescinded
10,620
7,911
Total of Net Transfers on
Statement of Budgetary
Resources $ 1,348,725 $ 1,335,248
Transfers In/Out Without Reimbursement, Budgetary:
For FYs 2005 and 2004 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:
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
104
Appendix I
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Type of Transfer/Funds
FY 2005
FY 2004
Transfers-out, nonexpenditure to
other federal agencies
Transfers-out, nonexpenditure, from
Treasury trust fund to CDC
Transfers-in, nonexpenditure, Oil
Spill
Total Transfers in (out) without
Reimbursement, Budgetary
$ (4,736) $ (5,157)
(30,763)
15,872 16,113
$ 11,136 $ (19,807)
Transfers In/Out without Reimbursement, Other Financing Sources:
For FYs 2005 and 2004 Transfers In/Out without Reimbursement under Other Financing Sources
on the Statement of Changes in Net Position are comprised of negative subsidy to a special
receipt fund for the credit reform funds. The amounts reported on the Statement of Changes in
Net Position are as follows:
Type of Transfer/Funds
Transfers of negative subsidy,
transfer-in paid and funded in year
following transfer-(out)
Transfers-out of prior year negative
subsidy to be paid following year
Total Transfers in (out) without
Reimbursement, Budgetary
FY 2005 FY 2004
$ - $ (436)
436
$ 436 $ (436)
Note 31. 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
2005 were $129.7 million. For FY 2004, the estimates were $126 million.
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 2005 entries for Judgment
Fund payments totaled $8.4 million. For FY 2004, entries for Judgment Fund payments totaled
$2.8 million.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
105
Appendix I
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Note 32. Payroll and Benefits Payable
Payroll and benefits payable to EPA employees for the years ending September 30, 2005 and
2004, consist of the following:
FY 2005 Payroll & Benefits
Payable
Accrued Funded Payroll & Benefits
Withholdings Payable
Employer Contributions Payable-
TSP
Other Post-employment Benefits
Payable
Accrued Unfunded Leave, WCF
Accrued Unfunded Annual Leave
Total - Current
FY 2004 Payroll & Benefits
Payable
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 - Current
Covered by
Budgetary
Resources
30,881
26,977
1,896
36
320
60,110
29,845
22,771
1,583
36
320
Not Covered by
Budgetary
Resources
130,284
130,284
126,191
Total
30,881
26,977
1,896
36
320
130,284
190,394
29,845
22,771
1,583
36
320
126,191
54,555
126,191
180,746
Note 33. 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.
FY 2005 FY 2004
Rescissions to General Appropriations $ 64,017 $ 49,105
Canceled General Authority 11,433 19,463
Total Other Adjustments $ 75,450 $ 68,568
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
106
Appendix I
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Note 34. Nonexchange Revenue, Statement of Changes in Net Position
The Nonexchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net
Position for FYs 2005 and 2004 consists of the following items:
FY 2005 FY 2004
Interest on Trust Fund Investments $ 130,206 $ 94,142
Tax Revenue, Net of Refunds 194,786 189,864
Fines and Penalties Revenue (26,506) 1,973
Special Receipt Fund Revenue 20,176 13,746
Total Nonexchange Revenue $ 318,662 $ 299,725
Note 35. Other, Statement of Financing
The Other balance of $1.9 million in the Statement of Financing represents a portion of the 1993
Cost Recovery received from the Uniroyal bankruptcy judgment that was transferred from the
Treasury Managed Receipt Account 20X8145.4 to the Superfund Trust Account 68-20X8145 in
FY 2005. The transfer was necessary in order to execute an expenditure that was ordered from a
February 2005 consent decree.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
107
Appendix I
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Environmental Protection Agency
Required Supplementary Information
As of September 30, 2005
(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 2005).
Trading
Partner
Accounts Other
Code
Agency
Investments Receivable Assets
4
Government Printing Office
957
11
Executive Office of the President
752
12
Department of Agriculture
194
13
Department of Commerce
945 134
14
Department of Interior
13,707
15
Department of Justice
392
16
Department of Labor
5
17
Department of the Navy
135
18
U. S. Postal Service
169 406
19
Department of State
(326) -
20
Department of the Treasury
4,811,065 1,828
21
Department of the Army
9,950
29
Federal Trade Commission
5
31
Nuclear Regulatory Commission
375
36
Department of Veteran Affairs
11
45
Equal Employment Opportunity
(101) -
Commission
47
General Services Administration
301
49
National Science Foundation
36
57
Department of the Air Force
222
61
Consumer Product Safety
8
Commission
64
Tennessee Valley Authority
(5) -
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
108
Appendix I
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Trading
Partner Accounts Other
Code Agency Investments Receivable Assets
69
Department of Transportation
3,704
70
Department of Homeland
Security
23,670
71
Overseas Private Investment
Corporation
(13)
72
Agency for International
Development
(581)
75
Department of Health and
Human Services
8,256
80
National Aeronautics and
Space Administration
175
86
Department of Housing and
Urban Development
67
89
Department of Energy
3,026
91
Department of Education
144
95
Independent Agencies
726
96
US Army Corps of Engineers
(7,687)
97
US Department of Defense
3,581
99
Treasury General Fund
210
00
Unassigned
2,179
Total $ 4,811,065 66,060 2,335
3. Intragovernmental Liabilities
Trading
Partner Accounts Accrued Other
Code Agency Payable Liabilities Liabilities
3
Library of Congress
-
107
98
4
Government Printing Office
-
1,040
1,957
10
The Judiciary
-
-
(18)
11
Executive Office of the
President
-
41
16
12
Department of Agriculture
-
785
1,851
13
Department of Commerce
888
4,704
4,468
14
Department of Interior
901
5,612
4,894
15
Department of Justice
617
5,858
9,865
16
Department of Labor
2,258
1,220
8,506
17
Department of the Navy
-
836
2,641
18
United States Postal Service
-
164
97
19
Department of State
-
22
-
20
Department of the Treasury
-
155
36,425
21
Department of the Army
-
-
2,992
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
109
Appendix I
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Trading
Partner
Code Agency
24
Office of Personnel
Management
31
US Nuclear Regulatory
Commission
33
Smithsonian Institution
36
Department of Veterans
Affairs
45
EEOC
47
General Services
Administration
49
National Science Foundation
50
Securities and Exchange
57
Department of the Air Force
59
Nat'l Foundation on Arts and
Humanities
63
Labor Relations Board
64
Tennessee Valley Authority
69
Department of Transportation
70
Department of Homeland
Security
72
Agency for International
Development
73
Small Business
Administration
75
Department of Health and
Human Services
80
National Aeronautics and
Space Administration
86
Department of Housing and
Urban Development
89
Department of Energy
93
Federal Mediation Service
95
Independent Agencies
96
US Army Corps of Engineers
97
Office of the Secretary of
Defense
99
Treasury General Fund
00
Unassigned
Total
S
Accounts Accrued Other
Payable Liabilities Liabilities
625 10,170
13 17
28 125
506 147
22
42,299 28,323
539 50
(11,377)
9,936
33
3
54 375
4,077 11,441
15,178 2,303 (44,126)
183
121 100
16 8,773 10,684
336 153
3 615
5,149 2,530
9
6 16,632
782 11,531 (177)
2,323 (734)
3,318
12 (110) (5,650)
20,652 99,184 106,530
For remaining intragovernmental liabilities $21,744 thousand in Debt is assigned to the Department of
the Treasury (trading partner Code 20), and $142,347 thousand in Custodial Liability is assigned to the
Treasury General Fund (trading partner Code 99).
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
110
Appendix I
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EPA has confirmed the year-end intragovernmental fiduciary assets, liabilities, revenue, and expenses
with the BPD, DOL, and 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.
Intragovernmental Earned Revenue $ 105,653
Associated Costs to generate above Revenue (Budget Functional Classification 304) $ 105,653
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
111
Appendix I
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5.
Environmental Protection Agency
Required Supplementary Information
Supplemental Statement of Budgetary Resources (Unaudited)
As of September 30, 2005
(Dollars in Thousands)
STAG
EPM
S&T
III RA
LUST
OTHER
TOTAL
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received
$
3,604,182
$ 2,313,409
$ 750,350
$
-
$
-
$ 1,364,679 $
8,032,620
Borrowing Authority
-
-
-
-
-
436
436
Net Transfers
-
5,694
(992)
-
70,000
1,274,023
1,348,725
Unobligated Balances:
Beginning of Period
1,452,575
331,925
285,394
2,533
6,287
917,994
2,996,708
Spending Authority from Offsetting Collections:
Earned and Collected
$
7,801
$ 63,476
$ 8,758
$
23,857
$
17
$ 453,783 $
557,692
Receivable from Federal Sources
-
5,651
(155)
-
-
(185)
5,311
Change in Unfilled Customer Orders:
Advance Received
-
2,107
(334)
4,159
-
31,683
37,615
Without Advance from Federal Sources
-
132,679
(2,300)
-
-
(12,235)
118,144
Transfers from Trust Funds Collected
-
-
55,942
-
-
13,630
69,572
Transfersf from Trust Funds, Anticipated
-
-
(20,134)
-
-
(756)
(20,890)
Total Spending Authority from Collections
$
7,801
$ 203,913
$ 41,777
$
28,016
$
17
$ 485,920 $
767,444
Recoveries of Prior Year Obligations
42,734
14,880
4,994
101
376
111,556
174,641
Temporarily Not Available Pursuant to Public Law
-
-
(289)
-
(560)
(10,292)
(11,141)
Permanently Not Available
(28,833)
(24,892)
(10,636)
-
-
(13,883)
(78,244)
Total Budgetary Resources
$
5,078,459
$ 2,844,929
$ 1,070,598
$
30,650
$
76,120
$ 4,130,433 $
13,231,189
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct
$ 3,6(
)8,484
$
2,315,355
$
825,674 $
-
$
70,660
$
2,753,523
$
9,573,696
Reimbursable
26
157,961
6,726
25,663
360,361
550,737
Total Obligations Incurred
$ 3,6(
) 8,510
$
2,473,316
$
832,400 $
25,663
$
70,660
$
3,113,884
$
10,124,433
Unobligated Balances:
Apportioned
1,469,949
297,045
220,896
4,987
5,460
1,020,352
3,018,689
Unobligated Balances Not Available
74,568
17,302
-
-
(3,803)
88,067
Total Status of Budgetary Resources
$ 5,078,459
$
2,844,929
$
1,070,598 $
30,650
$
76,120
$
4,130,433
$
13,231,189
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net S
3,557,975
$ 2,254,523 $
785,629
$
(2,454)
$
70,267
$ 2,516,410 $
9,182,350
Obligated Balances, Net - Beginning of Pd
8,272,160
690,182
535,704
2,348
85,008
1,622,374
11,207,776
Accounts Receivable
-
17,670
48,106
-
-
(804)
64,972
Unfilled Customer Orders from Federal Sources
-
257,791
6,720
-
-
157,501
422,012
Undelivered Orders, Unpaid
(7,855,707)
(746,822)
(530,333)
(1,413)
(76,486)
(1,425,248)
(10,636,009)
Accounts Payable
(395,439)
(198,864)
(97,460)
(1,536)
(8,042)
(285,749)
(987,090)
T otal Outlays $
3,578,989
$ 2,274,480 $
748,366
$
(3,055)
$
70,747
$ 2,584,484 $
9,254,011
Disbursements S
3,586,790
$ 2,340,064 $
812,732
$
24,961
$
70,763
$ 3,083,579 $
9,918,889
Collections
(7,801)
(65,584)
(64,366)
(28,016)
(16)
(499,095)
(664,878)
Less: Offsetting Receipts
-
-
-
-
-
(1,334,508)
(1,334,508)
Net Outlays $
3,578,989
$ 2,274,480 $
748,366
$
(3,055)
$
70,747
$ 1,249,976 $
7,919,503
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
112
Appendix I
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6.
Environmental Protection Agency
Required Supplementary Information
Working Capital Fund Condensed Statements
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
Balance Sheet
ASSETS
Intragovernmental
Fund Balance With Treasury
Accounts Receivable, Net
Other
Total Intragovernmental
(Unaudited)
FY 2005
69,401
55,100
509
125,010
(Audited)
FY 2004
53,559
27,874
555
81,988
Accounts Receivable, Net
Property, Plant & Equipment, Net
Other
4
14,159
205
20,426
53
Total Assets
139,378
102,467
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities
Other
Total Intragovernmental
28,071
67,191
95,262
29,788
30,413
60,201
Accounts Payable & Accrued Liabilities
Payroll & Benefits Payable
Other
Total Liabilities
14,226
1,556
4,986
116,030
11,108
1,451
6,726
79,486
NET POSITION
Cumulative Results of Operations
Total Net Position
23,348
139,378
22,981
102,467
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
113
Appendix I
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6.
Environmental Protection Agency
Required Supplementary Information
Working Capital Fund Condensed Statements
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
Statement of Cost
Exess of Costs
Cost of Goods Related Over/(Under)
and Services Exchange Exchange
FY 2005 (Unaudited) Product or Business Line Provided Revenue Revenue
Data Processing
$ 182,720 $
183,105 $
(385)
Postage
2,171
2,154
17
(Profit)/Loss from Operations
$ 184,891 $
185,259 $
(368)
Imputed Costs
779
Net (Profit)/Loss
$
411
Exess of Costs
Cost of Goods
Related
Over/(Under)
and Services
Exchange
Exchange
FY 2004 (Audited) Product or Business Line
Provided
Revenue
Revenue
Data Processing
$ 150,829 $
141,445 $
9,384
Postage
2,586
2,581
5
(Profit)/Loss from Operations
$ 153,415 $
144,026 $
9,389
Imputed Costs
804
Net (Profit)/Loss
$
10,193
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
114
Appendix I
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Environmental Protection Agency
Required Supplementary Stewardship Information (Unaudited)
For the Year Ended September 30, 2005
(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. EPA's 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 the risk assessment and risk management paradigm. Research 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. Research also provides the crucial underpinning(s) 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 environmental
effects 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 2005, the full cost of the Agency's Research and Development activities totaled over
$741 million. Below is a breakout of the expenses (dollars in thousands):
See Section II of the PAR for more detailed information on the results of the Agency's
investment in research and development. Each of EPA's strategic goals has a Science and
Research Objective.
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
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements 115 Appendix I
Programmatic Expenses
Allocated Expenses
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005
555,794 559,218 593,295 581,323 628,467
90,039 123,307 106,971 91,675 112,558
-------
significant contribution to the nation's water infrastructure, included sewage treatment plants,
pumping stations, and collection and intercept sewers, rehabilitation of sewer systems, and the
control of combined sewer overflows. The construction grants led to the improvement of water
quality in thousands of municipalities nationwide.
Congress set 1990 as the last year that funds would be appropriated for Construction Grants.
Projects funded in 1990 and prior will continue until completion. 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):
FY 2001
FY 2002
FY 2003
FY 2004
FY 2005
Construction Grants
63,344
149,841
15,845
48,948
21,148
Clean Water SRF
1,548,270
1,389,048
1,295,394
1,407,345
1,127,883
Safe Drinking Water SRF
728,921
708,528
842,936
802,629
715,060
Other Infrastructure Grants
282,914
367,259
582,091
341,767
385,226
Allocated Expenses
424,999
576,536
493,349
410,129
402,853
See the Goal 2 - Clean and Safe Water portion in Section II of the PAR for more detailed
information on the results of the Agency's investment in infrastructure.
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.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
116
Appendix I
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As of September 30, 2005, the Agency possesses the following land and land rights:
Superfund Sites with Easements
Beginning Balance 32
Additions 1
Withdrawals -
Ending Balance 33
Superfund Sites with Land Acquired
Beginning Balance 25
Additions 4
Withdrawals -
Ending Balance 29
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):
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005
Training and Awareness Grants 48,697 49,444 47,827 48,416 46,750
Fellowships 11,451 8,728 6,572 7,553 10,195
Allocated Expenses 9,744 12,827 9,808 8,826 10,199
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
117
Appendix I
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1.
Environmental Protection Agency
Supplemental Information (Unaudited)
Balance Sheet for Superfund Trust Fund
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005 FY 2004
ASSETS
Intragovernmental
Fund Balance With Treasury (Note SI)
$ 213,797 S
199,406
Investments
2,297,193
2,217,334
Accounts Receivable, Net
28,160
27,212
Other
9,859
6,781
Total Intragovernmental
$ 2,549,009 $
2,450,733
Cash and Other Monetary Assets
Accounts Receivable, Net
260,736
369,148
Property, Plant & Equipment, Net
49,530
47,821
Other
1,533
699
Total Assets
$ 2,860,808 $
2,868,401
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities
$ 105,386 S
140,781
Custodial Liability
26,763
-
Other
46,809
37,752
Total Intragovernmental
S 178,958 $
178,533
Accounts Payable & Accrued Liabilities
126,898
145,369
Pensions & Other Actuarial Liabilities
7,037
7,263
Cashout Advances, Superfund (Note S2)
270,811
259,361
Payroll & Benefits Payable
35,597
31,695
Other
43,392
46,211
Total Liabilities
$ 662,693 $
668,432
NET POSITION
Cumulative Results of Operations
2,200,115
2,199,969
Total Net Position
2,200,115
2,199,969
Total Liabilities and Net Position
$ 2,862,808 $
2,868,401
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
118
Appendix I
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Environmental Protection Agency
Supplemental Information (Unaudited)
Statement of Net Cost for Superfund Trust Fund
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005 FY 2004
COSTS
Intragovernmental !
S 330,839 $
368,045
With the Public
1,250,009
1,262,540
Expenses from Other Appropriations (Note S5)
90,167
82,776
Total Costs !
S 1,671,015 $
1,713,361
Less:
Earned Revenues, Federal !
S 24,827 $
27,450
Earned Revenues, Non-Federal
312,052
233,171
Total Earned Revenues !
S 336,879 $
260,621
Net Cost of Operations !
S 1,334,136 $
1,452,740
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
119
Appendix I
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Environmental Protection Agency
Supplemental Information (Unaudited)
Statement of Changes in Net Position for Superfund Trust Fund
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
Cumulative
Results of
Operations
FY 2005
Cumulative
Results of
Operations
FY 2004
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Nonexchange Revenue
Transfers In/Out
Trust Fund Appropriations
Income from Other Appropriations (Note S5)
Total Budgetary Financing Sources
Other Financing Sources:
Transfers In/Out
Imputed Financing Sources
Total Other Financing Sources
Net Cost of Operations
Net Change
Net Position - End of Period
$ 2,199,969 $ 2,350,037
$ 2,199,969 $ 2,350,037
29,697
(53,418)
1,247,477
90,167
20,359
20,359
(1,334,136)
146
2,200,115
30,239
(87,586)
1,257,537
82,776
1,313,923 $ 1,282,966
(1)
19,707
19,706
(1,452,740)
(150,068)
2,199,969
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
120
Appendix I
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Environmental Protection Agency
Supplemental Information (Unaudited)
Statement of Budgetary Resources for Superfund Trust Fund
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
BUDGETARY RESOURCES
Budgetary Authority:
Net Transfers
Unobligated Balances:
Beginning of Period
Spending Authority from Offsetting Collections:
Earned and Collected
Receivable from Federal Sources
Change in Unfilled Customer Orders:
Advance Received
Without Advance from Federal Sources
Total Spending Authority from Collections
Recoveries of Prior Year Obligations
Temporarily Not Available Pursuant to Public Law
Total Budgetary Resources (Note S6)
FY 2005
$ 1,274,023
823,713
S 250,487
648
25,798
5,789
S 282,722
104,852
(10,060)
$ 2,475,250
FY 2004
1,259,096
766,805
229,658
(7,853)
(44,218)
5,978
183,565
98,848
(7,464)
2,300,850
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct
Reimbursable
Total Obligations Incurred
Unobligated Balances:
Apportioned
Unobligated Balances Not Available
Total Status of Budgetary Resources
$ 1,369,647
175,211
S 1,544,858
930,373
19_
S 2,475,250
1,328,864
148,273
1,477,137
823,694
19_
2,300,850
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net
Obligated Balances, Net - Beginning of Period
Accounts Receivable
Unfilled Customer Orders from Federal Sources
Undelivered Orders, Unpaid
Accounts Payable
Total Outlays
Disbursements
Collections
Less: Offsetting Receipts
Net Outlays (Note S6)
$ 1,157,284
1,569,360
(5,240)
83,474
(1,320,488)
(225,698)
$ 1,258,692
$ 1,534,977
(276,285)
(64,964)
$ 1,193,728
1,194,724
1,838,503
(5,886)
77,685
(1,374,232)
(266,926)
1,463,868
1,649,308
(185,440)
(74,063)
1,389,805
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
121
Appendix I
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Environmental Protection Agency
Supplemental Information (Unaudited)
Statement of Financing for Superfund Trust Fund
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005
FY 2004
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred
j$: 1,544,858:$;
l,477,137i
Less: Spending Authority from Offsetting
Collections and Recoveries
j ; (387,574): |
(282,413)!
Obligations, Net of Offsetting Collections
;$; 1,157,284; $j
1,194,724 J
Less: Offsetting Receipts
J ' (64,964); S
(74,063) j
Net Obligations
= $; 1,092,320 :$t
1,120,661;
Other Resources
Transfers In/Out without Reimbursement,
Prop erty
y$; - \$l
0);
Tmputed Financing Sources
: : 20.35') ?
19,707 i
Income from Other Appropriations (Note S5)
f ; 90,167: ;
82,776 j
Net Other Resources Used to Finance Activities
{ $; 110,526:$;
102,482;
Total Resources Used T o Finance Activities
:$: 1,202,846'$:
023,143:
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated
j$; 82,049:$;
199,979 i
Resources that Fund Prior Period Expenses
; ; (278); ;
(2,243)1
Budgetary Offsetting Collections and Receipts
that Do Not Affect Net Cost of Operations:
Offsetting Receipts Not Affecting Net Cost
f : 64,964: ;
74,063;
Resources that Finance Asset Acquisition
I : (17,588): j
(16,104);
that Do Not Affect Net Cost
i (48,682): :
(51,666):
T otal Resources Used to Finance Items Not
Part of the Net Cost of Operations
i$: 80,465:$i
204,029 s
T otal Resources Used to Finance the Net
Cost of Operations
:$: 1.283.311 $
1,427,172;
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
122
Appendix I
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Environmental Protection Agency
Supplemental Information (Unaudited)
Statement of Financing for Superfund Trust Fund
For the Periods Ending September 30, 2005 and 2004
(Dollars in Thousands)
FY 2005 FY 2004
COMPONENTS OF NET COST OF OPERATIONS
THAT WILL NOT REQUIRE OR GENERATE
RESOURCES IN THE CURRENT PERIOD
Components Requiring or Generating Resources in ;
Future Periods: ; ; ;
Increase in Annual Leave Liability i $; 990 ; $; - ;
Increase in Public Exchange Revenue Receivable ; (87,714): (41,446);
Other (Note S8) ; 1,969;
Total Components of Net Cost of Operations that ; ;
Requires or Generates Resources in the Future $; (84,755); $; (41,446);
Components Not Requiring/Generating Resources: ;
Depreciation and Amortization ; 7,849; 7,939;
Expenses Not Requiring Budgetary Resources ; ; 127,730; 59,075;
Total Components of Net Cost of Operations ;
that Will Not Require or Generate Resources • $; 135,579; $; 67,014;
Total Components of Net Cost of Operations
That Will Not Require or Generate
Resources in the Current Period ; $; 50,824: $; 25,568;
Net Cost of Operations $ 1,334,136 $ 1,452,740
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
123
Appendix I
-------
Environmental Protection Agency
Supplemental Information (Unaudited)
Related Notes to Superfund Trust Financial Statements
Note SI. Fund Balance with Treasury for Superfund Trust
Fund Balances with Treasury as of September 30, 2005 and 2004 consist of the following:
FY 2005
Fund Balance $ 213,797
FY 2004
199,406
Fund balances are available to pay current liabilities and to finance authorized purchase
commitments (see Status of Fund Balances below).
Status of Fund Balances:
Unobligated Amounts in Fund Balances:
Available for Obligation
Unavailable for Obligations
Net Receivables from Invested Balances
Balances in Treasury Trust Fund
Obligated Balance not yet Disbursed
FY 2005
930,373 $
19
(2,191,759)
7,212
1,467,952
FY 2004
823,694
19
(2,381,849)
188,182
1,569,360
Totals
213,797
199,406
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.
Note S2. 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.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
124
Appendix I
-------
Note S3. 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, 2005, the total remaining state credits have
been estimated at $10.1 million. The estimated ending credit balance on September 30, 2004 was
$5.4 million.
Note S4. 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 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, 2005, EPA had 15 outstanding preauthorized
mixed funding agreements with obligations totaling $31 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 S5. 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.
During FYs 2005 and 2004, 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.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
125
Appendix I
-------
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 2005
Expenses From
Other
Appropriations
Income From
Net Other
Effect Appropriations
FY 2004
Expenses From
Other Net
Appropriations Effect
Superfund
All Others
Total
90,167
(90,167)
(90,167)
90,167
82,776
(82,776)
(82,776)
82,776
In addition, the related general support services costs allocated to the Superfund Trust Fund from
the S&T and EPM funds are $6.9 million for FY 2005 and $14.1 million for FY 2004.
Note S6. Statement of Budgetary Resources, Superfund
Budgetary resources, obligations incurred, and outlays, as presented in the audited FY 2005
Statement of Budgetary Resources, will be reconciled to the amounts included in the FY 2006
Budget of the United States Government when they become available. The Budget of the United
States Government with actual numbers for FY 2005 has not yet been published. We expect it
will be published by March 2006, 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 are included in EPA's FY 2005 financial statement disclosures.
FY 2004 Budgetary obligations Outlays
Resources
Statement of Budgetary Resources $ 2,300,850 $ 1,477,137 $ 1,463,868
Funds Reported by Other Federal Entities 18,714 5,137 6,108
Expired Funds* 5,885 5,904
Rounding Differences** (449) (178) 24
Reported for Budget of the U. S. Government $ 2,325,000 $ 1,488,000 $ 1,470,000
* 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).
** Balances are rounded to millions in the Budget Appendix.
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Note S7. Superfund Eliminations
The Superfund Trust Fund has intra-agency activities with other EPA funds which are eliminated
on the consolidated Balance Sheet and the Statement of Net Cost. These are listed below:
FY 2005
FY 2004
Advances
6,749
Expenditure Transfers Payable
Accrued Liabilities
Expenses
$22,663
Transfers
$52,008
$ 9,256
$48,903
$ 6,398
$69,793
$ 3,916
$29,674
$49,097
Note S8. Other, Statement of Financing
The Other balance of $1.9 million in the Statement of Financing represents a portion of the 1993
Cost Recovery received from the Uniroyal bankruptcy judgment that was transferred from the
Treasury Managed Receipt Account 20X8145.4 to the Superfund Trust Account 68-20X8145 in
FY 2005. The transfer was necessary in order to execute an expenditure that was ordered from a
February 2005 consent decree.
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2.
Environmental Protection Agency
Supplemental Information (Unaudited)
Financial Management Plans and Reports (OMB Circular A-ll, Section 52.4a)
For the Year Ended September 30, 2005
The information contained in this section addresses the U.S. Environmental Protection
Agency's (EPA's) compliance with the Office of Management and Budget (OMB) Circular A-ll,
Section 52.4(a). These issues, including financial management goals and strategies, financial
management performance, andfinancial management systems framework, are discussed below.
FINANCIAL MANAGEMENT GOALS AND STRATEGIES
EPA has assembled a talented cadre of financial managers whose strategic vision and
tactical planning have expanded the financial management frontier within EPA. Based on their
vision, the Agency embarked on an ambitious program of improvements in financial
management processes, information quality and accessibility, and the financial management
system. In addition, EPA successfully planned and implemented financial management
initiatives in response to new legislation and new or revised requirements from central guidance
agencies. With such a future-and results-oriented culture already established, it was easy for
EPA to embrace the principle of continuous improvement embodied in the President's
Management Agenda (PMA).
EPA constantly reassesses its financial management goals and its progress in achieving
them. Externally, our success is measured by:
• our continued ability to meet the evolving PMA standards for a "Green" status score
for the initiative on Improved Financial Performance,
• our continued progress toward a "Green" status score for the initiative on Budget and
Performance Integration, and
• our upgrade from a "Red" to "Yellow" status score for the initiative on Eliminating
Improper Payments.
In addition, EPA has met major financial management milestones that support the
maintenance of a "Green" status score for the initiative on E-Government and a "Green"
progress score for the initiatives on Human Capital and Competitive Sourcing. Although EPA is
proud of its record of success, it recognizes that it must continue to "push the envelope" in order
to help the Agency achieve its environmental objectives in a cost effective manner.
In the near term, the enhanced internal control requirements in OMB Circular
A-123 will strengthen our existing management integrity efforts and provide a platform to
broaden our scope and expand our focus on programmatic efficiency and effectiveness. This
activity will complement efforts planned or underway to achieve economies of scale and develop
and enhance financial information tools to meet the decision making needs of EPA managers.
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EPA's financial management strategy focuses on running environmental programs in a
fiscally responsible manner, so that government's resources are used wisely and effectively to
protect human health and the environment. Implementation of the strategy requires effective
stewardship of the Agency's resources by:
• carefully overseeing, capturing, and recording the full costs of transactions,
• maintaining strong internal controls and proper accounting practices,
• maintaining clean audit opinions,
• producing timely, accurate financial information,
• making timely and appropriate payments, and
• ensuring that resources are appropriately expended and linked to results.
Year after year, EPA has set ambitious milestones and sought innovative and efficient
techniques to continually improve and achieve strong performance. The Agency's vision for
improving its financial management performance consists of continuing improvement efforts in
the areas described below.
• Streamline Financial Management Processes—EPA is implementing more
responsive financial management processes to utilize the Agency's resources more effectively
and meet the needs of financial managers. A consolidation of financial functions is currently
underway, and a modern financial management system framework is in the development phase.
• Develop Useful Information for Decision Making—EPA managers make decisions
every day that directly and indirectly affect the Agency's ability to protect human health and the
environment. EPA's challenge under the PMA is to ensure that decision makers have access to
the financial information necessary for informed decisions. To accomplish this, EPA established
a strategic approach to enhance the decision making in grants management; redefined the
Agency's accounting output to better capture cost information; worked to integrate budget and
performance data; and provided a Web-based reporting tool (ORBIT) to more managers.
• Improve Financial Operations and Increase Accountability—Continuous
improvement is central to all financial management activities in EPA: internal control programs,
financial management operations and practices, and customer service. In FY 2006, EPA will add
the Integrated Financial Management System (IFMS) as a new business line in the Working
Capital Fund on a pilot basis, and will establish base-line performance measures and build on
internal controls to enhance business operations. This change will allow regional and
Headquarters offices to receive better information on the financial management costs associated
with their programs.
• Provide Support to Other PMA Initiatives—As an Agency that strives for
continuous improvement, EPA supports financial efficiencies for other PMA initiatives such as
competition, technical innovation, and a knowledgeable and competent workforce. To foster
competition and to encourage continual evaluation of the Agency's problem solving capabilities,
competitive sourcing initiatives are incorporated into financial management proposals to foster
the highest quality of cost-effective services. E-gov initiatives, like competitive sourcing
initiatives, look beyond EPA's current capabilities and consider how to meet future needs.
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EPA's initiatives are reliant upon an effective workforce that proactively examines
environmental challenges and offers versatile solutions.
• Develop the Competencies and Leadership to Meet Future Financial Management
Requirements—The ability to establish and achieve ambitious targets and goals is crucial to
continuous improvement, and the key to achieving the Agency's financial management goals is
our employees. To ensure that EPA continues to have the skills, the vision, and the leadership it
needs to meet current and future financial management requirements, the Office of the Chief
Financial Officer (OCFO) has developed and implemented a human capital strategy. During FY
2005, OCFO focused on hiring strategies that take into account both current and long-term skill
needs. Training and development of existing staff in core competency and leadership areas
continues to be a high priority.
EPA has laid the foundation to develop many of the tools that will support the Agency in
the coming years. For instance, a high-level vision has been established to replace legacy system
that integrate how the Agency captures and conveys financial and performance information. In
addition, EPA will ensure that the Agency's internal controls are effective in achieving the
Agency's strategic goals. Building upon this foundation, EPA expects to continue demonstrating
that its financial management operations, programs, and staff are flexible and adaptable enough
to meet current and future financial management needs.
FINANCIAL MANAGEMENT PERFORMANCE
This section summarizes EPA's progress in improving financial management
performance and describes EPA's approach for ensuring continuing favorable audit opinions and
plans for developing and maintaining relevant and timely financial reporting practices.
Streamline Financial Management Processes
Consolidation of Financial Functions. To take the Agency to the next level of
performance, EPA is re-aligning financial functions from regional offices into Finance Centers
of Excellence to focus on major accounting functions and customer service responsibilities. By
consolidating these functions from 14 locations to the four finance centers, EPA will improve
efficiency by streamlining operations; increasing uniformity and consistency in the interpretation
and application of policies, rules, and regulations; eliminating communication problems; and
saving tax-payers dollars. During FY 2005, three regions transferred some or all of their finance
operations for grants, travel, and accounts receivable to the Centers of Excellence. In addition,
major union issues were resolved. The remaining accounting functions will be transferred to the
four Centers of Excellence by the end of CY 2006.
Financial System Modernization. EPA plans to implement a state of the art financial
system in 2008 to replace IFMS, the core accounting system. The new system environment will
support the Financial Management Line of Business by providing that the system be operated by
a Center of Excellence outside EPA. During FY 2005, a Financial System Modernization Team
was staffed, focus groups were created to develop requirements for the new system, and an
acquisition strategy and Concept of Operations (CONOPS) were developed. The CONOPS and
other documents are available at the EPA Internet at http://www.epa.gov/ocfopage/.
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Develop Useful Information for Decision-Making
Budget and Performance Integration. Budget and performance integration (BPI) is a
key component of EPA's quest for better performance, increased accountability, better informed
decision making, and more transparent, comprehensive reporting of environmental results to the
public. This initiative aligns the management of EPA's financial and human resources with the
effective delivery of environmental results.
A comprehensive Agency-wide performance measurement improvement strategy was
developed to promote improved measures through consideration of environmental indicators,
assessment of program management requirements, and establishment of measurement
implementation plans. This strategy has supported the efforts of the program offices to establish
more outcome-oriented annual performance goals and measures as well as efficiency measures.
EPA is in the process of revising its Strategic Plan under the Government Performance and
Results Act (GPRA) covering the timeframe from 2006-2011. The Strategic Plan will be the
basis for EPA's FY 2008 President's Request and for the FY 2007 execution and performance
reporting under GPRA. Our goals for this revision include strengthening the linkage between
and integration of budget and cost information, enhancing the availability and use of this
information in setting priorities and making resource allocation decisions, and in promoting
accountability for results within the Agency.
The Performance Accountability Report (PAR), which consolidates Agency-wide
programmatic performance information, is one of the primary methods for sharing EPA's
progress on environmental protection with citizens and EPA employees, and therefore must
describe a clear, comprehensive picture of EPA's major achievements. EPA is redesigning the
PAR as part of a larger effort to merge information systems housing performance data with those
containing budget data. This effort will enhance public access to highly technical information,
make that information more meaningful to EPA employees, and increase the public's
understanding of the costs and expected results from EPA's programs.
The most recent PMA Scorecard (September 30, 2005) rated EPA "Yellow" for status
and "Green" for progress made in reaching BPI milestones and goals during the Fourth Quarter.
EPA continues its efforts to improve performance measurement and integrate budget and
performance information to manage and deliver the Agency's environmental protection results.
The Program Assessment Rating Tool (PART) administered by the Office of Management and
Budget (OMB), is a core element of the BPI initiative and a systematic method of assessing the
performance of program activities across the federal government. As a diagnostic tool, the
PART is used to evaluate program performance and identify areas for program improvement.
Programs subject to a PART assessment are required to have OMB-approved annual, long-term
efficiency measures. The PART assessments process has heightened the Agency's attention,
adoption, and utilization of new performance and efficiency measures to strengthen resource and
program management and deliver environmental results.
Since many of these efficiency measures are new - adopted as recently as the FY 2006
budget formulation process - the Agency does not, in all cases, have data to support these
measures. Currently, the Agency has completed PART assessments of 32 programs (including
12 new programs in the FY 2006 annual planning and budgeting process), covering more than 60
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percent of the Agency's budget. The Agency has OMB-approved efficiency measures for 28 of
the 32 programs that were assessed by the PART during the FY 2004, FY 2005, and FY 2006
budget formulation processes. For those measures currently without data, the Agency is working
hard to collect the necessary data and establish performance baselines and ambitious targets.
The Agency made significant progress in developing outcome-oriented performance and
efficiency measures and in demonstrating the ability to calculate the marginal cost of changing
performance goals. As a result of the PART exercise, organizations across the Agency have an
increased awareness and dedication to program performance by using performance data to
inform management of their environmental programs. Through these initiatives and other
actions to tie Agency resources to performance and results, EPA can point to significant
accomplishments against the PMA's standards of success.
Data Integration. In a complementary PMA effort to produce useful information, EPA
has undertaken a multi-office data integration effort highlighting the use of financial information
to improve program efficiency and ensure sound financial management. The development and
application of the Agency's strategic plan for Data Integration is an iterative process.
Given the magnitude and complexity of EPA's mission, the Agency has committed to
focusing on one business process at a time. Grants management was chosen as the first area for
review. EPA is focused on reviewing and understanding the integration of financial and grants
management information. The Agency's focus on linking grants management and financial data
will produce better information to ensure that projects funded by grants achieve EPA's
environmental objectives and grant recipients are technically competent to carry out the work.
EPA has developed baselines, targets, and milestones to measure its success. The
collective implementation and completion of these milestones will help to ensure the integration
of IFMS (or its replacement) and Integrated Grants Management System (IGMS) data, ultimately
resulting in the elimination of duplicate data entry and maximum availability of Pre-A ward and
Post-Award data.
In FY 2006, the Agency will focus on finalizing the Dun and Bradstreet Data Universal
Numbering System Number Integration task under the Vendor Table Integration milestone;
defining the requirements of an Integrated Reporting Platform; and configuring the Websphere
application integration interface under the IGMS/IFMS Interface milestone. In addition, the
Agency will refine its baseline estimate of unliquidated obligations for closed (or expired) grants
by reconciling the remaining (99) unmatched records between IGMS and IFMS. EPA also will
continue its efforts to finalize the identification of FY 2004 erroneous payments to non-profit
recipients.
In future efforts, the Agency anticipates undertaking similar analyses of other key risk
areas, including debt management, contracts management, and relevant areas captured by the
CFO metrics.
Chief Financial Officers (CFO) Council Government-wide Metrics. The CFO Council
Metric Tracking System (MTS) has been tracking government-wide results with nine metrics in
six financial management categories for all CFO Act Agencies since FY 2003. During the fourth
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quarter of FY 2005, MTS tracked Agency performance, and EPA has achieved a "Green" status
for four of the CFO Council Government-wide Metrics tracked by MTS. We have corrective
action plans are in place for the remaining metrics.
OCFO Reporting and Business Intelligence Tool (ORBIT). ORBIT assimilates EPA's
financial, administrative, and program performance information and provides an enterprise-wide,
Web-based interface to assist Agency managers in making more informed decisions about their
programs and operations. In FY 2005, EPA established program and regional office information
centers and developed core budgeting and financial standard reports for ORBIT. This initiative
provided the Agency business consistency and a common platform to build the same reports
using the same data parameters from the same data source. EPA also worked to develop
ORBIT's Commitment Tracking Module, which will make program performance data more
readily available across the Agency and establish the foundation to emphasize the linkage of cost
and performance information. Finally, EPA implemented a new version of ORBIT, which added
a new data source for budget and financial reports, enhanced functionality.
For FY 2006, Phase III development will focus on business intelligence analytics,
program cost accounting reporting, resources management, customization of program and
regional "information centers," and will begin to provide available Commitment System
performance data and PART assessment information. An outreach campaign will help the
Agency executives, managers, and staff to integrate ORBIT into daily management and decision
processes.
Improve Financial Operations and Increase Accountability
Eliminating Improper Payments. The PMA initiative on Eliminating Improper
Payments is focused on identifying, preventing, and eliminating erroneous payments. An
improper payment occurs when federal funds are paid to the wrong person or entity, the recipient
is paid an incorrect amount, or the recipient uses the funds improperly. This initiative is
important because taxpayers need to know that the government is using their tax dollars for their
intended purpose. Although the magnitude of improper payments government-wide is unknown,
17 agencies reported over $45 billion of improper payments in 41 programs in FY 2004.
The Improper Payments Information Act of 2002 (IPIA) and subsequent guidance from
OMB required federal agencies to analyze the risk of improper payments for their highest risk
programs and prepare corrective action plans for those programs with significant risk.
Significant risk is defined as improper payments to either primary recipients or their sub-
recipients in excess of 2.5 percent of total program dollars and $10 million.
To comply with IPIA requirements, EPA assessed its rate of improper payments in FY
2003 by performing risk assessments on grants, contracts, payroll, and travel cards/purchase
cards. All four areas were determined to be "low risk" for improper payments based on the legal
guidelines. Across all programs, EPA's error rate for primary recipients was less than 1 percent.
In addition, the findings confirmed strong business management practices throughout the
Agency.
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Even though EPA's improper payments were minimal, EPA espouses the notion of
continuous improvement. Because the Clean Water State Revolving Fund (CWSRF) and the
Drinking Water State Revolving Fund (DWSRF) are former Section 57 programs, EPA is
required to submit an IPIA corrective action plan for them. The Agency's corrective action
proposed to reduce the error rate of improper payments in the CWSRF and DWSRF from 0.51%
to 0.35% over a three-year period.
EPA's challenge for the CWSRF and DWSRF improper payments initiative is to broaden
the scope of payment reviews. Through FY 2004, the Agency reviewed only direct payments
and found an error rate of 0.00 percent. For FY 2005, EPA is including a judgmental sample of
sub-recipient payments in the review process. In FY 2006, EPA will conduct statistically valid
samples of grants payments to sub-recipients in New Hampshire and South Carolina and assess
the results of a Single Audit in Texas.
Consistent with IPIA requirements, EPA implemented a recovery audit program.
Although the final report is not due until the end of October, preliminary results indicate that the
error rate was less than 0.01 percent. (For more information on this initiative see the IPIA Report
on page 86.)
Clean Audit Opinions. Because a clean audit opinion is a top management priority, all
financial statements have been submitted timely and with clean opinions for the last five years.
EPA's approach to guarantee that the Agency obtains clean audit opinions in the future is as
follows:
• Strengthen the Quality Assurance Program. EPA's Quality Assurance Program
focuses on management's responsibility for internal control through effective quality
assurance processes and reviews. In FY 2005, EPA revised its Quality Assurance Guide
(QA Guide) to reflect new or revised government-wide requirements and EPA policies and
procedures. The QA Guide is available at the OCFO website. To continue the QA
program's success, OCFO is conducting a training class in December 2005 for Agency
finance personnel.
• Automate the Statement Preparation Process. The Agency is in the process of
developing an automated procedure for identifying abnormal general ledger balances.
Implementing the new procedure will ensure the reliability of the underlying data and allow
EPA to shift resources from the mechanics of report preparation to detailed transaction
analysis and explanation of results.
• Resolve Audit Issues Quickly and Completely. The Office of Inspector General
(OIG) made 32 audit recommendations subsumed under ten reportable conditions, none of
which is material, and four noncompliance issues in its audit report on the FY 2004 financial
statements. EPA submitted corrective action plans for all reportable conditions and
compliance issues within ten months of OIG's FY 2004 Financial Statements Audit. EPA
will continue to emphasize quick resolution of audit issues and implementation of corrective
actions that avoid recurrences.
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• Implement OMB Circular A-123 Aggressively. EPA is evaluating its existing
internal control programs to comply with the standards defined in OMB Circular A-123,
Management's Responsibility for Internal Control. EPA has developed and submitted to
OMB an implementation plan that ultimately will provide reasonable assurance that internal
controls for financial reporting are adequate to carry out the Agency's mission effectively
and efficiently. EPA's approach to implementing OMB Circular A-123 involves the
following four steps: (1) Incorporate new requirements into the Agency's existing
management integrity process and communicate changes to Agency managers and staff; (2)
Conduct a high-level assessment and identify areas of risk and concern in the Agency's
management integrity process by applying the fine control standard outlined in OMB
Circular A-123; (3) Develop test plans and evaluate results in key risk areas and areas of
concern agreed to by the Senior Management Council; and (4) Take necessary action to
establish the ability to provide reports of reasonable assurance. In the future EPA will use its
Quality Assurance Program in conjunction with the implementation of OMB Circular A-123
to ensure that internal controls are in place and adequate to ensure that the Agency's
strategic goals are achieved.
Relevant and Timely Financial Reporting Practices. EPA has successfully managed its
financial statement acceleration effort, which is critical to achieving a clean audit opinion. If this
information is to be optimally useful to Agency managers, Congress, and others, data must be
produced as quickly as possible after the reporting period ends. The Agency adopted
government-wide "best practices," such as ensuring senior management commitment, tracking
progress, using estimates and accruals to facilitate reporting, and holding bi-weekly audit status
meetings with the Chief Financial Officer and the Inspector General. In FY 2005, EPA produced
accurate and timely accelerated interim quarterly financial statements, completed Quality
Assurance Reviews to ensure the accuracy of Agency financial data, and automated preparation
of the Statement of Net Costs by Goal.
EPA will continue to produce accelerated audited statements, timely, accurate, and useful
interim statements, and timely financial data to assess program costs and aid the annual budget
formulation process. To make financial data more readily available for reconciliation purposes,
EPA will utilize ORBIT, EPA's business intelligence reporting tool. EPA's Closing Package,
needed for the preparation of the Financial Report (FR) of the U. S. government will continue to
be submitted to an Internet-based application used to aid in the preparation of the FR in
accordance with Government-wide Financial Reporting System (GFRS) requirements.
Furthermore, EPA is working towards automating preparation of the Statement of Budgetary
Resources and Intra-governmental (Trading Partner) report data. By consistently meeting the
accelerated due dates for the Annual Report and completing interim financial statements (first
quarterly, subsequently monthly), EPA provides timely and reliable information to the public.
Provide Support to Other PMA Activities
Competitive Sourcing. EPA utilizes competitive sourcing to ensure effective use of the
federal workforce and the highest quality of services. In FY 2005, as part of the first Agency
standard competition, 26 employees providing vendor payment services were placed in head-to-
head competition against private sector businesses. EPA's finance center at Research Triangle
Park (RTP) convincingly demonstrated that its process for handling the Agency's vendor
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payments is the most cost-effective for EPA. As a result, the Agency will consolidate all vendor
payment services, currently done in eight locations, into RTP. This streamlined, consolidated
approach to the work is expected to save EPA approximately $3.5 million over a five-year
period.
E-Gov. EPA made great strides this year to advance finance related e-government and
line of business initiatives based on the PMA.2 EPA's Financial Management System
Framework leverages today's technology to support efficiencies across government. A general
theme is gaining economies of scale by reducing the number of financial systems operated by
individual agencies. Instead, agencies will purchase hosting and other services from external
providers. E-gov initiatives are discussed below in the Financial Management Systems section.
Human Capital Management. All financial managers linked their performance
standards to the five goals in the Agency's Strategic Plan. In addition, we adopted the new
Performance Appraisal Management System for managers and employees.
Develop Leadership and Provide Staff with Adequate Tools
OCFO Human Capital Strategy. OCFO continues to implement its Human Capital
Strategy. During FY 2005, OCFO established a workforce team to assist in developing the
action plan to enhance communication of Human Capital initiatives throughout OCFO. OCFO
completed a comprehensive review of its workforce requirements, identified skills and
competencies needed for success, and established training programs to address skill gaps. For
example, OCFO initiated a series of project management courses leading to a Project
Management Certificate. As a result, several participants in this training have assumed
leadership roles in high-visibility projects or management activities within OCFO. In addition,
OCFO focused on aligning its hiring strategies with its strategic workforce plan. Offices within
OCFO were challenged to develop hiring plans that address both current and long-term skill
needs. OCFO expanded its use of alternative means to fill vacancies through details, term
positions, and telework arrangements. In addition, OCFO continues to target a diverse student
population for internships and other part-time positions and take advantage of the Agency's
entry-level programs. Consequently, OCFO benefits from their contributions.
FINANCIAL MANAGEMENT SYSTEMS FRAMEWORK
Nowhere is EPA's commitment to continuous improvement more apparent than in the
Agency's financial management system. The system architecture contributed to EPA's winning
of the 2003 Presidential Quality Award for Improved Financial Performance. EPA is in the
process of developing a modern financial system infrastructure to help EPA better manage the
resources that support our environmental mission, more accurately measure the true costs of
environmental programs, and better inform the public. EPA's new system architecture will be
based on commercial off-the-shelf software that complies with today's standards for usability,
functionality, security, and internal controls. Our long term vision for financial systems is laid
out in detail at httD://www.eDa.gov/ocfo/niodernization/index.htni. Readers are referred in
2 See "Expanding E-Government: Partnering for a Results Oriented Government" issued by the White House
December 2004 http://www.whitehouse.gov/omb/budintegration/expanding egovl2-2004.pdf
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particular to the Concept of Operations (CONOPS) for the Financial System Modernization
Project posted on this website.
Financial Management Line of Business. The Financial Management Line of Business,
sometimes termed e-finance, seeks to achieve process improvements and cost savings in
acquisition, development, implementation, operation of the financial management systems
through shared services, joint procurements, consolidation, and other means; standardize
business processes and data elements; promote seamless data exchange among federal agencies;
and strengthen internal controls through real-time interoperability of core financial systems. To
achieve these goals, federal agencies will purchase financial system hosting services from a
Center of Excellence (external host) in either the public or private sector. EPA's financial
management systems vision and strategy follow this approach.
Financial System Modernization. EPA plans to implement a state of the art financial
system in FY 2008. IFMS is EPA's current core financial system. It dates back to the late
1980s. Over the years it has been enhanced to meet various growing needs. At the same time,
government-wide requirements have become far more stringent. For example, today's greater
emphasis on financial accountability, internal controls, and security coupled with the accelerated
deadlines for agency financial statements place increasing stress on the legacy system. Today's
market offers a range of modern products that have been certified as acceptable for use by
federal agencies.3
EPA's objectives for the new core financial system include aligning with the
government-wide Financial Management Line of Business; improving agency financial
performance through streamlining and automation; improving financial service to internal and
external customers; facilitating compliance with today's information security standards;
improving financial accountability; and improving integration of budget and performance.
In FY 2005, EPA developed an acquisition strategy to obtain hosting services from a
Center of Excellence, financial system software, and a contractor to implement the new core
financial system. To support the acquisition and guide system development, a Financial System
Modernization Team was staffed, focus groups were created to develop requirements for the new
system, and a Concept of Operations (CONOPS) was developed. The CONOPS and other
documents are available on the EPA Internet. Vendor selection is scheduled for spring 2006, and
full implementation of the new system is scheduled for 2008.
E-Payroll. E-Payroll seeks to gain economies of scale by reducing the number of civilian
agencies that process their own payroll. In FY 2005, EPA implemented a fully integrated, Web-
based payroll-human resource system. The new system uses commercial software to streamline
and automate business processes and provides the technical foundation for EPA's participation in
e-payroll. EPA made technical preparations to migrate the payroll processing portion of the
payroll-human resources system to the Defense Financial and Accounting Service (DFAS),
scheduled for completion in FY 2006. In addition, EPA began preparations for migrating certain
human resource processing functions to a central service center pursuant to the Human
Resources Line of Business.
3 See .
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E-Travel. E-Travel seeks to reduce the costs of processing employee travel by using
centralized electronic travel service providers to automate the entire process from making
reservations to reimbursing travelers. In FY 2005, EPA selected a service provider and began
implementing the service provider's reservations process. Full implementation is scheduled for
the end of CY 2006.
Data Warehousing and Reporting Tools. Data Warehousing and Reporting Tools bring
data from different applications to user desktops to guide management resource decisions and to
link cost with performance. In FY 2005, EPA rolled out a flexible Administrative Data Mart
(ADAM) to serve as a source for ORBIT and added new reports to the ORBIT menu. FY 2006
and FY 2007 efforts will focus on business intelligence analytics and improved reports.
Budget and Planning. One of the major financial tools used by the Agency for
improving financial performance and budget management is the Budget Automation System
(BAS). BAS accomplishes "horizontal fusion" of budget and performance data throughout the
10 EPA regions and headquarters program offices, totaling 2,507 users. By using cutting-edge
database technology, BAS provides Agency-wide, real-time access to budget planning,
formulation, and analysis tools. BAS links budget dollars directly to the achievement of the
Agency's strategic goals and objectives, which directly supports EPA's Government
Performance Results Act (GPRA) compliance efforts.
Cost Recovery and Imaging. The existing application summarizes spending on
Superfund cleanup sites and supports the recovery of the costs. EPA is exploring options for
replacing this system with a more modern commercial product.
Application Integration. Application integration middleware is the switchboard
mechanism that allows applications to communicate with each other without costly system
specific interfaces. In FY 2005, EPA implemented an application integration tool as part of the
deployment of our Web-based integrated payroll-human resource system and ADAM and
developed a strategy for linking other information.
In conclusion, EPA expects to remain in the forefront of federal financial management.
Further, the Agency will maximize the benefits from its PMA initiatives to ultimately protect the
environment and save taxpayers' dollars.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
138
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3.
Environmental Protection Agency
Supplemental Information (Unaudited)
Improper Payments Information Act of 2002 (IPIA) Report
For the Year Ended September 30, 2005
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," defined by the IPIA as payments exceeding $10 million and 2.5% of program
payments. Because the Clean Water and the Drinking Water State Revolving Funds (SRFs) are
former Section 57 programs, EPA is required to submit an IPIA corrective action plan for them.
The Agency's corrective action proposed to reduce the error rate of improper payments in the
SRFs from 0.51 percent to 0.35 percent over a three-year period. EPA surpassed the FY 2005
target of 0.45 percent. The error rates for these two programs were as follows:
Program: Clean Water and Drinking Water SRFs
Fiscal
Year
Outlays
Erroneous Payments
Error Rate
2004
$2.1 billion
$10.3 million
0.47 percent
2005
$1.9 billion (est.)
$3.1 million
0.16 percent
II. STATISTICAL SAMPLING PROCESS: In FY 2005, EPA revised its corrective action plan
for the two SRFs. Based on the FY 2005 Measurement Plan approved by OMB, EPA pulled a
statistical random sample of 252 direct payments from a population of 8,538 direct grant
payments (126 transactions for each SRF). The error rate for the direct payment sample was 0.00
percent. Additionally, the Agency committed to reviewing a judgmental sample of at least 100
sub-recipient level payment transactions for each SRF during FY 2005. Only $3.1 million of the
$555.1 million sub-recipient SRF payments reviewed were erroneous (0.23 percent). In FY 2006,
EPA will provide OMB with a statistical methodology for sampling sub-recipient payments. The
Agency plans to review a statistical sample of sub-recipient payments for each SRF in South
Carolina and New Hampshire as well as a statistical sample of direct grant payments.
III. CORRECTIVE ACTION PLANS: In order to meet OMB's objectives, EPA initially
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. Updated
planned actions in each of the areas are as follows:
A. Grants: As described in section II, EPA will continue reviewing direct and sub-recipient SRF
payments. In the FY 2005 corrective action plan for the Clean Water and Drinking Water
SRFs, EPA also committed to:
• Continue to 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,
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
139
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• Comply with reporting requirements for improper payments, and
• Implement and operate the Agency's audit recovery program.
In FY 2005, the Office of Grants and Debarments (OGD) identified modifications needed to
enable tracking erroneous payments by grant recipient in the Grantee Compliance Database.
These modifications will allow tracking and maintaining data on the dollar value of
erroneous payments by grant recipient.
During FY 2005, OGD performed an erroneous payments review for calendar year (CY)
2004 using judgmental risk-based sampling to select 267 grant recipients for administrative
reviews including 111 non-profit grantees. Only 19 of these non-profit grantees had potential
erroneous payments. All identified erroneous payments have been recovered
Preliminary results of the review of CY 2004 non-profit recipient reports provided the
following results:
Review/Audit Results
Dollars
All potential erroneous payments cited
$650,799
Questioned costs determined allowable
$1,789
Actual erroneous payments (unallowable costs)
$4,575
Costs that have been recovered
$4,575
Costs still in recipient appeal process (no final determination - may not to be erroneous)
$644,435
In FY 2006 the OGD will complete the final identification of CY 2004 non-profit recipient
erroneous payments still in the appeal process. They will implement modifications to the
Grantee Compliance Database to enable capturing questioned costs and confirmed erroneous
payments by grant recipient. OGD will introduce a new statistical sampling approach for the
review of CY 2005 non-profit grantee monitoring/audit reports for erroneous payments and
will identify reduction targets based on the results of this review. Those results also will be
used to develop a performance monitoring metric that will serve as the baseline against
which future results can be measured. EPA also reports on these OGD initiatives for the
Improved Financial Management Initiative of the President's Management Agenda.
B. Contracts: EPA continues to take appropriate action as needed to reduce or eliminate
improper payments. The appropriate Contracting Officer Representatives or On Scene
Coordinators are notified of all improper payments discovered. 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 2005, EPA identified 21 improper payments (0.01 percent error rate) due to
keypunch errors or invoice error. Billing numbers received on contracts are now verified
prior to entering information in Contract Payment System. Staff review identified keying
errors and efforts are made to prevent or detect these types of errors in the future.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
140
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Fiscal Year
Number of Erroneous
Erroneous Payments
Error Rate for
Payments
(Dollars in Thousands)
Dollars
2003 *
25 (of 24,056)
$206.1
0.02 percent
2004
21 (of 24,886)
$748.5
0.08 percent
2005
21 (of 26,305)
$121.5
0.01 percent
* FY 2003 only included data from January through September.
Other 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 was
completed in October 2005. The Audit Recovery contractor reviewed 86,217 contract
payments totaling $51.6 million and found 11 erroneous payments ($12 thousand) - less than
a 0.02 percent error rate.
The continued proactive process of reviewing and implementing changes as needed when an
improper payment occurs should continue to reduce the number of improper payments. The
Contracting 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. The Recovery Audit contractor reviewed 249,879 invoices paid totaling
$124.0 million and found 41 improper payments ($129 thousand) - less than a 0.10 percent
error rate. These improper payments have been attributed to duplicate payments, returns not
deducted, overpayments, and cash discounts not taken. 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. All invoices marked past due are being reviewed to determine if they are
duplicate invoices.
EPA put a tracking mechanism in place in January 2004 to gather improper payment data in
anticipation that purchase order payments would be included in the erroneous payment
process. The tracking system provides the data for a monthly Improper Payment Report. In
FY 2005, 40 (of 42,698) commodity payments were erroneous. The improper payments
represent $416 thousand of the $239 million payments processed (error rate of 0.17 percent).
D. Payroll: A payroll workgroup completed the following tasks:
1. Reviewed Payroll internal control documentation.
2. Reviewed personnel interviews to verify/test whether internal controls are understood and
being utilized.
3. Summarized the results of the review of the internal controls.
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
141
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EPA continues to provide training to its managers and staff in this area.
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 (IP) REDUCTION OUTLOOK FY 2004 - FY 2008
(Dollars in millions)
Program
FY 2004
Outlays
FY
2004
IP %
FY
2004
IP $
FY 2005
Outlays
FY 2005
IP%
FY
2005
IP $
FY 2006
Outlays
FY
2006
IP%
FY
2006
IP $
FY 2007
Outlays
FY
2007
IP%
FY
2007
IP $
FY 2008
Outlays
FY
2008
IP %
FY 2008
IP $
Clean
Water
and
Drinking
Water
SRFs
$2,182
(actual)
0.47
$10.3
$1,928
(est.)
0.45
target
0.16
actual
$3.1
$1,580
(est.)
0.40
$6.3
(est.)
$1,543
(est.)
0.35
$5.4
(est.)
$1,565
(est.)
0.30
$4.7
(est.)
Approximately $10 million of the FY 2004 improper payments were due to states drawing funds
too soon. The states have taken appropriate action to improve their internal controls so fund
draws are properly timed.
V. RECOVERY AUDIT PROGRAMS: The Agency hired a contractor, Business Strategy, Inc
(BSI), to conduct the recovery audit. BSI completed its preliminary interviews as part of the
discovery phase of its work. This phase involved discussions with key individuals in the contract
obligation and payment process and individuals knowledgeable about EPA's financial system.
BSI analyzed data received from the Integrated Financial Management System and in September
2005 completed its field work to identify and collect contract overpayments. BSI completed its
final Recovery Audit report at the end of October 2005. As reported above in the Contracts and
Commodities sections, BSI did not uncover any material erroneous payments (only $130 thousand
identified).
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
142
Appendix I
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Dollars in Millions
Agency
Component
Amount Subject to
Review for FY
2005 Reporting
Actual
Amount
Reviewed
and
Reported
Amounts
Identified for
Recovery
Amounts
Identified /
Actual Amount
Reviewed
Amounts
Recovered
FY 2005
Amounts
Recovered
Prior Years
Contracts
$4,284.8
$51.6
$0.01
0.02 percent
$0.01
N/A
Commodities
$2,175.2
$124.0
$0.12
0.10 percent
$0,129
N/A
In the first quarter of FY 2006, EPA will work with BSI to further strengthen payment processes
and internal controls to prevent erroneous payments. The Agency will suggest to OMB that
future Recovery Audit reviews be performed at three to five year intervals.
VI. ENSURING MANAGEMENT ACCOUNTABILITY: As previously outlined in the
corrective action plans, the Agency continues to strengthen already strong internal controls in
key payment processes. Information on erroneous payments from reviews and audits for the two
SRFs, 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
system and related processes are sufficient to reduce improper payments to targeted levels.
VIII. STATUTORY AND REGULATORY BARRIERS: Currently, EPA includes in the Office
of Water's SRF state review process examination of sub-recipient invoices. The Agency also
reviews audit reports on sub-recipient financial operations. In FY 2006, we will determine to
what extent we can gather erroneous payment information from Single Audit Act reports. EPA's
challenge for the SRF improper payments initiative is to broaden the scope of payment reviews.
Through FY 2004, the Agency reviewed only direct payments. For FY 2005, EPA included a
judgmental sample of sub-recipient payments in the review process. In FY 2006, EPA will
conduct statistically valid samples of grants payments to sub-recipients in New Hampshire and
South Carolina and assess the results of a Single Audit Act report for Texas.
IX. CONCLUSIONS: EPA is exceeding its erroneous payment reduction targets. The Agency
has committed to the following FY 2006 erroneous payment actions:
• Provide to OMB a detailed sampling methodology for South Carolina and New Hampshire
SRF sub-recipient payments;
• Review documentation for the State of Texas Single Audit Act report as a basis for
determining whether such audits can be used to identify improper payments issues;
• Provide results of South Carolina and New Hampshire reviews, and direct payment reviews;
• Provide results of reviews of payments made to non-profit grantees;
• Assess the final October 2005 results of the recovery audit and establish reduction and
recovery targets, if appropriate; and
• Report on improper payments in the Performance and Accountability Report (PAR)
EPA's Fiscal 2005 and 2004 Consolidated Financial Statements
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Appendix II
Agency's Response to Draft Report
NOV 1 0 2005
MEMORANDUM
OFFlCb THF
CHIPf- FiNANOI/U OFHHFB
SUBJECT: Draft Audit Report" Response to Audit of FFA's Fiscal Years 2005 and
2004 Financial Statements
v t * ," (*
FROM; I y«>ns Gray , '/ ''t it* f 'l ' K /' ¦ /' -
Chief Financial Officer (271 OA) ' t
TO: Paid C. Curtis, Director
Financial Audit (2422T)
My staff and I thank you for the opportunity to respond to the Draft Audit Report
of the Environmental Protection Agency's Fiscal Year 2005 and 2004 Financial
Statements. The Office of the Chief Financial Officer's (OCFO) perspective on the
audit's observations and recommendations is provided in the attached document.
We agree with the audit issues raised. EPA has effective internal controls with
strong policies and procedures in place and I believe that corrective actions will
strengthen compliance with existing policies and procedures. We are evaluating the best
method to address each issue that will achieve a timely resolution of audit issues.
As a result of increased vigilance in FY 2005, our internal assessments uncovered
some areas that required strengthening. We worked proactively to devise and implement
long-term corrective actions for these issues. We believe the issues raised by the OIG
during the FY 2005 audit validated our internal "self assessments" and corrective actions.
We appreciate OIG acknowledgement of our efforts and progress in this audit report.
We look forward to another productive year working with the OIG. If you have
any questions, please contact Lorna McAllister, Director of the Office of Financial
Management at 202-564-4905.
Attachment
Cc: Mike Ryan
Maryann Froehlich
Lorna M. McAllister
Dennis Nolan
OCFO Office Directors
OFM Staff Directors
144
Appendix II
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Attachment I
OCFO's Response to the FY 2005 and FY 2004 Draft Audit Report
Reportable Conditions
1. Payroll Internal Controls
OIG found that EPA made payroll payments to separated employees. OIG
recommends that OCFO work with EPA's Administration and Resources
Management office to ensure proper processing of personnel actions, modify
automated controls, and reinforce existing controls.
At the beginning of FY 2005, OCFO implemented a new time and attendance system.
OCFO made significant strides to assure system transparency to the Agency and
compliance with established payroll policies and procedures. In FY 2006, OCFO will
continue to validate payroll system internal controls, enforce existing procedures, and
take further corrective actions as necessary.
2. Excess Salary Payments
OIG found the OCFO's payroll system made excess salary payments to employees
totaling $14,891 of a $54 million bi-weekly payroll, which equates to .04% of total
payroll.
OCFO has automated internal controls in place for the majority of potential causes for
salary overpayments and manual controls in place for many others. OCFO is
initiating enhancements to broaden the scope of automated controls to replace
existing manual controls. We will continue to evaluate the results as part of our bi-weekly
payroll review process.
3. Superfund State Contract (SSC) and Superfund Unbilled Oversight Accruals
The OIG noted areas where increased oversight would improve the management of
SSC and Superfund unbilled oversight accruals.
In the past year, OCFO made considerable progress towards assuring consistency
with SSC and Superfund unbilled oversight accrual calculations. As OCFO continues
its efforts to consolidate accounting operations, we will explore options for
centralizing these accrual processes.
4. General Ledger Account Adjustments for Receivables Transferred to Cincinnati
Finance Center
OIG Identified regional offices' accounts receivable and allowance for doubtful
accounts that needed adjustment during an OCFO functional and consolidation process.
145
Appendix II
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As part of the process to consolidate EPA's financial operations into four finance
centers, the Agency successfully transferred five of the ten regions' accounts
receivable functions to one finance center. An account analysis identified accounting
point balances that required adjustments that are reflected in the financial statements.
As the Agency progresses in transferring the accounts receivable functions from the
remaining five regions, OCFO will continue to monitor appropriate general ledger
accounts and assist the Financial Management Officers in resolving account balance
issues.
5. Quality Assurance (QA) Reviews
The OIG recommends increased oversight of the QA program activity to ensure
comprehensive reviews and adequate documentation.
In FY 2005, OCFO made significant progress with the QA program. OCFO updated
and published the QA Guide on the EPA intranet. It reflects current policies,
procedures, and approaches to evaluating accounting functions. In addition, OCFO
conducted a specialized session on QA reviews and their relationship to the revised
OMB Circular A-123 requirements. To continue the QA program's success, OCFO is
conducting a training class in December 2005 for Agency finance personnel.
6. Distribution of the Budget Clearing Accounts
OIG identified interagency transactions that were inappropriately distributed.
In this instance, EPA billed other agencies and two transactions were returned two
days prior to the close of the fiscal year. EPA reissued the bills in October 2005 and
the FY 2005 financial statements reflect the appropriate accounting adjustments.
7. Documentation of Adjustments to the Integrated Financial Management System
(IFMS) Entries
The OIG noted instances of adjusting entries made without proper or adequate
documentation.
OCFO's Policy Announcement 93-02, dated November 13, 1992, requires adequate
source documentation to support all financial transactions. OCFO will insist that
Financial Management Officers ensure that all adjusting transactions entered into the
Agency's accounting system be adequately documented and easily accessible in
accordance with the Policy Announcement.
8. Correcting Rejected Transactions
OIG observed instances of rejected data transfers between PeoplePlus (PPL) and
IFMS that were not resolved in a timely manner.
146
Appendix II
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OCFO took action to identify and correct the rejected data for 16 employees. The
Office of Human Resources implemented a control that should prevent a
reoccurrence.
9. Contingency Plans for Financial Applications
OIG noted instances where contingency plans for financial systems did not fully
comply with Federal or EPA continuity guidelines.
OCFO remains firmly committed to securing its system and data in a cost effective
manner and in compliance with Federal guidance, EPA policy, and best practices. In
FY 2006, OCFO will revise current contingency plans to clearly state the critical
operations, supporting resources, and alternate processing procedures for the financial
systems identified by the OIG.
Federal Financial Management Improvement Act (FFMIA) Noncompliance Issues
10. Intragovernmental Transactions
As OIG acknowledged, OCFO greatly improved reconciliations of its
intragovernmental transactions during FY 2005. However, at year end, EPA was
unable to reconcile a large difference with one Federal agency.
EPA believes this is a result of differing accounting methodologies between agencies.
EPA will continue efforts to reconcile the Agency's intragovernmental transactions to
comply with Federal financial reporting requirements.
147
Appendix II
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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)
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, Office of Budget (2732A)
Director, Grants Administration Division (3903R)
Director, Office of Administrative Services (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)
Director, Program Costing Staff (2733R)
Director, Financial Systems Staff (2733R)
Director, Financial Policy and Planning Staff (2733R)
Director, Washington Finance Center (2734R)
Agency Audit Follow-up Coordinator (2724A)
Agency Follow-up Official (271 OA)
Audit Liaison for the Office of Chief Financial Officer (271 OA)
Audit Liaison for the Office of Administration and Resources Management (3102A)
Audit Liaison for the Office of Solid Waste and Emergency Response (5103T)
Audit Liaison for the Office of Administration (3201 A)
Audit Liaison for the Office of Environmental Information (2812A)
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 Offices of Financial Management and Financial Services (2733R)
Audit Liaison for the Office of General Counsel (2311 A)
148
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