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ABOUT THIS REPORT
The U.S. Environmental Protection Agency (EPA)
is honored to present our Fiscal Year 2018
Agency Financial Report (AFR). This report
provides high-level financial and performance
results for the fiscal year (FY) spanning October 1
through September 30.
The information, data, and analyses provided in
this AFR provides assistance to the President,
Congress, and the public in evaluating the
agency's yearly activities and accomplishments
towards its mission of protecting human health
and the environment.
The FY 2018 AFR includes EPA's FY 2018
Financial Statements Audit Report and
the Agency's FY 2018 Management
Integrity Act Report, including the
Administrator's statement assuring the
soundness of the Agency's internal
controls. In compliance with the
Inspector General Act of 1978 as
amended, the AFR also presents EPA's
report on FY 2018 progression in
addressing Office of Inspector General
(OIG) audit recommendations.
The AFR is comprised in accordance with
the Chief Financial Officers (CFO) Act and
How the Report Is Organized
EPA's FY 2018 AFR is organized into three
sections to provide clear insight into the
Agency's fiscal activity over the past year.
Section I—Management's Discussion and
Analysis
Section I contains information on EPA's mission
and organizational structure; a reference to
performance results provided in the forthcoming
Annual Performance Report; an analysis of the
financial statements and stewardship figures;
information on systems, legal compliance, and
controls; and other management initiatives.
Office of Management and Budget (OMB)
Circular A-13 6, Financial Reporting
Requirements, and fulfills the requirements set
forth in OMB Circular A-11, Preparation,
Submission and Execution of the Budget, and the
Government Performance and Results Act
Modernization Act of 2010 (GPRAMA).
The AFR is one of two annual reports on EPA's
programmatic and financial activities. The
financial information within the AFR will be
supplemented by EPA's Annual Performance
Report (APR), which will present the Agency's FY
2018 performance results as measured against
the targets established in its FY 2018
Performance Plan and Budget and the goals
established in its FY 2018-2022 Strategic Plan.
EPA's FY 2018 APR will be included with the
Agency's FY 2020 Congressional Budget
Justification submission, and will be posted on
the Agency's website.
Combined, the AFR and APR present a complete
picture of the Agency's activities,
accomplishments, progress, and finances for
each fiscal year. EPA's prior fiscal year APR and
AFR are available on EPA's internet at:
http://www.epa.gov/planandbudget/results.
Section II—Financial Section
Section II includes the Agency's
independently audited financial statements,
which comply with the CFO Act, and the
related Independent Auditors' Report and
other information on the agency's financial
management.
Section III—Other Accompanying Information
This section contains additional material as
specified under OMB Circular A-136, Financial
Reporting Requirements, and the Reports
Consolidation Act of 2000. The subsection titled
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Appendices
"Management Challenges and Integrity
Weaknesses" describes EPA's progress toward
strengthening management practices to achieve
program results and presents OIG's list of top
management challenges and the Agency's
response.
The appendices include links to relevant
Agency websites and a glossary of acronyms
and abbreviations.
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Table of Contents
UT THIS REPORT	2
Message from the Acting Administrator[[[ 5
SECTION I - Management's Discussion and Analysis [[[8
ABOUT EPA[[[ 9
History and Purpose.	9
Mission	9
Organization	10
Regional Map	11
Collaborating with Partners and Stakeholders	11
FY 2018 PROGRAM PERFORMANCE[[[ 12
FINANCIAL ANALYSIS AND STEWARDSHIP INFORMATION[[[ 13
Sound Financial Management: Good for the Environment, Good for the Nation	13
Financial Condition and Results	14
Financial Management for the Future	18
Limitations of the Principal Financial Statements	18
IMPROVING MANAGEMENT AND RESULTS	19
Office of Inspector General Audits, Evaluations, and Investigations	19
Grants Management	19
ACCOUNTABILITY: SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE ................................... 20
Federal Managers' Financial Integrity Act (FMFIA)			20
The Digital Accountability and Transparency Act	20
Management Assurances	23
Federal Financial Management Improvement Act (FFMIA)	23
SECTION II - Financial Section [[[ 24
Message from the Chief Financial Officer	25
EPA'S FISCAL YEARS 2018 AND 2017 CONSOLIDATED FINANCIAL STATEMENTS	26
AUDIT OF EPA'S FISCAL YEARS 2018 AND 2017 CONSOLIDATED FINANCIAL STATEMENTS
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Summary of Management Assurances	167
REDUCE THE FOOTPRINT	1 :>8
PAYMENT INTEGRITY	169
I. Payment Reporting	170
I,	Recapture of Improper Payments Reporting	172
II,	Agency Improvement of Payment Accuracy with the Do Not Pay Initiative	176
III,	Sampling and Estimation	176
IV,	Risk Assessments	177
V,	Conclusion	178
FRAUD REDUCTION REPORT	179
CIVIL MONETARY PENALTY ADJUSTMENT [[[180
GRANTS OVERSIGHT & NEW EFFICIENCY (GON	iQUIREMKNTS	184
HEM JEVIEW OF USER FEES[[[185
SECTION IV - Appendixes	187
APPENDIX A[[[188

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Message from the Acting Administrator
November 14, 2018
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
It is with great pleasure that I present to you the U.S. Environmental
Protection Agency's Fiscal Year 2018 Agency Financial Report. This report
highlights key accomplishments the EPA has made this year toward our mission
to protect human health and the environment. Within this report, you will find the
agency was successful in maintaining the mission entrusted to us with
accountability and financial integrity.
The EPA's mission resonates with all Americans; we can all agree that we want our future
generations to inherit a cleaner, healthier environment that supports a thriving economy. When you
appointed me Acting Administrator, you asked me to focus on three things: clean up the air, clean up the
water and provide regulatory relief to help the economy thrive and create more jobs for American workers.
One way we can fulfill your agenda is by providing more certainty to the American people. I will prioritize
certainty in three areas: certainty to the states and local governments, including tribes; certainty within the
EPA's programs, such as permitting and enforcement actions; and certainty in risk communication. Doing
so is vital to our success as an agency because a lack of certainty from the EPA hinders environmental
protections and creates paralysis in the marketplace.
We have important work before us, but we have come a long way in the past several decades. Since
1970, emissions of the six criteria air pollutants regulated under the National Ambient Air Quality
Standards established through the Clean Air Act have dropped 73 percent, while the U.S. gross domestic
product grew by more than 250 percent. This is a remarkable achievement that should be recognized,
celebrated and replicated around the world. A 73 percent reduction in any other social ill - crime, poverty,
diseases or drug addiction - would lead the evening news.
The agency also is working to modernize the outdated water infrastructure on which the American
public depends by leveraging the State Revolving Funds and the Water Infrastructure Finance and
Innovation Act program to help states, tribes, municipalities and private entities finance high-priority
infrastructure investments. These programs are popular in communities across the country. In fact, this
year, the agency received substantial interest in WIFIA loans, with a wide range of prospective borrowers
collectively requesting $9.1 billion in loans. As we head into the second year of this widely popular
program, I am excited by its potential to have a positive impact on the health of American communities for
decades to come.
The agency also continues to implement recommendations from the Superfund Task Force, which
the EPA launched in FY 2017 to provide certainty to communities, state partners and developers that the
nation's most hazardous sites will be cleaned up as quickly and safely as possible. In FY 2018, the EPA
deleted all or part of 22 sites from Superfund's National Priorities List, the largest number of deletions in
one year since FY 2005 and a significant increase over 2017 and 2016. The agency deletes sites from the
NPL when no further cleanup is required to protect human health or the environment.
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One of the agency's top priorities is to clean up and return Superfund sites to communities for
productive use. Once deletion from the NPL occurs, it can aid redevelopment efforts by offering a clear
signal to developers and financial institutions that Superfund cleanup is complete. For that reason, site
deletions have been a major focus of the Superfund Task Force since its inception last year. The task force
reviewed existing policies and procedures related to deleting sites from the NPL and issued several
recommendations that aided the agency's efforts.
In FY 2018, the EPA also responded to damages and contamination resulting from Hurricanes
Harvey, Irtna, Maria and Florence, as well as the California wildfires and air monitoring efforts during the
Kilauea Volcano eruption in Hawaii. During these efforts, the EPA collaborated with the U.S. Coast Guard,
the U.S. Virgin Islands, Puerto Rico, the Texas Commission on Environmental Quality, the General Land
Office and multiple agencies and groups supporting the varying operational branches of disaster impact
areas. The agency received 75 mission assignments from the Federal Emergency Management Agency,
totaling more than $292 million for emergency response efforts, and activated more than 700 experienced
EPA response personnel from all 10 regions to assist with mitigating the environmental impacts and
potential threats to human health. The agency is now transitioning into long-term recovery work, focusing
on providing additional resources and support to meet local needs.
Through our work to create clean and healthy environments, the agency understands the importance
of transparency. I recently distributed a memorandum to all EPA personnel reaffirming the importance of
maintaining public trust and reminding personnel that we exist to serve the public. In the memorandum, I
outlined key agency principles and protocols, including the requirement for the EPA's personnel to provide
the fullest possible public participation in all decision making by ensuring all written comments regarding
proposed rulemaking be entered in the rulemaking docket. This provides equal opportunities to seek out
the views of those impacted by rulemaking decisions who may have been underrepresented in previous
EPA decision making, as well as state and local governments working to meet their environmental
responsibilities.
The EPA also recently proposed the Affordable Clean Energy Rule, which would establish
emissions guidelines for states to use when developing plans to limit greenhouse-gas emissions at their
power plants. The rule would replace the 2015 Clean Power Plan, which was challenged by 27 states, 24
trade associations, 37 rural electric cooperatives and three labor unions. Many believed that it exceeded the
EPA's authority, and the Supreme Court intervened to issue a historic stay. The proposed ACE Rule would
operate within the four corners of the Clean Air Act and restore power to the states. Through ongoing
collaboration with state, local and tribal partners, the EPA continues to develop regulations that uphold the
rule of law and create greater opportunities for local economies to thrive. We look forward to reviewing
public input on the rulemaking and finalizing it in the coming months.
More detailed information on our accomplishments will be provided in the FY 2020 Annual
Performance Plan and Budget. I take pride in ensuring that the EPA's financial and performance data is a
reliable, complete and fully transparent reflection of our program and operations. My assurance statement,
as required under the Federal Managers' Financial Integrity Act, appears in Section I, "Management's
Discussion and Analysis," of this report and reflects that we completed corrective actions for three of our
four material weaknesses and that no new material weaknesses were identified during FY 2018. Corrective
action for the remaining material weakness is scheduled to be completed in FY 2019. Section III of this
report provides details about strengthened internal controls and risk mitigation strategies being
implemented throughout the agency to address previously and recently identified material weaknesses. We
remain committed to ensuring accountability deserving of the public's trust, and we recognize the
importance of preventing and identifying fraud, waste and abuse in the EPA's programs and operations.
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I am honored to work among colleagues who have devoted their careers to protecting human health
and the environment while maintaining transparency and accountability in our actions and ensuring civility
and fairness in our processes. The agency's accomplishments are the result of our collective commitment,
diligence and dedication to ensuring a safer, cleaner, and healthier environment for all Americans.
Most Respectfull;
Mcgt Respectfulh.
AX,WJL-
Andrew Wheeler
Acting Administrator
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ABOUT EPA
History and Purpose	
The American people deserve a clean, healthy environment where they live, work, and play. Established in
1970 as the negative impact and hazards of environmental pollution became increasingly evident, EPA has
worked for over four decades to identify, evaluate, and execute scientifically sound, sustainable solutions to
existing and emerging environmental concerns.
EPA incorporates environmental research, monitoring,
standard-setting, and enforcement functions under the
banner of a single agency. In doing so, the Agency continues
ensuring environmental protection remains an integral part
of all U.S. policies, whether related to economic growth,
natural resource use, energy, transportation, agriculture, or
human health.
Since its inception, EPA has made great strides in protecting
the nation's air, water, and land. Focused cleanup efforts have
helped remedy the mistakes of the past, while EPA's work to
monitor and regulate pollutants, evaluate new chemicals, and
inspire better decision-making are helping to safeguard our
environmental future.

"EPA On-Scene Coordinator in our Philadelphia Office,
and a member of our Mid-Atlantic Scientific Dive unit
conducting a transect survey...to measure the health of
coral offshore of Puerto Rico."
EPA is committed to collaboration. Identifying and addressing the complex environmental issues
affecting the nation and the world requires consistent, efficient cooperation among a diverse and
dynamic group of stakeholders, ranging from state, tribal, and local governments to foreign governments
and international organizations throughout the world.
Everyone has a role to play in creating a healthy, sustainable environment. By serving as the primary
federal source of rigorously researched, scientific information on the environment, EPA motivates
individuals and organizations to better recognize and engage in environmental protection and develop
lasting solutions domestically and internationally.
Mission
The mission of EPA is to protect human health and the environment.
To carry out this mission, EPA depends upon the most accurate
scientific information to inform policy decisions and enforcement
actions. EPA works to ensure that all parts of society—
communities, individuals, businesses, and state, local and tribal
governments—have access to accurate information sufficient to
effectively participate in managing human health and
environmental risks. EPA will continue to serve the American
people and conduct business with transparency and in a manner
worthy of the public's trust and confidence.
What EPA Does
•S Enforce environmental laws
S Responds to the release of
hazardo us substances
¦S Gives grants to states, local
communities, and tribes
¦/ Studies environmental issues
¦s Sponsors partnerships
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Organization
EPA's headquarters is located in Washington, D.C. Together, EPA's headquarters offices, 10 regional
offices, and more than a dozen laboratories and field offices across the country employ a diverse, highly
educated, and technically trained workforce of roughly 14,000 people.
Office of Inspector General
Conducts independent audits,
evaluations and investigations,
promotes economy, efficiency and
effectiveness; helps to prevent
fraud, waste, abuse,
mismanagement and misconduct.
Serves as the scientific research
arm of EPA, whose leadirg edge
research helps provide the solid
underpinning of science and
technology for the Agency.
Office Research and
Development
Office of Enforcement and
Compliance Assurance
Tackles pollution problems
through vigorous civil & criminal
enforcements targeting serious
water, air, & chemical hazards and
advances environmental justice by
protecting vulnerable
Provides legal support for Agency
rules and policies, case-by-case
decisions, defensive titration,
operations, and legislation.
Office of
General Counsel
Ensures drinking water is safe,
restores & maintains oceans,
watersheds, and their aquatic
ecosystems protecting human
health, support economic&
recreational activities, & healthy
habitats for fish, plants, & wildlife.
Office of Water
Office of the Chief
Financial Officer
Manages Agency's annual budget
and performance plan,
coordinates EPA's strategic
planning efforts, provides financial
services forthe Agency, & makes
all Agency payment transactions.
Office of Environmental
Information
Manages the life cycle of
i nformation to support EPA's
mission of protecting human
health and the environment.
Works carry out Agency's mission
while advancing U.S. national
interests through international
environmental collaboration and
strengthening environmental
protection in Indian Country.
Office of International and
Tribal Affairs
Works to protect people and the
environment from potential risks
from pesticides and toxic
chemicals through innovative
partnerships and collaboration, &
proactively preventing pollution.
Office of Chemical Safety
and Pollution Prevention
Region 4
Atlanta, GA
Region 1
Boston, MA
Region 8
Denver, CO
Region 7
Kansas City, KS
Region 3
Philadelphia, PA
Region 2
New York, NY
Region 9
San Francisco, CA
Region 10
Seattle, WA
Office of Land and
Emergency Management
Serves as the scientific research
arm of EPA, whose leading edge
research helps provide the solid
underpinning of science and
technology forthe Agency.
Region 5
Chicago, IL
Region 6
Dallas, TX
Office of the
Administrator
Provides overall supervision of the
Agency and is responsible directly to
the President of the United States.
Provides national leadership,
policy, & management of many
essential Agency support
functions.
Office of Administration
Resources Management
Office of Air and Radiation
Develops national programs,
policies, and regulations for
controllingair pollution and
radiation exposure.
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Regional Map
EPA Offices and Facilltes
EPA National Headquarters ^ EPA Regional Headquarters • EPA Regional and Program Laboratories and Facilities
Collaborating with Partners and Stakeholders	
The idea that environmental protection is a shared responsibility between the states, tribes, and the
federal government is embedded in our environmental laws, which in many cases provide states and tribes
the opportunity and responsibility for implementing environmental protection programs. More than 45
years after the creation of EPA and the enactment of a broad set of federal environmental protection laws,
most states, and to a lesser extent territories and tribes, are authorized to implement environmental
programs within their jurisdictions. EPA understands that improvements to protecting human health and
the environment cannot be achieved by any actor operating alone, but only when the states, tribes, and
EPA, in conjunction with affected communities, work together in a spirit of trust, collaboration, and
partnership. Effective environmental protection is best achieved when EPA and its state and tribal partners
work from a foundation of transparency, early collaboration - including public participation - and a spirit
of shared accountability for the outcomes of this joint work. This foundation involves active platforms for
public participation, including building the capacity of the most vulnerable community stakeholders to
provide input.
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FY 2018 PROGRAM PERFORMANCE
Detailed FY 2018 performance results will be presented in EPA's FY2018 Annual Performance Report
(APR). EPA has chosen to produce an AFR and an APR, and will include its FY2018 APR with its FY2020
Annual Performance Plan and Budget. These reports, along with FY 2018 performance results are posted to
the EPA internet at http: //www.epa.gov/planandbudgetconcurrent with the publication of the FY2020
President's Budget.
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FINANCIAL ANALYSIS AND STEWARDSHIP
INFORMATION
Sound Financial Management: Good for the Environment, Good for the Nation	
The financial management overview below highlights some of EPA's most significant financial achievements
carried out during the agency's efforts to execute its mission to protect human health and the environment
during FY 2018:
•	Agency Financial Statements. For the 19th
consecutive year, EPA's OIG issued a "clean"
audit opinion, unmodified, on the agency's
financial statements. This achievement
underlines EPA's consistency in presenting
reliable and accurate financial data that is
represented fairly in all material aspects.
•	Data Accountability arid
Transparency Act - EPA continued to
build upon the strong agency foundation
in spending transparency established
through the agency's implementation of
the DATA Act EPA maintained a clean
opinion on the audit related to the
implementation of the DATA Act
requirements. According to OIG, "The
EPA complied with OMB Memorandum
M-17-04 by certifying that it was in
compliance with OMB guidance in
providing reasonable assurance that
internal controls support the reliability
and validity of account-level and award-
level data reported on
US ASp ending, gov."
•	Water Infrastructure Finance and
Innovation Act, In FY 2018, EPA partnered
with the U.S. Department of Treasury to
administer WIFIA loan projects, providing
opportunities for communities to better
protect water quality and human health.
Under this partnership, EPA updated Agency
financial systems and accounting models to
ensure all costs associated with the program
and credit assistance requests are being
accurately captured and reported.
Improper Payments Elimination and
Recovery Act Reporting. EPA continues to
maintain sustained low improper payment
rates across its principal payment streams.
The Office of the Inspector General's audit of
EPA's FY 2017 improper payment reporting
determined EPA was in full compliance with
IPERA, which marks the fifth consecutive
year of compliance for EPA. The agency
anticipates achieving a sixth year of
compliance in FY 2018.
Enterprise Risk Management, To continue
strengthening the agency's approach on
enterprise risks, which are defined as the
most significant risks to accomplishing the
agency's mission, EPA assessed progress
toward our objectives under the new FY
2018-FY2022 EPA Strategic Plan, analyzed
risks to achieving those objectives, and
evaluated the effectiveness of internal
controls over our programmatic and
financial operations. EPA maintained its
Enterprise Risk Profile of three enterprise
risks, and continued to monitor progress to
mitigate these risks.
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Financial Condition and Results	
Financial statements are formal financial records
that document EPA's activities at the transaction
level, where a "financial event" occurs. A financial
event is any occurrence having financial
consequences to the federal government related
to the receipt of appropriations or other financial
resources; acquisition of goods or services;
payments or collections; recognition of
guarantees, benefits to be provided, and other
potential liabilities; or other reportable financial
activities.
EPA prepares four consolidated statements (a
balance sheet, a statement of net cost, a statement
of changes in net position, and a statement of
custodial activity) and one combined statement,
the Statement of Budgetary Resources. Together,
these statements with their accompanying notes
provide the complete picture of EPA's financial
situation. The complete statements with
accompanying notes, as well as the auditors'
opinion, are available in Section II of this report.
a 1 ^ H
J
V
Key Terms
Assets: What EPA owns and manages.
Liabilities: Amounts EPA owes because of past
transactions or events.
Net position: The difference between EPA's assets
and liabilities.
Net cost of operations: The difference between the
costs incurred by EPA's programs and EPA's
revenues.
The balance sheet displays assets, liabilities,
and net position as of September 30, 2018, and
September 30, 2017. The statement of net cost
shows EPA's gross cost to operate, minus
exchange revenue earned
from its activities. Together, these two
statements provide information about key
components of EPA's financial condition—assets,
liabilities, net position, and net cost of
operations. The balance sheet trend chart
depicts the agency's financial activity levels since
FY 2016.
$18
$16
$14
$12
$10
$8
$6
$4
$2
$-
Balance Sheet Trend
(dollars in billions)
Assets
Liabilities Net Position
Net Cost of
Operations
12016 H2017 ¦ 2018
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EPA Resources and Spending
The figure below depicts EPA's aggregate budgetary resources (congressional appropriations and some
agency collections), obligations (authorized commitment of funds), and total outlays (cash payments) for
each of the last five fiscal years. The Statement of Budgetary Resources in Section II provides more
information on the makeup of the agency's resources.
EPA Financial Trends
(dollars in billions)
$18
$16
$14
$12
$10
$8
• Budgetary Resources ¦ Obligations A Total Outlays
2014	2015	2016	2017
2018
The increase in budgetary resources is a result of $2.5 billion in borrowing authority for the WIFIA
program received in fiscal year 2018. Of the $2.5 billion, $1 billion has been obligated and $1.5 billion
remains unobligated at the end of the fiscal year. The decrease in EPA outlays is due to an increased
distributed offsetting receipts from the public and intra-budgetary transactions of $158 million and
$131 million, respectively.
Assets— What EPA Owns and Manages
EPA's assets totaled $16.06 billion at the end of FY 2018, an increase of $816 million from the FY 2017
level. In FY 2018, approximately 91 percent of EPA's assets fall into two categories: fund balance with
Treasury and investments. All of EPA's investments are backed by U.S. government securities. The graph
below compares the agency's FY 2018 and FY 2017 assets by major categories.
FY 2018 COMPOSITION OF ASSETS	FY 2017 COMPOSITION OF ASSETS
Other Assets
2%
Investments
34%
Accounts Receivable (Net) 3%
Property, Plant,
and Equipment
(Net)
4%
Fund Balance
with Treasury
57%
Receivable
Investments
35%
Other Assets
Fund Balance
with Treasury
56%
Accounts
Property, Plant,
and
(Net)
5%
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Liabilities—What EPA Owes
EPA's liabilities were $4.48 billion at the end of FY 2018, a decrease of $250 million from the FY 2017 level.
In FY 2018, EPA's largest liability (74 percent) was Superfund unearned revenue, which the agency uses to
pay for cleanup of contaminated sites under the Superfund program. Additional categories include payroll
and benefits payable, salaries, pensions and other actuarial liabilities, EPA's debt due to Treasury, custodial
liabilities that are necessary to maintain assets for which EPA serves as custodian, environmental cleanup
costs, and other miscellaneous liabilities. The graphs compare FY 2018 and FY 2017 liabilities by major
categories.
FY 2018 COMPOSITION OF LIABILITIES
FY 2017 COMPOSITION OF LIABILITIES
Payroll and Benefits
Cashout Advances, Superfund
74%
Accounts Payable
and Accrued
Liabilities
13%
Payroll and Benefits
5o/o
Other
Accounts Payable
and Accrued
Liabilities
13%
Cashout Advances, Superfund
74%
Net Cost of Operations—How EPA Used Its Funds
The graph that follows show how EPA's funds are expended among its five program goal areas in FY 2018
and FY 2017.
FY 2018 NET COST BY PROGRAM
FY 2017 NET COST BY PROGRAM
State and Tribal Assistance
Agreements
45%

Environmental
Programs &
	Management
34%
Leaking
Underground
	Storage Tanks
cicnce & Technology
Superfund
11%
State and'i'ribal Assistance
Agreements
A
Superfund
13%
W I
V.
Environmental
Programs &
Management
35%
Leaking Underground
Storage Tanks
Technology
10%
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Stewardship Funds
EPA serves as a steward on behalf of the American people. The chart below presents four categories of
stewardship: land, research and development, infrastructure, and human capital. In FY 2018, EPA devoted
a total of $3.5 billion to its stewardship activities.
FY 2018 STEWARDSHIP
Human
Infrastructure
83o/o
Capital
1%
Research &
Development
16%
Land
0%
-Infrastructure
81%
FY 2017 STEWARDSHIP
^Land
Research &	// 0%
Development.	u
18%
Human
1%
Per the Federal Accounting Standards Advisory Board (FASAB), stewardship investments consist of
expenditures made by the Agency for the long-term benefit of the nation that do not result in the federal
government acquiring tangible assets.
•	The largest infrastructure programs are the Clean Water State Revolving Fund (CWSRF) and
Drinking Water State Revolving Fund (DWSRF) programs that provide grant funds to states for the
construction of wastewater and drinking water treatment facilities. States lend the majority of
these funds to localities or utilities to fund the construction and or upgrade of facilities (some may
also be used for loan forgiveness or given as grants). Loan repayments then revolve at the State
level to fund future water infrastructure projects. EPA's budget included nearly $2.9 billion in FY
2018 appropriated funds for the SRFs for states' use. In addition, states lent billions of dollars from
funds they received as repayments from previous State Revolving Fund (SRF) loans. These funds
provide assistance to public drinking water and wastewater systems for the enhancement of water
infrastructure, allowing for cleaner waterbodies and crucial access to safer drinking water for
millions of people.
•	Research and development activities enable EPA to identify and assess important risks to human
health and the environment. This critical research investment provides the basis for EPA's
regulatory work, including regulations to protect children's health and at-risk communities,
drinking water, and the nation's ecosystems.
•	Land includes contaminated sites to which EPA acquires title under the Superfund authority. This
land needs remediation and cleanup because its quality is well below any usable and manageable
standards. To gain access to contaminated sites, EPA acquires easements that are in good and
usable condition. These easements also serve to isolate the site and restrict usage while the cleanup
is taking place.
•	The agency's investment in human capital through 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.
A detailed discussion of this information is available in Section III of this report, under the Required
Supplementary Stewardship Information.
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Financial Management:	t Future
During times of environmental challenges, sound stewardship of the EPA's financial resources continues to
be critical to the agency's ability to protect the environment and human health locally, nationally, and
internationally. Reliable, accurate, and timely financial information is essential to ensure cost-effective
decisions for addressing land, water, air and ecosystem issues. To strengthen the EPA's financial
stewardship capabilities, the agency focuses on the fundamental elements of financial management: people
and systems.
People: EPA leverages every available tool to recruit the best people with the necessary skills to meet
tomorrow's financial challenges. Staff members are trained in financial analysis and forecasting to
understand financial data and what it means. EPA is integrating financial information into everyday
decision-making so that it maximizes the use of its resources.
Systems: EPA's core financial system, called Compass, is based on a commercial-off-the-shelf
software solution that addresses the agency's most critical business needs. Compass has improved
EPA's financial stewardship by strengthening accountability, data integrity, and internal controls, on
the following business areas:
•	General ledger
•	Accounts payable
•	Accounts receivable
•	Property
•	Project cost
•	Intra-governmental transactions
•	Budget execution
Compass provides core budget execution and accounting functions and facilitates more efficient
transaction processing. The system posts updates to ledgers and tables as transactions are processed and
generates source data for the preparation of financial statements and budgetary reports. Compass is
integrated with 15 agency systems that support diverse functions, such as budget planning, execution, and
tracking; recovery of Superfund site-specific cleanup costs; property inventory; agency travel; payroll;
document and payment tracking; and research planning. Compass is a Web-based, open architecture
application managed at the CGI Federal Phoenix Data Center, a certified shared service provider in
compliance with the Financial Management Line of Business.
Limitations of the Principal Financial Statements	
The EPA prepared the principal financial statements to report the financial position and results of its
operations of the reporting entity, pursuant to the requirements of 31 U.S.C. 3515 (b). EPA has prepared
the statements from the books and records of the entity in accordance with federal generally accepted
accounting principles and the formats prescribed by OMB. Reports used to monitor and control
budgetary resources are prepared from the same books and records. The financial statements should be
read with the realization that they are for a component of the U.S. government.
18

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IMPROVING MANAGEMENT AND RESULTS
Office of Inspector General Audits, Evaluations, and Investigations	
OIG contributes to EPA's mission to protect human health and the environment by assessing the efficiency
and effectiveness of the agency's program management and results. OIG ensures that agency resources are
used as intended, develops recommendations for improvements and cost savings, and provides oversight
and advisory assistance in helping EPA carry out its objectives. The OIG detects and prevents fraud, waste
and abuse to help the agency protect human health and the environment more efficiently and cost
effectively. The OIG performs its mission through independent oversight of the programs and operations
of EPA. The OIG also contributes to the oversight integrity of and public confidence in the agency's
programs and to the security of its resources by preventing and detecting possible fraud, waste, and abuse
and pursuing judicial and administrative remedies.
In FY 2018, OIG identified key management challenges and internal control weaknesses. OIG audits,
evaluations, and investigations resulted in:
•	235 recommendations accounting for over $473.1 million in potential savings and recoveries;
•	103 actions taken by the Agency for improvement from OIG recommendations; and
•	330 criminal, civil, or administrative enforcement actions.
Grants Management	
EPA has two major grants management metrics, one for grant competition, the other for grants closeout
For FY 2018, the agency exceeded the grant competition metric by 3%, met the 99% grant closeout
target, and was just under the 90% target for closeouts.
Grants Management Performance Measures for EPA
Performance Measure
Target
Progress in FY 2018
Progress in FY 2017
Percentage of eligible grants
closed out
90%*
83.3% of grants that expired in
2017
88.2% of grants that expired in
2016
99%**
99% of grants that expired in
2016 and earlier
98% of grants that expired in
2015 and earlier
Percentage of new grants
subject to the competition
policy that are competed***
90%
93%
96%
*Percentage of open grants that expired in 2017 that were closed in performance year.
**Percentage of open grants that expired in 2016 and earlier that were closed in performance year.
***The Environmental Protection Agency Policy for Competition of Assistance Agreements establishes requirements
for the competition of assistance agreements (grants, cooperative agreements, and fellowships) to the maximum
extent practicable.
19

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ACCOUNTABILITY: SYSTEMS, CONTROLS, AND
LEGAL COMPLIANCE
Federal Managers' Financial Integrity Act [FMFIA)	
FMFIA requires agencies to conduct on-going evaluations of their internal controls and financial
management systems and report the results to the President and Congress.
The EPA evaluated its internal controls in accordance with OMB Circular A-123, Management's
Responsibility for Enterprise Risk Management and Internal Control. The agency operates a comprehensive
internal control program, which ensures compliance with the requirements of FMFIA and other laws and
regulations. Each year, EPA's national program and regional offices conduct assessments and submit
annual assurance letters attesting to the soundness of the internal controls within their organizations.
These assurance letters provide the basis for the Acting Administrator's overall statement of assurance on
the adequacy of EPA's internal controls over operations and financial management systems.
In FY 2018, EPA identified no new material weaknesses related to effective and efficient operations. The
agency has four existing material weaknesses related to internal controls over financial reporting. The
agency has completed corrective actions for three of the weaknesses and expects to complete corrective
actions for the remaining weaknesses in FY 2019. Section III of this report provides details about EPA's
corrective actions underway. EPA remains committed to eliminating its weaknesses and continues to
emphasize the importance of maintaining effective internal controls in order to comply with FMFIA and
other applicable laws and regulations.
Internal Controls Over Financial Reporting
To evaluate its internal controls over financial reporting, the agency evaluated 313 key controls that span
across eight financial processes (including general Information Technology controls). Based on this
evaluation, no material weaknesses were identified. Subsequent to the agency's review, the EPA's OIG
identified no new material weaknesses during the FY 2018 financial statement audit.
Internal Controls Over Financial Management Systems
The Federal Financial Management Improve Act requires agencies to ensure that financial management
systems consistently provide reliable data that comply with government-wide principles, standards, and
requirements. Based on the agency's evaluation of its financial management systems, no material
weaknesses were identified. The assessment included a review of the agency's core financial system,
Compass Financials, as well as those considered as financially related or mixed systems that support or
interface with the core financial system. EPA has determined that its financial management systems
substantially comply with FFMIA requirements. Based on the results of the agency's and the OIG's FY 2018
evaluations, the Acting Administrator can provide reasonable assurance on the adequacy and
effectiveness of the EPA's internal controls over financial management systems.
The Digital Accountability and Transparency Act
The DATA Act of 2014 was designed to increase the standardization and transparency of federal spending. It
requires agencies to report data, consistent with data standards established by the OMB and the
Department of the Treasury for publication on the USASpending website.
20

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In FY 2017, EPA certified compliance with OMB guidance and provided reasonable assurance that internal
controls support the reliability and validity of account-level and award-level data reported on
USASpending.gov. This level of assurance in the internal controls was enabled through three elements of the
EPA DATA Act submission process: 1) establishment of the DATA Act Evaluation and Approval Repository
Tool; 2) multi-level approval process; and 3) documentation of all associated warnings in its statement of
assurance.
The DEAR Tool was designed to transform data to meet the data standards, pre-validate all of the warnings
and edits that would be triggered when submitting the information to the DATA Act broker, and to
standardize and fully document the multi-level approval process, culminating in the Senior Accountable
Official approval.
The multi-level approval process within the DATA Act submission process allowed all parties of the
approval process to be briefed and fully comprehend the issues present and documented within the files.
The approval process consists of three "lock-downs" of the data starting with the case manager, who is
responsible for overseeing the review of the warnings and edits associated with the DATA Act Next, the
Office Director (SES) is briefed on the analysis of the DATA Act files, which includes an explanation as to why
particular warnings could not be fully resolved. The final briefing is to give the appropriate assurance to the
SAO and to address questions or concerns prior to certification that the files fully comply with the law.
The Statement of Assurance is the central piece of information for the agency to document its data issues
that triggered the DATA Act warnings, but remain unresolved. EPA's approach was to address all data issues
that could easily be resolved with changes to the host financial system or the DEAR, but for what could not
be addressed timely, to fully document the cause of the warnings within the Statement of Assurance.
Therefore, EPA used the Statement of Assurance as the document to illustrate that even though our data had
flaws, the agency understood and thought about the issues in the larger context of the DATA Act submission.
During the first audit of the internal controls associated with the DATA Act submission, EPA was able to fully
illustrate that it understood the requirements of the DATA Act, complied with the standards of the DATA
Act, and installed multiple approval controls to ensure the quality and timeliness of the data was sufficient
Although data issues were present in the DATA Act submission, the EPA took extraordinaiy care to fully
document and understand any limitations of the submission, due to the reconciliation between
administrative (contract/grant) and financial systems. These limitations and reconciliation issues include
timing differences between the systems, purchase card transactions under the micro-purchase threshold,
and transactions reported in Files A and B, but not required to be reported in File C.
21

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Fiscal Year 2018 Annual Assurance Statement
The U.S. Environmental Protection Agency's management is responsible for managing risk
and maintaining effective internal control to meet the objectives of the Federal Managers' Financial
Integrity Act.
In accordance with Section 2 of the FMFIA and the Office of Management and Budget's
Circular A-123, Management's Responsibility for Enterprise Risk Management and Internal Control,
the EPA assessed the effectiveness of its internal control to support the effectiveness and efficiency
of operations, reliable financial reporting and compliance with applicable laws and regulations.
Section 4 of the FMFIA and the Federal Financial Management Improvement Act of 1996 requires
management to ensure financial management systems provide reliable, consistent disclosure of
financial data. In accordance with Appendix D of 0MB Circular A-123, the agency evaluated whether
financial management systems substantially comply with the FFMIA requirements.
The EPA did not identify any new material weaknesses during Fiscal Year 2018 and
completed corrective actions for three previously identified weaknesses. The agency continues to
address one remaining material weakness related to the Recording and Reconciliation of Unearned
Revenue for Superfund Special Accounts. The agency has updated the accounting posting models and
expects to have the new posting models implemented in the accounting system in Fiscal Year 2019.
More information on the previously identified material weaknesses are provided in Section III, Other
Accompanying Information, of the Agency Financial Report.
Although no new material weaknesses were identified, the agency will continue to monitor
its programmatic, financial and administrative controls to ensure compliance with laws and
regulations.
Based on the results of the EPA's assessments and recent program improvements, I can
provide reasonable assurance that the agency's internal control over operations were operating
effectively and financial management systems conform to governmentwide standards as of
September 30, 2018. As well, the agency's internal control over financial reporting were operating
effectively.
Andrew R. Wheeler
Acting Administrator
Date
22

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Management Assurances
The EPA did not identify any new material weaknesses for FY 2018. However, the agency continues to
address material weaknesses identified in previous years and has completed corrective actions for three of
those weaknesses. The agency expects to complete corrective actions for the one remaining weakness within
FY 2019. Section III of this report provides details about the agency's corrective actions underway to address
all previously identified material weaknesses. EPA will continue monitoring progress toward correcting the
remaining weakness, and continues to emphasize the importance of maintaining effective internal controls.
In addition, per the Anti-Deficiency Act (ADA), federal employees are prohibited from obligating funds in
excess of an appropriation, or before those funds are available, and from accepting voluntary services. EPA
is currently reviewing three incidents regarding potential violations of the ADA. Such review includes two
separate violations of the ADA's voluntary services prohibition in FY 2016, and a U.S. Government
Accountability Office opinion related to the potential violation of the section 710 of the Financial Services
and General Government Appropriations Act, 2017, in FY 2018. EPA remains fully committed to resolving
any ADA violations and complying with the applicable laws and regulations.
Federal Financial Management Improvement Act (FFMIA)
FFMIA requires that agencies implement and maintain financial management systems that comply with 1)
federal financial management system requirements, 2) applicable federal accounting standards, and 3) the
U.S. Standard General Ledger (USSGL). Annually, Agency heads are required to assess and report on whether
these systems comply with FFMIA.
EPA's FY 2018 assessment included the following:
•	A-123 review found no significant deficiencies.
•	OIG's FY 2017 financial statement audit identified one new material weakness related to
undercapitalized software in the financial statements. In FY 2017, we found that EPA had incorrectly
posted journal entries leading to misstated depreciation and amortization expenses and a loss on the
disposal of asset costs. Federal standards require transactions to be appropriately documented and for
internal controls to be maintained. Failure to properly record capital software transactions in the
agency's property management system and Compass Financials—the agency's accounting system—
compromises the accuracy of EPA's property accounts and depreciation and operating expenses, as well
as the accuracy of the agency's financial statements. In FY 2018 consequently, we continue to report
accounting for software as a material weakness.
•	The agency's annual Federal Information Security Modernization Act Report is final. Several weaknesses
have been identified and a complete accounting will be provided in the final submission.
•	The agency conducted other systems-related activities, including:
o Third-party control assessments
o Network scanning for vulnerabilities
o Annual certification for access to the agency's accounting system
Based on the assessment described above, the agency is in compliance with the FFMIA for FY 2018.
23

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Section II
Financial Section

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Message from the Chief Financial Officer
It is my honor to join Acting
Administrator Wheeler in
presenting the U.S.
Environmental Protection
Agency's FY 2018 Agency
Financial Report. This report
highlights to the President,
Congress, and the public our
accomplishments and
commitment to providing
certainty and transparency to states, tribes, and
local governments, while effectively managing
the financial resources entrusted to us to protect
human health and the environment.
For FY 2018, the agency achieved an unmodified
audit opinion for the 19th consecutive year on the
EPA's financial statements. Additionally, the EPA
did not identify any new material weaknesses for
FY 2018. Section III of this report provides
information and details regarding corrective
actions underway to address previously identified
material weaknesses and other less severe
weaknesses. EPA is committed to resolving internal
control weaknesses. Careful consideration of audit
results and timely remediation improves the
reliability of agency financial information, and
demonstrates accountability to the taxpayer.
FY 2018 is marked with many operational and
financial highlights. The agency issued the first
loans ever under the Water Infrastructure Finance
and Innovation Act program, in alignment with the
President's Infrastructure Plan. As part of the
management and oversight of the WIFIA program
resources, the agency updated our financial
systems and accounting models to accurately
capture and process all fees and credit assistance
requests. The agency also issued a final fees rule
under the Toxic Substances Control Act, ensuring
that resources are available to complete chemical
reviews and actions in a timely and transparent
manner.
The launch of the Hazardous Waste Electronic
Manifest System (e-Manifest) will modernize the
hazardous waste program, and was another
significant milestone for the agency, saving
industry and states valuable time and resources.
Another important highlight includes the launch of
the EPA's Lean Management System (LMS) to
deliver more customer value and improved mission
outcomes for all Americans. Through the LMS we
are standardizing and streamlining processes,
tracking progress toward monthly targets, and
providing opportunities for improvement through
visual management and regular progress reviews.
Among other benefits, these efforts complement
and advance the modernization of EPA's
information technology systems. The agency has
established a roadmap to improve EPA's financial
systems and transition to a greater use of shared
services. This transformation is expected to drive
operational efficiencies and enable our employees
to deliver more effective financial management
services. Importantly, our commitment to IT
modernization and standardization aligns with the
vision outlined by the Trump administration in the
President's Management Agenda.
EPA remains dedicated to the highest financial
management standards. We will continue to
partner with internal and external stakeholders
to improve our processes and enhance data
transparency. Our financial management team
remains committed to delivering real results so
that EPA can fulfill its mission of protecting
human health and the environment.
Holly W. Greaves
Chief Financial Officer
November 14, 2018

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EPA'S FISCAL YEARS 2018 AND 2017
CONSOLIDATED FINANCIAL
STATEMENTS
26

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AUDIT OF EPA'S FISCAL YEARS 2018 AND 2017
CONSOLIDATED FINANCIAL STATEMENTS
79

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EPA's Fiscal 2018 and 2017
Consolidated Financial Statements
Financial Section

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Table of Contents
Principal Financial Statements	29
Notes to the Financial Statements	36
Note 1. Summary of Significant Accounting Policies	36
Note 2. Fund Balance with Treasury (FBWT)	45
Note 3. Cash and Other Monetary Assets	46
Note 4. Investments	46
Note 5. Accounts Receivable, Net	47
Note 6. Other Assets	47
Note 7. Loans Receivable, Net	47
Note 8. Accounts Payable and Accrued Liabilities	48
Note 9. General Property, Plant, and Equipment, Net	48
Note 10. Debt Due to Treasury	49
Note 11. Stewardship Property Plant & Equipment	49
Note 12. Custodial Liability	49
Note 13. Other Liabilities	50
Note 14. Leases	51
Note 15. FECA Actuarial Liabilities	52
Note 16. Cashout Advances, Superfund	53
Note 17. Commitments and Contingencies	53
Note 18. Fund from Dedicated Collections (Unaudited)	55
Note 19. Intragovernmental Costs and Exchange Revenue	58
Note 20. Cost of Stewardship Land	58
Note 21. Environmental Cleanup Costs	59
Note 22. State Credits	59
Note 23. Preauthorized Mixed Funding Agreements	60
Note 24. Custodial Revenues and Accounts Receivable	60
Note 25. Reconciliation of President's Budget to the Statement of Budgetary Resources	60
Note 26. Recoveries and Resources Not Available, Statement of Budgetary Resources	61
Note 27. Unobligated Balances Available	61
Note 28. Undelivered Orders at the End of the Period	61
Note 29. Offsetting Receipts	62
Note 30. Transfers-In and Out, Statement of Changes in Net Position	62
Note 31. Imputed Financing	63
Note 32. Payroll and Benefits Payable	64
Note 33. Other Adjustments, Statement of Changes in Net Position	64
27

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Note 34. Non-Exchange Revenue, Statement of Changes in Net Position	65
Note 35. Reconciliation of Net Cost of Operations to Budget	66
Note 36. Amounts Held by Treasury (Unaudited)	67
Required Supplementary Information (Unaudited)	70
Deferred Maintenance	70
Supplemental Combined Statement of Budgetary Resources	75
Required Supplemental Stewardship Information (Unaudited)	76
Investment in The Nation's Research and Development:	76
Investment in The Nation's Infrastructure:	77
Human Capital	78
28

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Principal Financial Statements


United States Environmental Protection Agency

Consolidated Balance Sheet


As of September 30,2018 and2017


(Dollars in Thousands)



FY 2018
FY 2017
ASSETS


Intragovernmental:


Fund Balance With Treasury (Note 2) S
9,184,092 $
8,464,107
Investments (Note 4)
5,498,047
5,326,013
Accounts Receivable, Net (Note 5)
17,849
17,804
Other (Note 6)
212,509
200,822
Total Intragovernmental
14,912,497
14,008,746
Cash and Other Monetary Assets (Note 3)
10
10
Accounts Receivable, Net (Note 5)
458,456
508,171
Loans Receivable, Net - Non-Federal (Note 7)
-
-
Property, Plant & Equipment, Net (Note 9 )
687,393
719,488
Other (Note 6)
3,288
8,241
Total Assets $
16,061,644 $
15,244,656
Stewardship PP& E (Note 11)


LIABILITIES


Intragovernmental:


Accounts Payable and Accrued Liabilities (Note 8) $
130,462 $
97,035
Debt Due to Treasury (Note 10)
-
-
Custodial Liability (Note 12)
26,544
22,548
Other (Note 13)
125,495
134,983
T otal Intragovernmental
282,501
254,566
Accounts Payable & Accrued Liabilities (Note 8)
464,136
523,713
Pensions & Other Actuarial Liabilities (Note 15)
43,679
45,245
Environmental Cleanup Costs (Note 21)
32,958
39,544
Cashout Advances, Superfund (Note 16)
3,305,023
3,514,426
Commitments & Contingencies (Note 17)
-
-
Payroll & Benefits Payable (Note 32)
202,019
205,632
Other (Note 13)
149,309
145,328
Total Liabilities
4,479,625
4,728,454
NET POSITION


Unexpended Appropriations - Funds from Dedicated Collections (Note 18)
2,790
3,697
Unexpended Appropriations - Other Funds
8,117,597
7,302,077
Cumulative Results of Operations - Funds from Dedicated Collections (Note 18)
2,966,236
2,638,364
Cumulative Results of Operations - Other Funds
495,396
572,065
Total Net Position
11,582,019
10,516,203
Total Liabilities and Net Position $
16,061,644 $
15,244,656
The accompanying notes are an integral part of these financial statements.

29



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United States Environmental Protection Agency
Consolidated Statement of Net Cost
For the Fiscal Years Ending September 30,2018 and2017
(Dollars in Thousands)
FY 2018	FY 2017
COSTS
Gross Costs (Note 19) $ 8,635,505 $ 9,024,232
Earned Revenue (Note 19)		660,708 	532,663
NET COST OF OPERATIONS (Note 35)	$	7,974,797 $	8,491,569
The accompanying notes are an integral part of these financial statements.
30

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United States Environmental Protection Agency
Statement of Net Cost by Major Program
For the Fiscal Year Ending September 30,2018
(Dollars in Thousands)




Environmental
Programs &
Management
Leaking
Underground
Storage Tanks
Science &
Technology
Superfund
State and
Tribal
Assistance
Agreements
Other
Totals
Costs:
Intragovernmental
WCF Eliminations
With the Public
$ 890,178
1,910,796
5,484
88,412
181,132
530,218
254,030
1,074,417
63,593
3,489,408
167,095
(211,942)
192,684
$1,561,512
(211,942)
7,285,935
Total Costs
2,800,974
93,896
711,350
1,328,447
3,553,001
147,837
8,635,505
Less:
Earned Revenue, Federal
WCF Elimination
Earned Revenue, non Federal
165,360
7,884
-
3,644
1,533
7,459
414,818
-
225,053
(212,386)
47,343
401,516
(212,386)
471,578
Total Earned Revenue (Note 19)
173,244

5,177
422,277

60,010
660,708
NET COST OF OPERATIONS
$ 2,627,730
93,896
706,173
906,170
3,553,001
87,827
$7,974,797


United States Environmental Protection Agency
Statement of Net Cost by Major Program
For the Fiscal Year Ending September 30,2017
(Dollars in Thousands)




Environmental
Programs &
Management
Leaking
Underground
Storage Tanks
Science &
Technology
Superfund
State and
Tribal
Assistance
Agreements
Other
Totals
Costs:
Intragovernmental
WCF Eliminations
With the Public
$ 924,012
2,093,973
4,437
85,996
200,358
612,169
275,695
1,219,020
54,159
3,395,913
112,492
(211,512)
257,520
$1,571,153
(211,512)
7,664,591
Total Costs
3,017,985
90,433
812,527
1,494,715
3,450,072
158,500
9,024,232
Less:
Earned Revenue, Federal
WCF Elimination
Earned Revenue, non Federal
40,400
10,275
-
7,356
1,274
26,733
389,103
-
231,229
(211,290)
37,583
305,718
(211,290)
438,235
Total Earned Revenue (Note 19)
50,675

8,630
415,836

57,522
532,663
NET COST OF OPERATIONS
$ 2,967,310
90,433
803,897
1,078,879
3,450,072
100,978
$8,491,569

The accompanying notes are an integral part of these financial statements.






31





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United States Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Fiscal Year Ending September 30,2018
(Dollars in Thousands)



FY 2018
Funds from
Dedicated
Collections
FY 2018
All Other
Funds
FY 2018
Consolidated
Total
Cumulative Results of Operations:




Net Position - Beginning of Period

$ 2,638,364 $
572,065 $
3,210,429
Budgetary Financing Sources:
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 34)
Nonexchange Revenue - Other (Note 34)
Transfers In/Out (Note 30)
Trust Fund Appropriations
4,144
80,893
244,969
(4,763)
1,000,646
7,872,798
23,976
(1,094,046)
7,876,942
80,893
244,969
19,213
(93,400)
Total Budgetary Financing Sources

1,325,889
6,802,728
8,128,617
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 31)

14,598
82,785
97,383
Total Other Financing Sources

14,598
82,785
97,383
Net Cost of Operations

(1,012,615)
(6,962,182)
(7,974,797)
Net Change

327,872
(76,669)
251,203
Cumulative Results of Operations

$ 2,966,236 S
495,396 $
3,461,632


FY 2018
Funds from
Dedicated
Collections
FY 2018
All Other
Funds
FY 2018
Consolidated
Total
Une xpe nde d Appro pri ations:




Net Position - Beginning of Period

$ 3,697 $
7,302,077 $
7,305,774
Budgetary Financing Sources:
Appropriations Received
Other Adjustments (Note 33)
Appropriations Used
Total Budgetary Financing Sources

3,237
(4,144)
(907)
8,862,285
(173,967)
(7,872,798)
815,520
8,865,522
(173,967)
(7,876,942)
814,613
Total Unexpended Appropriations

2,790
8,117,597
8,120,387
TOTAL NET POSITION

$ 2,969,026 $
8,612,993 $
11,582,019
The accompanying notes are an integral part of these financial statements.


32




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United States Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Fiscal Year Ending September 30,2017
(Dollars in Thousands)



FY 2017
Funds from
Dedicated
Collections
FY 2017
All Other
Funds
FY 2017
Consolidated
Total
Cumulative Results of Operations:




Net Position - Beginning of Period

$ 2,577,360 $
852,331 $
3,429,691
Budgetary Financing Sources:
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 34)
Nonexchange Revenue - Other (Note 34)
Transfers In/Out (Note 30)
Trust Fund Appropriations
2,991
47,445
246,289
(13,211)
953,850
7,945,939
24,041
(1,038,131)
7,948,930
47,445
246,289
10,830
(84,281)
Total Budgetary Financing Sources

1,237,364
6,931,849
8,169,213
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 31)

13,425
89,669
103,094
Total Other Financing Sources

13,425
89,669
103,094
Net Cost of Operations

(1,189,785)
(7,301,784)
(8,491,569)
Net Change

61,004
(280,266)
(219,262)
Cumulative Results of Operations

$ 2,638,364 $
572,065 $
3,210,429


FY 2017
Funds from
Dedicated
Collections
FY 2017
All Other
Funds
FY 2017
Consolidated
Total
Une xpe nde d Appro pri ations:




Net Position - Beginning of Period

$ 4,080 $
7,263,400 $
7,267,480
Budgetary Financing Sources:
Appropriations Received
Other Adjustments (Note 33)
Appropriations Used
Total Budgetary Financing Sources

3,178
(570)
(2,991)
(383)
8,107,870
(123,254)
(7,945,939)
38,677
8,111,048
(123,824)
(7,948,930)
38,294
Total Unexpended Appropriations

3,697
7,302,077
7,305,774
TOTAL NET POSITION

$ 2,642,061 $
7,834,599 $
10,516,203
The accompanying notes are an integral part of these financial statements.


33




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United States En\ironmcntal Protection Agency
Combined Statement of Budgetary Resources
For the Fiscal Years Ending September 30,2018 and2017
(Dollars in Thousands)
BUDGETARY RES O URCES
Unobligated balance from prior year budget authority, net (discretionary and mandatory)
Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and mandatory)
Spending Authority from offsetting collection (discretionary and mandatory)
Total Budgetary Resources
FY 2018
4,479,928
10,225,913
2,500,000
610,290
17,816,131
FY 2017
4,551,426
9,370,266
680,152
14,601,844
MEMORANDUM (non-add) entries
Net Adjustments to unobligated balance brougjit forward, Oct. 1 (Note 26)
232,751
330,525
STATUS OF BUDGETARY RESOURCES
New obligations and upward adjusmtents (total)
Unobligated Balance, end of year:
Apportioned, unexpired Accounts
Unapportioned, unexpired accounts
Expired unobligated balance, end of year
Unobligated Balance, end of year (total):
Total Status of Budgetary Resources
11,862,249
5,672,318
194,768
86,796
5,953,882
17,816,131
10,354,618
4,152,585
1,992
92,649
4,247,226
14,601,844
OUTLAYS, NET
Outlays, net (total) (discretionary and mandatory)
Distributed offsetting receipts (Note 29)
Agency outlays, net (discretionary and mandatory)
9,484,562
(1,399,483)
8,085,079
9,272,263
(1,109,453)
8,162,810
The accompanying notes are an integral part of these financial statements.
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United States Environmental Protection Agency
Statement of Custodial Activity
For the Fiscal Years Ending September 30,2018 and2017
(Dollars in Thousands)
FY 2018
FY 2017
Revenue Activity:
Sources of Cash Collections:
F ines and Penalties
Other
Total Cash Collections
Accrual Adjustment
Total Custodial Revenue (Note 24)
78,596
23,087
101,683
2,467
104,150
1,571,258
29,301
1,600,559
(19,545)
1,581,014
Disposition of Collections:
Transferred to Others (General Fund)
Increases/Decreases in Amounts to be Transferred
Total Disposition of Collections
101,615
2,535
104,150
1,600,593
(19,579)
1,581,014
Net Custodial Revenue Activity
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years Ended September 30, 2018 and September 30, 2017
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A.	Reporting Entities
The EPA was created in 1970 by executive reorganization from various components of other federal
agencies to better marshal and coordinate federal pollution control efforts. The Agency is generally
organized around the media and substances it regulates - air, water, waste, pesticides, and toxic substances.
The FY 2018 financial statements are presented on a consolidated basis for the Balance Sheet, Statement of
Net Cost, Statement of Net Costs by Major Program, and Statement of Changes in Net Position, and
Statement of Custodial Activity and The Statement of Budgetary Resources is presented on a combined
basis. These financial statements include the accounts of all funds described in this note by their respective
Treasury fund group.
B.	Basis of Presentation
These accompanying financial statements have been prepared to report the financial position and results of
operations of the U. S. Environmental Protection Agency (the 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 Office of
Management and Budget (OMB) Circular No. A-13 6, Financial Reporting Requirements, and the EPA
accounting policies, which are summarized in this note.
C.	Budgets and Budgetary Accounting
I. General Funds
Congress enacts an annual appropriation for State and Tribal Assistance Grants (STAG), Buildings and
Facilities (B&F), and for payments to the Hazardous Substance Superfund to be available until expended, as
well as annual appropriations for Science and Technology (S&T), Environmental Programs and Management
(EPM) and for the Office of Inspector General (OIG) to be available for two fiscal years. When the
appropriations for the General Funds are enacted, Treasury issues a warrant for the respective appropriations.
As the Agency disburses obligated amounts, the balance of funds available in the appropriation is reduced at
the U.S. Treasury (Treasury).
The EPA has three-year appropriation accounts and a no year revolving fund account to provide funds to
carry out section 3024 of the Solid Waste Disposal Act, including the development, operation, maintenance,
and upgrading of the hazardous waste electronic manifest system. The Agency is authorized to establish and
collect user fees for this account to recover the full cost of providing the electronic manifest system related
services.
The Water Infrastructure Finance and Innovation Act of 2014 (WIFIA) established a Federal credit program
administered by the EPA for eligible water and wastewater infrastructure projects. The program is financed
from appropriations to cover the estimated long-term cost of the loan. The long-term cost of the loans is
defined as the net present value of the estimated cash flows associated with the loans. A permanent indefinite
36

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appropriation is available to finance the costs of re-estimated loans that occur in subsequent years after the
loans were disbursed. The Agency received two-year appropriations in fiscal years 2017 and 2018 to finance
the administration portion of the program.
EPA re-estimates the risk on each individual loan basis annually. Proceeds issued by EPA cannot exceed
forty-nine percent of eligible project costs. Project costs must exceed a minimum of $20 million for large
communities and $5 million for communities with populations of 25,000 or less. After substantial
completion of a project, the borrower may defer up to five years to start loan repayment and cannot exceed
thirty-five years for the final loan maturity date.
Funds transferred from other federal agencies are processed as non-expenditure transfers. 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.
II. Revolving Funds
Funding of the Reregi strati on and Expedited Processing Fund (FIFRA) 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 Working Capital Fund (WCF) is provided by fees collected from other Agency appropriations
and other federal agencies to offset costs incurred for providing the Agency administrative support for
computer and telecommunication services, financial system services, employee relocation services,
background investigations, continuity of operations, and postage.
The EPA Damage Assessment and Restoration Revolving Fund was established through the US Department
of Treasury and OMB for funds received for critical damage assessments and restoration of natural resources
injured as a result of the Deepwater Horizon oil spill.
III.	Special Funds
The Environmental Services Receipts Account Fund obtains fees associated with environmental programs.
Pesticide Registration Improvement Act Funds (PRIA) collects pesticide registration service fees for
specified registration and amended registration and associated tolerance actions which set maximum residue
levels for food and feed.
IV.	Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit accounts pending
further disposition. Until a determination is made, these are not the EPA's funds. The amounts are reported
to the US Treasury through the Government-Wide Treasury Account Symbol Adjusted Trial Balance
System.
V. Trust Funds
Congress enacts an annual appropriation for the Hazardous Substance Superfund, Leaking Underground
Storage Tank (LUST) and the Inland Oil Spill Programs accounts to remain available until expended.
Transfer accounts for the Superfund and LUST Trust Funds have been established to record appropriations
moving from the Trust Fund to allocation accounts for purposes of carrying out the program activities. As
the Agency disburses obligated amounts from the expenditure account, the Agency draws down monies from
the Superfund and LUST Trust Funds held at Treasury to cover the amounts being disbursed. The Agency
draws down all the appropriated monies from the Principal Fund of the Oil Spill Liability Trust Fund when
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Congress enacts the Inland Oil Spill Programs appropriation amount to the EPA's Inland Oil Spill Programs
account.
In 2015, the EPA established a receipt account for Superfund special account collections. Special accounts
are comprised of reimbursements from other federal agencies, state cost share payments under Superfund
State Contracts (SSCs), and settlement proceeds from Potentially Responsible Parties (PRPs) under the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Section 122(b)(3).
This allows the Agency to invest the funds until drawdowns are needed for special accounts disbursements.
The agency updated posting models and expects to fully utilize this receipt account by January 31, 2019.
VI. Allocation Transfers
The EPA is a party to allocation transfers with other Federal agencies as both a transferring (parent) entity
and/or a receiving (child) entity. Allocation transfers are legal delegations for one entity of its authority to
obligate budget authority and outlay funds to another entity. A separate fund account (allocation account) is
created in the U.S. Treasury as a subset of the parent fund account for tracking and reporting purposes. All
allocation transfers of balances are credited to this account, and subsequent obligations and outlays incurred
by the child entity are charged to this allocation account as they execute the delegated activity on behalf of
the parent entity. Generally, all financial activity related to allocation transfers (e.g., budget authority,
obligations, outlays) is reported in the financial statements of the parent entity from which the underlying
legislative authority, appropriations and budget apportionments are derived. In addition to these funds, the
EPA allocates funds, as the parent, to the Center for Disease Control. The EPA receives allocation transfers,
as the child, from the Bureau of Land Management.
D.	Basis of Accounting
Generally Accepted Accounting Principles (GAAP) for federal entities is the standard prescribed by the
Federal Accounting Standards Advisory Board (FASAB), which is the official standard-setting body for the
Federal Government and the American Institute of Certified Public Accountants (AICPA). The financial
statements are prepared in accordance with GAAP for federal entities.
Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the accrual method,
revenues are recognized when earned and expenses are recognized when liabilities are incurred, without
regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal constraints and
controls over the use of federal funds posted in accordance with OMB directives and the U.S. Treasury
regulations.
EPA uses a modified matching principle since federal entities recognize unfunded liabilities (without
budgetary resources) in accordance FASAB Statement of Federal Financial Accounting Standards (SFFAS)
No. 5 "Accounting for Liabilities of the Federal Government."
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 SFFAS No. 7, "Accounting for Revenues and Other Financing Sources."
I. Superfund
The Superfund program receives most of its funding through appropriations that may be used within specific
statutory limits for operating and capital expenditures (primarily equipment). Additional financing for the
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Superfund program is obtained through: reimbursements from other federal agencies, state cost share
payments under Superfund State Contracts (SSCs), and settlement proceeds from PRPs under CERCLA
Section 122(b)(3) which are placed into special accounts. Special accounts and corresponding interest are
classified as mandatory appropriations due to the 'retain and use' authority under CERCLA 122(b) (3). Cost
recovery settlements that are not placed in special accounts are deposited in the Superfund Trust Fund.
II. Other Funds
Funds under the Federal Credit Reform Act of 1990 receive program guidance and funding needed to
support loan programs through appropriations which may be used within statutory limits for operating and
capital expenditures. The WIFIA program receives additional funding to support awarding, servicing and
collecting loans and loan guarantees through application fees collected in the program fund. WIFIA
authorizes the EPA to charge fees to recover all or a portion of the Agency's cost of providing credit
assistance and the costs of retaining expert firms, including financial engineering, and legal services, to assist
in the underwriting and servicing of federal credit instruments. The fees are to cover costs to the extent not
covered by congressional appropriations.
The FIFRA and PRIA funds receive funding through fees collected for services provided and interest on
invested funds. The Hazardous Waste Electronic Manifest System Fund receives funding through fees
collected for use of the Hazardous Waste Electronic Manifest System. The WCF receives revenue through
fees collected for services provided from the Agency program offices. Such revenue is eliminated with
related Agency program expenses upon consolidation of the Agency's financial statements.
Appropriated funds are recognized as other financing sources expended when goods and services have been
rendered without regard to payment of cash. Other revenues are recognized when earned (i.e., when services
have been rendered).
F.	Funds with the Treasury
The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are
handled by Treasury. The major funds maintained with Treasury are General 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, they generally are
held to maturity (see Note 4).
H.	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 4).
I.	Accounts Receivable and Interest Receivable
Superfund accounts receivable represent recovery of costs from PRPs as provided under CERCLA as
amended by Superfund Amendments and Reauthorization Act of 1986 (SARA). Since there is no assurance
that these funds will be recovered, cost recovery expenditures are expensed when incurred (see Note 5). The
Agency also records allocations receivable from the Superfund Trust Fund, which are eliminated in the
consolidated totals.
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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 at least some, but not necessarily all, of the site response costs have been incurred. It is the Agency's
position that until a consent decree or other form of settlement is obtained, the amount recoverable should
not be recorded.
The Agency also records accounts receivable from states for a percentage of Superfund site remedial action
costs incurred by the Agency within those states. As agreed to under SSCs, cost sharing arrangements may
vary according to whether a site was privately or publicly operated at the time of hazardous substance
disposal and whether the Agency response action was removal or remedial. SSC agreements are usually for
10 percent or 50 percent of site remedial action costs, depending on who has the primary responsibility for
the site (i.e., publicly or privately owned). States may pay the full amount of their share in advance or
incrementally throughout the remedial action process.
Most remaining receivables for non-Superfund funds represent penalties and interest receivable for general
fund receipt accounts, unbilled intragovernmental reimbursements receivable, and refunds receivable for the
STAG appropriation.
J. Advances and Prepayments
Advances and prepayments represent funds paid to other entities both internal and external to the Agency for
which a budgetary expenditure has not yet occurred.
K. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. 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. Loan proceeds are disbursed
pursuant to the terms of the loan agreement. Interest is calculated semi-annually on a per loan basis.
Repayments are made pursuant to the terms of the loan agreement with the option to repay loan amounts
early.
L. Appropriated Amounts Held by Treasury
Cash available to the Agency that is not needed immediately for current disbursements of the Superfund and
LUST Trust Funds and amounts appropriated from the Superfund Trust Fund to the OIG, remains in the
respective Trust Funds managed by Treasury.
M. Property, Plant, and Equipment
The EPA accounts for its personal and real property accounting records in accordance with SFFAS No. 6,
"Accounting for Property, Plant and Equipment" as amended. For EPA-held property, the Fixed Assets
Subsystem (FAS) maintains the official records and automatically generates depreciation entries monthly
based on in-service 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 two years. For contractor-held property, depreciation is taken
on a modified straight-line basis over a period of six years depreciating 10 percent the first and sixth year,
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and 20 percent in years two through five. For contractor-held property detailed records are maintained and
accounted for in contractor systems, not in EPA's FAS. Acquisitions of EPA-held personal property are
depreciated using the straight-line method over the specific asset's useful life, ranging from two to 15 years.
Personal property includes capital leases. To be defined as a capital lease, a lease, at its inception, must have
a lease term of two or more years and the lower of the fair value or present value of the projected minimum
lease payments must be $75 thousand or more. Capital leases containing real property (therefore considered
in the real property category as well), have a $150 thousand capitalization threshold. In addition, the lease
must meet one of the following criteria: transfers ownership at the end of the lease to the EPA; contains a
bargain purchase option; the lease term is equal to 75 percent or more of the estimated economic service life;
or the present value of the projected cash flows of the lease and other minimum lease payments is equal to or
exceeds 90 percent of the fair value.
Superfund contract property used as part of the remedy for site-specific response action 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, the EPA retains control of the property (i.e., pump and treat facility) for 10 years or less, and
transfers its interest in the facility to the respective state for mandatory operation and maintenance - usually
20 years or more. Consistent with the EPA's 10-year retention period, depreciation for this property is based
on a 10-year useful life. However, if any property is transferred to a state in a year or less, this property is
charged to expense. If any property is sold prior to the 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. An exception to the accounting of contract property includes equipment purchased
by the WCF. This property is retained in EPA's FAS, depreciated utilizing the straight-line method based
upon the asset's in-service date and useful life.
Real property consists of land, buildings, capital and leasehold improvements and capital leases. In FY 2017,
the EPA increased the capitalization threshold for real property, other than land, to $150 thousand from $85
thousand for buildings and improvements and $25 thousand for plumbing, heating, and sanitation projects.
The new threshold will be applied prospectively. Land is capitalized regardless of cost. Buildings are valued
at an estimated original cost basis, and land is valued at fair market value, if purchased prior to FY 1997.
Real property purchased after FY 1996 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 50 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 when incurred.
Internal use software includes purchased commercial off-the-shelf software, contractor-developed software,
and software that was internally developed by Agency employees. In FY 2017, the EPA reviewed its
capitalization threshold levels for PP&E. The Agency performed an analysis of the values of software assets,
reviewed capitalization of other federal entities, and evaluated the materiality of software account
balances. Based on the review, the Agency increased the capitalization threshold from $250 thousand to $5
million to better align with major software acquisition investments. The $5 million threshold will be applied
prospectively to software acquisitions and modifications/enhancements placed into service after September
30, 2016. Software assets placed into service prior to October 1, 2016 were capitalized at the $250 thousand
threshold. Internal use software is capitalized at full cost (direct and indirect) and amortized using the
straight-line method over its useful life, not exceeding five years.
Internal use software purchased or developed for the working capital fund is capitalized at $250 thousand
and is amortized using the straight-line method over its useful life, not exceeding 5 years
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N. Liabilities
Liabilities represent the amount of monies or other resources that are more likely than not to be paid by the
Agency as the result of an Agency transaction or event that has already occurred and can be reasonably
estimated. However, no liability can be paid by the Agency without an appropriation or other collections
authorized for retention. 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.
O. Borrowing Payable to the Treasury
Borrowing payable to Treasury results from loans from Treasury to fund the non subsidy portion of the
WIFIA direct loans. The Agency borrows the funds from Treasury when the loan disbursements agreed upon
in the loan agreement are made. Principal payments are made to Treasury based on the collection of loan
receivables at the end of the fiscal year.
P. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Annual leave earned but not taken at
the end of the fiscal year is accrued as an unfunded liability. Accrued unfunded annual leave is included in
the Balance Sheet as a component of "Payroll and Benefits Payable." Sick leave earned but not taken is not
accrued as a liability. It is expensed as it is used.
Q. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January 1, 1987,
may participate in the Civil Service Retirement System (CSRS). On January 1, 1987, the Federal Employees
Retirement System (FERS) went into effect pursuant to Public Law 99-335. Most employees hired after
December 31, 1986, are automatically covered by FERS and Social Security. Employees hired prior to
January 1, 1987, 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 CSRS and
FERS, 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.
R. Prior Period Adjustments
Prior period adjustments, if any, are 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.
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S. Deepwater Horizon Oil Spill
The April 20, 2010 Deepwater Horizon (DWH) oil spill was the largest oil spill in U.S. history. In the wake
of the spill, the National Contingency Plan regulation was revised to reflect the EPA's designation as a DWH
Natural Resource Trustee. The DWH Natural Resources Damage Assessment is a legal process pursuant to
the Oil Pollution Act and the April 4, 2016, Consent Decree between the U.S., the five Gulf states, and BP
entered by a federal court in New Orleans. Under the Consent Decree, a payment schedule was set forth for
BP to pay $7.1 billion in natural resource damagesThe NRDA trustees are then jointly responsible to use
those funds in the manner set forth in Appendix 2 of the Consent Decree to restore natural resources injured
by the DWH oil spill. In FY 2016, the EPA received an advance of $184 thousand from BP and $2 million
from the U.S. Coast Guard, to participate in addressing injured natural resources and service resulting from
the Deepwater Horizon Oil Spill. In FY 2017 and 2018, the EPA returned the unused balance of fund
amounts of $900 and 440 thousand, respectively, to the U.S. Coast Guard for deposit in the Oil Spill
Liability Trust Fund. As additional projects are identified, the EPA may continue to receive funding through
the 2016 Consent Decree to implement its DWH NRDA Trustee responsibilities in the Agency's Damage
Assessment and Restoration Revolving Trust Fund.
T. Hurricane Sandy
On January 29, 2013, President Obama signed into law the Disaster Relief Appropriations Act (Disaster
Relief Act) which provided aid for Hurricane Sandy disaster victims and their communities. Because relief
funding of this magnitude often carries additional risk, the Disaster Relief Act required federal agencies
supporting Sandy recovery and other disaster-related activities to write and implement and Internal Control
Plan to prevent waste, fraud and abuse of these funds. The EPA Hurricane Sandy Internal Control Plan was
reviewed and approved by OMB, GAO and the IG in FY 2013.
The EPA received a post sequestration appropriation of $577 million in Hurricane Sandy funds for the
following programs (all amounts are post sequestration):
a)	The Clean Water State Revolving Fund received $475 million for work on clean water infrastructure
projects in New York and New Jersey.
b)	The Drinking Water State Revolving Fund received $95 million for work on drinking water
infrastructure projects in New York and New Jersey.
c)	The Leaking Underground Storage Tanks program received $5 million for work on projects impacted
by Hurricane Sandy.
d)	The Superfund program received $2 million for work on Superfund sites impacted by Hurricane
Sandy.
e)	The EPA also received $689 thousand to make repairs to the EPA facilities impacted by Hurricane
Sandy and conduct additional water quality monitoring.
U. Puerto Rico Insolvency
In February 2016, the Puerto Rico Aqueduct and Sewer Authority (PRASA) requested a restructuring of the
Clean Water and Drinking Water SRF debt due to a lack of cash flows and inability to access the municipal
bond market. PRASA is the primary water utility for Puerto Rico and, at the time of their request, the debt
outstanding to the SRFs was $547 million. Annual debt service to the SRFs is approximately $37 million
per year.
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In June 2016, the EPA and the Puerto Rico SRFs agreed to a 1-year forbearance on principal and interest
payments. In June 2017, the 1-year forbearance which was to end on June 30, 2017, was extended for an
additional 6 months, ending December 30, 2017. Since that time, the forbearance has again been extended,
first for 6 months, ending June 30, 2018 and again for 3 months, ending September 30, 2018. The current
forbearance agreement expires on November 30, 2018.
In May 2017, following PRASA's fiscal plan approval by the Puerto Rico Oversight, Management, and
Economic Stability Act (PROMESA) oversight board created by Congress, the EPA, and the Puerto Rico
SRFs began negotiations with PRASA on restructuring current debt and setting terms for future debt. If a
restructuring agreement between the SRFs and PRASA is reached prior to the end of current forbearance, the
restructuring agreement will supersede the forbearance. PRASA continues to work with the EPA in its
fiduciary and oversight capacity, the Commonwealth SRF Agencies, and private debt holders to restructure
its debt obligations owed the Commonwealth SRF Agencies.
V. Use of Estimates
The preparation of financial statements requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities, including environmental and grant liabilities, and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
W. Reclassifications and Comparative Figures
Certain reclassifications have been made to the prior year's financial statements to enhance comparability
with the current year's financial statements in accordance with Office of Management and Budget (OMB)
Circular No. A-136, Financial Reporting Requirements revised July 30, 2018. As a result, certain line items
have been amended in the Statement of Budgetary Resources.
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Note 2. Fund Balance with Treasury (FBWT)
Fund Balance with Treasury as of September 30, 2018 and September 30, 2017, consists of the following:
FY2018	FY2017
Entity	Non-Entity	Entity	Non-Entity
Assets	Assets	Total	Assets	Assets	Total
Trust Funds:






Superfund $
140,013
- $
140,013 $
155,259
- $
155,259
LUST
10,425
-
10,425
68,266
-
68,266
Oil Spill & Misc.
8,822
-
8,822
11,129
-
11,129
Revolving Funds:


-



FIFRA/Tolerance
47,864
-
47,864
43,614
-
43,614
Working Capital
128,909
-
128,909
101,524
-
101,524
Cr. Reform Finan.
-
-
-
-
-
-
E-Manifest
4,294
-
4,294
5,385
-
5,385
NRDA
2,057
-
2,057
2,729
-
2,729
Appropriated
8,348,172
-
8,348,172
7,604,790
-
7,604,790
Other Fund Types
489,727
3,809
493,536
467,626
3,785
471,411
Total $
9,180,283
3,809 $
9,184,092 $
8,460,322
3,785 $
8,464,107
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 the EPA for other entities.
Status of Fund Balances:	FY 2018	FY 2017
Unobligated Amounts in Fund Balance:
Available for Obligation :
S 4,405,970 $
4,154,001
Unavailable of Obligation
86,796
94,641
Net Receivables from Invested Balances
(4,758,627)
(4,797,519)
Balances in Treasury Trust Fund (Note 36)
1,807
15,112
Obligated Balance not yet Disbursed
8,974,558
8,496,895
Non-Budgetary FBWT
473,588
500,977
Total	$ 9,184,092 $ 8,464,107
The funds available for obligation may be apportioned by OMB for new obligations at the beginning of the
following fiscal year. Funds unavailable for obligation are mostly balances in expired funds, which are
45

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available only for adjustments of existing obligations. For FY 2018 and FY 2017 no differences existed
between Treasury's accounts and the EPA's statements for fund balances with Treasury.
Note 3. Cash and Other Monetary Assets
As of September 30, 2018, and September 30, 2017, the balance in the imprest fund was $10 thousand.
Note 4. Investments
As of September 30, 2018, and September 30, 2017, investments related to Superfund and LUST consist of
the following:
Amortized interest Investments,
Cost	(Premium) __ . ,,	Market Value
Receivable	Net
Discount
Intragovernmental Securities:
Non-Marketable FY2018 $ 5,537,630	44,298	4,715	5,498,047 $	5,498,047
Non-Marketable FY2017 $ 5,329,067	6,455	3,401	5,326,013 $	5,326,013
CERCLA, as amended by SARA, authorizes the EPA to recover monies to clean up Superfund sites from
responsible parties (RPs). Some RPs file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy
settlements, the 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. All investments in Treasury securities are funds
from dedicated collections (see Note 18).
The Federal Government does not set aside assets to pay future benefits or other expenditures associated
with funds from dedicated collections. The cash receipts collected from the public for dedicated collection
funds are deposited in the U.S. Treasury, which uses the cash for general Government purposes. Treasury
securities are issued to the EPA as evidence of its receipts. Treasury securities are an asset to the EPA and a
liability to the U.S. Treasury. Because the EPA and the U.S. Treasury are both parts of the Government,
these assets and liabilities offset each other from the standpoint of the Government as a whole. For this
reason, they do not represent an asset or liability in the U.S. Government-wide financial statements.
Treasury securities provide the EPA with authority to draw upon the U.S. Treasury to make future benefit
payments or other expenditures. When the EPA requires redemption of these securities to make
expenditures, the Government finances those expenditures out of accumulated cash balances, by raising taxes
or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures.
This is the same way that the Government finances all other expenditures.
46

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Note 5. Accounts Receivable, Net
The Accounts Receivable as of September 30, 2018, and September 30, 2017, consist of the following:
FY2018	FY2017
Intra«o\ernmental:
Accounts & Interest Receivable $ 17,849	$ 19,227
Less: Allowance for Unco llectibles 	-		(1,423)
Total $	17,849	$	17,804
Non-Federal:
Unbilled Accounts Receivable	$ 234,731 $ 206,044
Accounts & Interest Receivable	2,385,341 2,413,358
Less: Allowance for Unco llectibles		(2,161,616) 	(2,111,231)
Total	$	458,456 $	508,171
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.
Note 6. Other Assets
Other Assets as of September 30, 2018, and September 30, 2017, consist of the following:
Intragove r n me ntal:	FY2018	FY2017
Advances to Federal Agencies	$	212,334 $	200,703
Advances for Postage		175 	119
Total	$	212,509 $	200,822
Non-Federal:
Travel Advances	$ 119 $	79
Securities from Debt Settlement -	1,863
Other Advances 2,954	6,196
Inventory for Sale		215 	103
Total	$	3,288 $	8,241
Note 7. Loans Receivable, Net
Loans Receivable generally consists of program loans disbursed from obligations made prior to FY 1992 and
are presented 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. In
fiscal year 2018, the Agency received borrowing authority of $2.5 billion for the non-subsidy portion of loan
proceeds disbursed. In FY 2018 the Agency closed $ 1 billion in WIFIA loans. As of September 30, 2018,
the EPA has not disbursed any loans for the WIFIA program but has incurred $4.0 million in administrative
expenses.
47

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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, 2018, and September 30, 2017:

FY2018
FY2017
Int ra«ove r n me ntal:


Accounts Payable
$ 3,902 $
4,199
Liability for allocation
-
-
Accrued Liabilities
126,560
92,836
Total
$ 130,462 $
97,035
Non-Federal:
FY2018
FY2017
Accounts Payable
$ 67,003 $
58,212
Advances Payable
(1,355)
17
Interest Payable
5
5
Grant Liabilities
288,526
296,157
Other Accrued Liabilities
109,957
169,322
Total	$	464,136 $	523,713
Other Accrued Liabilities are mostly comprised of contractor accruals.
Note 9. General Property, Plant, and Equipment, Net
General property, plant, and equipment (PP&E) consist of software, real property, EPA-held and contractor-
held personal property, and capital leases.
As of September 30, 2018, and September 30, 2017, General PP&E consisted of the following:


FY2018


FY2017


Acquisition
Accumulated
Net Book
Acquisition
Accumulated
Net Book

Value
Depreciation
Value
Value
Depreciation
Value
EPA-Held Equipment $
299,732
(203,434) S
96,298
$ 304,068
(198,897) $
105,171
Software (production)
441,571
(365,206)
76,365
437,334
(364,300)
73,034
Software (development)
7,908
-
7,908
47,377
-
47,377
Contractor Held Equip.
40,437
(26,706)
13,731
39,759
(24,117)
15,642
Land and Buildings
774,146
(286,224)
487,922
742,932
(269,779)
473,153
Capital Leases
24,485
(19,316)
5,169
24,485
(19,374)
5,111
Total $
1,588,279
(900,886) $
687,393
$ 1,595,955
(876,467) $
719,488
In FY 2015, the Agency initiated an intensive remediation effort to address the material weakness in how the
Agency accounts for software. The Agency disclosed a material weakness through its internal control review
of software capitalization processes in FY 2014. The material weakness was cited in the, "Audit of the
EPA's Fiscal Year's 2014 and 2013 (Restated) Consolidated Financial Statements" report, dated November
17, 2014. The significant decrease in software in-development acquisition value from FY 2017 to FY 2018 is
attributable to the Agency's software material weakness remediation efforts. The software in-development
decrease totaling $40 million is due to software disposals, reclassification of software costs to expense, and
adjustments to asset values. A key part of this remediation effort has been improving procedures for
validating expenditures that require capitalization and improving communications between Agency program
offices and the accounting office. The Agency completed corrective actions to resolve the weakness in
software capitalization in FY 2018.
48

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The increase in the Agency's capitalization threshold was effective on October 1, 2016 and did not have a
material effect in the change in software asset values.
Note 10. Debt Due to Treasury
As of September 30, 2018, the EPA does not have any debt due to Treasury. In FY 2018, the EPA did not
borrow funds to finance the WIFIA Loan Program.
Note 11. Stewardship Property Plant & Equipment
The Agency acquires title to certain property and property rights under the authorities provided in Section
104(j) CERCLA related to remedial clean-up sites. The property rights are in the form of fee interests
(ownership) and easements to allow access to clean-up sites or to restrict usage of remediated sites. The
Agency takes title to the land during remediation and transfers it to state or local governments 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 under the terms of 104(j).
As of September 30, 2018, the Agency possessed the following land and land rights:
FY 2018	FY2017
Superfund Sites with Easements:


Beginning Balance
$ 39 $
38
Additions
-
1
Withdrawals
-
-
Ending Balance
$ 39 $
39
Superfund Sites with Land Acquired:


Beginning Balance
$ 34 $
34
Additions
-
1
Withdrawals
2
1
Ending Balance
$ 32 $
34
Note 12. 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. As of September 30, 2018,
and September 30, 2017, custodial liability is approximately $26.5 million and $22.5 million, respectively.
49

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Note 13. Other Liabilities


Other Liabilities consist of the following as of September 30, 2018


Covered by
Not Covered by

Other Liabilities - Intragovernmental Budgetary
Budgetary
Total
Resources
Resources

Current


Employer Contributions & Payroll Taxes $ 17,574
- $
17,574
WCF Advances 1,651
-
1,651
Other Advances 6,162
-
6,162
Advances, HRSTF Cashout 60,048
-
60,048
Deferred HRSTF Cashout 9,069
-
9,069
Liability for Deposit Funds (2)
-
(2)
Non-Current


Unfunded FECA Liability
8,906
8,906
Unfunded Unemployment Liability
87
87
Payable to Treasury Judgment Fund
22,000
22,000
Total Intragovernmental $ 94,502
30,993 $
125,495
Other Liabilities - Non-Federal


Current


Unearned Advances, Non-Federal $ 127,131
- $
127,131
Liability for Deposit Funds, Non-Federal 5,942
-
5,942
Non-Current


Capital Lease Liability
16,236
16,236
Total Non-Federal $ 133,073
16,236 $
149,309
50



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Other Liabilities consist of the following as of September 30, 2017


Other Liabilities - Intragovernmental
Covered by
Budgetary
Resources
Not Covered by
Budgetary
Resources
Total
Current
Employer Contributions & Payroll Taxes $
WCF Advances
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Non-Current
Unfunded FECA Liability
Unfunded Unemployment Liability
Payable to Treasury Judgment Fund
19,119
1,676
9,235
65,807
7,853
53
8,839
401
22,000
$ 19,119
1,676
9,235
65,807
7,853
53
8,839
401
22,000
Total Intragovernmental $
103,743
31,240
$ 134,983
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal $
Liability for Deposit Funds, Non-Federal
Non-Current
Capital Lease Liability
121,339
6,441
17,548
$ 121,339
6,441
17,548
Total Non-Federal $
127,780
17,548
$ 145,328
Note 14. Leases



A. Capital Leases:



The value of assets held under Capital Leases as
follows:
of September 30, 2018, and September 30, 2017, are as
Summary of Assets Under Capital Lease: FY 2018
FY 2017
Real Property
Personal Property
$
24,485 $
24,485
Total

24,485
24,485
Accumulated Amortization
$
19,316 $
19,374
The EPA has one capital lease for land and buildings housing scientific laboratories. This lease includes a
base rental charge and escalation 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 EPA's lease will terminate in
FY 2025.

51



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Future Payments Due

Fiscal Year
Capital Leases
2019 $
4,215
2020
4,215
2021
4,215
2022
4,215
2023
4,215
After 5 years
5,620
Total Future Minimum Lease Payments
26,695
Less: Imputed Interest
(10,460)
Net Capital Lease Liability
16,235
Liabilities not Covered by Budgetary Resource $
16,235
B. Operating Leases:
The GSA provides leased real property (land and buildings) as office space for the EPA employees. GSA
charges a Standard Level User Charge that approximates the commercial rental rates for similar properties.
The EPA has two direct operating leases for land and buildings housing scientific laboratories and computer
facilities. The leases include a base rental charge and escalation 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.
The total minimum future operating lease costs are listed below:
Operating Leases,
Land and
Buildings
Fiscal Year
2019	$	94
2020		36
Total Future Minimum Lease Payments	$	130
Note 15. FECA 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, the 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 as of September 30, 2018, and September 30, 2017, was $43.7 million and
$45.2 million, respectively. The estimated future costs are recorded as an unfunded liability. The FY 2018
present value of these estimated outflows is calculated using a discount rate of 2.716 percent in the first year,
and 2.716 percent in the years thereafter. The estimated future costs are recorded as an unfunded liability.
52

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Note 16. Cashout Advances, Superfund
Cashout advances are funds received by the EPA, a state, or another responsible party 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), cash-out funds received by the EPA are placed in site-specific, interest
bearing accounts known as special accounts and are used for potential future work at such sites in accordance
with the terms of the settlement agreement. Funds placed in special accounts may be disbursed to PRPs, to
states that take responsibility for the site, or to other Federal agencies to conduct or finance response actions
in lieu of the EPA without further appropriation by Congress. As of September 30, 2018, and September 30,
2017, cash-out advances total $3.3 billion and $3.5 billion respectively.
Note 17. Commitments and Contingencies
The EPA may be a party in various administrative proceedings, actions and claims brought by or against it.
These include:
a)	Various personnel actions, suits, or claims brought against the Agency by employees and others.
b)	Various contract and assistance program claims brought against the Agency by vendors, grantees and
others.
c)	The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the
collection of fines and penalties from responsible parties.
d)	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.
As of September 30, 2018, and September 30, 2017, there were no accrued liabilities for commitments and
potential loss contingencies.
A.	Gold King Mine
On August 5, 2015, EPA and its contractors were conducting an investigation under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) of the Gold King Mine, an inactive
mine in Colorado, when a release of acid mine drainage occurred. While the EPA team was excavating
above the mine adit, water began leaking from the mine adit. The small leak quickly turned into a significant
breach, releasing approximately three million gallons of mine water into the North Fork of Cement Creek, a
tributary of the Animas River. The plume of acid mine water traveled from Colorado's Animas River into
New Mexico's San Juan River, passed through the Navajo Nation, and deposited into Utah's Lake Powell.
As of September 30, 2018, EPA has received approximately 403 total claims under the Federal Tort Claims
Act from individuals and businesses situated on or near the affected waterways for alleged lost wages, loss of
business income, agricultural and livestock losses, property damage, diminished property value, and personal
injury. Of those claims, approximately 294 have entered litigation against the United States in federal district
court, leaving approximately 109 administrative claims within EPA's jurisdiction. EPA has awarded no
administrative claims. The amounts estimated related to the Gold King Mine are $2.1 billion but they are
only reasonably possible, and the final outcomes are not probable.
B.	Flint, Michigan
The EPA has received claims from individuals under the Federal Tort Claims Act for alleged injuries and
property damages caused by the EPA's alleged negligence related to the water health crisis in Flint,
Michigan. The amounts related to the water health crisis are $2 billion, but they are only reasonably possible
and the final outcomes are not probable.
53

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C.	Superfund
Under CERCLA Section 106(a), the 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
the 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. The amounts related to
Superfund are $20 million, but they are only reasonably possible, and the final outcomes are not probable.
D.	Environmental Liabilities
As of September 30, 2018, there is one case pending against the EPA that is reported under Environmental
Liabilities: Bob's Home Service Landfill amount is $900 thousand but it is only reasonable possible, and the
final outcome is not probable.
E.	Judgment Fund
In cases that are paid by the U.S. Treasury Judgment Fund, the EPA must recognize the full cost of a claim
regardless of which entity 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." The EPA has a $22 million liability to the Treasury Judgment Fund for a payment made by
the Fund to settle a contract dispute claim. As of September 30, 2018, there is no other case pending in the
court.
F.	Other Commitments
EPA has a commitment to fund the United States Government's payment to the Commission of the North
American Agreement on Environmental Cooperation between the Governments of Canada, the Government
of the United Mexican States, and the Government of the United States of America (commonly referred to as
CEC). According to the terms of the agreement, each government pays an equal share to cover the operating
costs of the CEC. EPA paid $2.5 million to the CEC in the period ending September 30, 2018 and $2.55
million in the period ending September 2017.
EPA has a legal commitment under a noncancelable agreement, subject to the availability of funds, with the
United Nations Environmental Program (UNEP). This agreement enables EPA to provide funding to the
Multilateral Fund for the Implementation of the Montreal Protocol. EPA made payments totaling $8,326,000
in the period ending September 2017 and $8,326,000 in the period ending September 2018.
54

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Note 18. Fund from Dedicated Collections (Unaudited)

Environmental


Other Funds from
Total Funds from
Balance sheet as of September 30,2018
Services


Dedicated Collections
Dedicated Collections
As s ets





Fund Balance with Treasury
$ 469,194
10,425
140,013
83,571 $
703,203
Investments
-
620,160
4,877,887
-
5,498,047
Accounts Receivable, Net
-
87,588
306,338
1,784
395,710
Other As s ets
-
209
54,722
7,614
62,545
Total Assets
469,194
718,382
5,378,960
92,969
6,659,505
Other liabilities
3
95,026
3,522,626
72,824
3,690,479
Total liabilities
3
95,026
3,522,626
72,824
3,690,479
Une^ended Appropriation


(2)
2,792
2,790
Cumulative Results of Operations
469,191
623,356
1,856,336
17,353
2,966,236
Total liabilities and Net Position
469,194
718,382
5,378,960
92,969
6,659,505
Statement of Net Cost for the





Period Elded September 30,2018





Gross Program Costs
-
93,897
1,328,447
66,224
1,488,568
Less: Earned Revenues
-
-
422,277
53,676
475,953
Net Cost of Operations

93,897
906,170
12,548
1,012,615
Statement of Changes in Net Position for the





Period ended September 30, 2018





Net Position, Beginning ofPeriod
444,636
591,252
1,599,954
6,218
2,642,060
Nonexchange Revenue- Securities Investments
-
8,657
71,516
720
80,893
Nonexchange Revenue
24,555
210,731
6,598
3,085
244,969
Other Budgetary Finance Sources
-
(93,400)
1,070,070
22,450
999,120
Other Financing Sources
-
13
14,366
220
14,599
Net Cost of Operations
-
(93,897)
(906,170)
(12,548)
(1,012,615)
Change in Net Pos ition
24,555
32,104
256,380
13,927
326,966






Net Pos ition
$ 469,191 $
623,356 $
1,856,334 $
J 20,145 $
2,969,026
55

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Environmental


Other Funds from
Total Funds from
Balance sheet as of September 30,2017
Services


Dedicated Collections
Dedicated Collections
As s ets





Fund Balance with Treasury
$ 444,637
68,265
155,260
85,847 $
754,009
Investments
-
529,482
4,796,531
-
5,326,013
Accounts Receivable, Net
-
37,647
416,861
26
454,534
Other Assets
-
699
20,558
599
21,856
Total Assets
444,637
636,093
5,389,210
86,472
6,556,412
Other Liabilities

44,841
3,789,256
80,254
3,914,351
Total liabilities
-
44,841
3,789,256
80,254
3,914,351
Une^ended Appropriations
.
.
(2)
3,699
3,697
Cumulative Results of Operations
444,637
591,252
1,599,956
2,519
2,638,364
Total Liabilities and Net Position
444,637
636,093
5,389,210
86,472
6,556,412
Statement of Net Cost for the





Period Elded September 30,2017





Gross Program Costs
-
90,432
1,495,192
67,414
1,653,038
Les s: Earned Revenues
-
-
416,036
47,217
463,253
Net Cost of Operations

90,432
1,079,156
20,197
1,189,785
Statement of Changes in Net Position for the





Period ended September 30,2017





Net Position, Beginning of Period
421,406
546,543
1,608,142
5,350
2,581,441
Nonexchange Revenue- Securities Investments
-
3,048
44,166
230
47,444
Nonexchange Revenue
23,231
225,193
(701)
(1,434)
246,289
Other Budgetary Finance Sources
-
(93,100)
1,014,090
22,257
943,247
Other Financing Sources
-
-
13,413
12
13,425
Net Cost of Operations
-
(90,432)
(1,079,156)
(20,197)
(1,189,785)
Change in Net Position
23,231
44,709
(8,188)
868
60,620






Net Position
$ 444,637 $
591,252 $
1,599,954 $
; 6,218 $
2,642,061
A. Funds from Dedicated Collections are as follows
i.	Environmental Services Receipt Account:
The Environmental Services Receipt Account authorized by a 1990 act, "To amend the Clean Air Act (P.L.
101-549)," 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 can only be appropriated to the S&T and EPM appropriations to meet
the expenses of the programs that generate the receipts if authorized by Congress in the Agency's
appropriations bill.
ii.	Leaking Underground Storage Tank (LUST) Trust Fund:
The LUST Trust Fund, was authorized by the SARA as amended by the Omnibus Budget Reconciliation Act
of 1990. The LUST appropriation provides funding to prevent and 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 and prevention
grants to inspect and clean up those sites posing the greatest threat to human health and the environment.
Funds are used for grants to non-state entities including Indian tribes under Section 8001 of the Resource
Conservation and Recovery Act.
56

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iii.	Superfund Trust Fund:
In 1980, the Superfund Trust Fund, was established by CERCLA to provide resources 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 the Department of Justice 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, special account receipts from settlement agreements, and investment activity.
B. Other Funds from Dedicated Collections
i. Inland Oil Spill Programs Account:
The Inland Oil Spill Programs Account was authorized by the Oil Pollution Act of 1990 (OPA). Monies are
appropriated from the Oil Spill Liability Trust Fund to the EPA's Inland Oil Spill Programs Account each
year. 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 specific oil spill cleanup actions is provided through the U.S. Coast Guard from
the Oil Spill Liability Trust Fund through reimbursable Pollution Removal Funding Agreements (PRFAs)
and other inter-agency agreements.
II. Pesticide Registration Fund:
The Pesticide Registration Fund authorized by a 2004 Act, "Consolidated Appropriations Act (P.L. 108-
199)," and reauthorized until September 30, 2019, 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 Amendments of 1988, are to be paid by
industry and deposited into this fund group.
hi. Reregistration and Expedited Processing Fund:
The Revolving Fund, was authorized by the FIFRA of 1972, as amended by the FIFRA Amendments of
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 re-registration and reassessment of tolerances for pesticides used in or
on food and animal feed, as required by law.
iv.	Tolerance Revolving Fund:
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees were paid by
industry for Federal services to set pesticide chemical residue limits in or on food and animal feed. Fees
collected prior to January 2, 1997 were accounted for under this fund. Presently, collection of these fees is
prohibited by statute enacted in the Consolidated Appropriations Act, 2004 (P.L. 108-199).
57

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Note 19. Intragovernmental Costs and Exchange Revenue
Exchange, or earned revenues on the Statement of Net Cost include income from services provided to
Federal agencies and the public, interest revenue (apart from interest earned on trust fund investments), and
miscellaneous earned revenue.
FY 2018	FY 2017

Intragovern-
With the
Total
Intragovern-
With the
Total

mental
Public
mental
Public
Environmental Programs & Mgmt






Program Costs $
890,178
1,910,796
2,800,974
$ 924,012
2,093,973 $
3,017,985
Earned Revenue
165,360
7,884
173,244
40,400
10,275
50,675
NET COSTS
724,818
1,902,912
2,627,730
883,612
2,083,698
2,967,310
Leaking Underground Storage Tanks






Program Costs
5,484
88,412
93,896
4,437
85,996
90,433
Earned Revenue
-
-
-
-
-
-
NET COSTS
5,484
88,412
93,896
4,437
85,996
90,433
Science & Technology






Program Costs
181,132
530,218
711,350
200,358
612,169
812,527
Earned Revenue
3,644
1,533
5,177
7,356
1,274
8,630
NET COSTS
177,488
528,685
706,173
193,002
610,895
803,897
Superfiind






Program Costs
254,030
1,074,417
1,328,447
275,695
1,219,020
1,494,715
Earned Revenue
7,459
414,818
422,277
26,733
389,103
415,836
NET COSTS
246,571
659,599
906,170
248,962
829,917
1,078,879
State and Tribal Assistance Agreements






Program Costs
63,593
3,489,408
3,553,001
54,159
3,395,913
3,450,072
Earned Revenue
-
-
-
-
-
-
NET COSTS
63,593
3,489,408
3,553,001
54,159
3,395,913
3,450,072
Other






Program Costs
167,095
192,684
359,779
112,492
257,520
343,721
WCF Eliminations
(211,942)
-
(211,942)
(211,512)
-
(211,512)
Earned Revenue
225,053
47,343
272,396
231,229
37,583
295,103
WCF Eliminations
(212,386)
-
(212,386)
(211,290)
-
(211,290)
NET COSTS
(32,180)
145,341
87,827
(118,959)
219,937
100,978
Total






Program Costs
1,349,570
7,285,935
8,635,505
1,359,641
7,664,591
9,024,232
Earned Revenue
189,130
471,578
660,708
94,428
438,235
532,663
NET COSTS S
1,160,440
6,814,357
7,974,797
S 1,265,213
7,226,356 S
8,491,569
Intragovernmental costs relate to the source of goods or services not the classification of the related revenue.
Note 20. Cost of Stewardship Land
The EPA had two instances of property transfer of ownership via a Quit Claim Deed. The first transaction
was a transfer of ownership of 21 Parcels of land acquired by the United States EPA in conjunction with
remedial actions to Grantee Escambia County Board of County Commissioners. This action was effectuated
via the signing of the Quit Claim Deed (signed on January 16, 2018). The second transaction was a transfer
of ownership of 11 tracts of land acquired by the United States EPA in conjunction with remedial actions to
Grantee West Virginia Department of Environmental Protection. This action was effectuated via the signing
of the Quit Claim Deed (signed on February 8, 2018).
58

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Note 21. Environmental Cleanup Costs
Annually, the EPA is required to disclose its audited estimated future costs associated with:
a)	Cleanup of hazardous waste and restoration of the facility when it is closed, and
b)	Costs to remediate known environmental contamination resulting from the Agency's
operations.
The EPA has 32 sites for which it is responsible for clean-up costs incurred under federal, state, and/or local
regulations to remove, contain, or dispose of hazardous material found at these facilities.
The EPA is also required to report the estimated costs related to:
a)	Clean-up from federal operations resulting in hazardous waste
b)	Accidental damage to nonfederal property caused by federal operations, and
c)	Other damage to federal property caused by federal operations or natural forces.
The key to distinguishing between future clean-up costs versus an environmental liability is to determine
whether the event (accident, damage, etc.) has already occurred and whether we can reasonably estimate the
cost to remediate the site.
The EPA has elected to recognize the estimated total clean-up cost as a liability and record changes to the
estimate in subsequent years.
As of September 30, 2018, the EPA has 1 site that requires clean up stemming from its activities. The
claimants' chances of success are characterized as reasonably possible with costs amounting to $900
thousand that may be paid out of the Treasury Judgment Fund.
A. Accrued Clean-up Cost
The EPA has 32 sites for which it is required to fund the environmental cleanup. As of September 30, 2018,
the estimated costs for site clean-up were $33.0 million unfunded, and $1.1 million funded, respectively. In
2017 the estimated costs for site clean-up were $39.5 million unfunded, and $500 thousand funded,
respectively. Since the clean-up costs associated with permanent closure were not primarily recovered
through user fees, the EPA has elected to recognize the estimated total clean-up cost as a liability and record
changes to the estimate in subsequent years.
In FY 2018, the estimate for unfunded clean-up cost decreased by $6.6 million from the FY 2017 estimate.
This decrease is primarily due to current lab cleanup and closeout actions, and ongoing clean-up actions at
similar facilities resulted in more refined and significantly lower estimates of future clean-up costs in various
regions.
Note 22. State Credits
Authorizing statutory language for Superfund and related Federal regulations requires states to enter into
Superfund State Contracts (SSC) when the 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 it will share in the
cost of the remedial action. Under Superfund's authorizing statutory language, states will provide the 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)
59

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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. The credit is limited to state site-specific
expenses the EPA has determined to be reasonable, documented, direct out-of-pocket expenditures of non-
Federal funds for remedial action.
Once the 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
the EPA. As of September 30, 2018, and September 30, 2017, the total remaining state credits have been
estimated at $21.4 million, and $22.2 million, respectively.
Note 23. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at their
sites with the understanding that the EPA will reimburse them a certain percentage of their total response
action costs. The 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, 2018, the EPA had 4
outstanding preauthorized mixed funding agreements with obligations totaling $6.65 million. As of
September 30, 2017, the EPA had 4 outstanding preauthorized mixed funding agreements with obligations
totaling $1.4 million. A liability is not recognized for these amounts until all work has been performed by the
PRP and has been approved by the EPA for payment. Further, the 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 the EPA.
Note 24. Custodial Revenues and Accounts Receivable
The EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous
receipts. Collectability by the EPA of the fines and penalties is based on the respondents' willingness and
ability to pay.
FY2018	FY2017
Fines, Penalties and Other Miscellaneous Receipts $
104,150 $
1,581,014
Accounts Receivable for Fines, Penalties and Other


Miscellaneous Receipts:


Accounts Receivable $
158,990 $
149,522
Less: Allowance for Uncollectible Accounts
(131,494)
(124,493)
Total $
27,496 $
25,029
In FY 2017, Volkswagen paid a civil penalty to the EPA of $1.5 billion to resolve allegations that
Volkswagen violated the Clean Air Act by selling approximately 590 thousand model year 2009 to 2016
diesel motor vehicles equipped with "defeat devices" that circumvented emissions testing. These funds were
transferred to the U.S. Treasury on September 30, 2017.
Note 25. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited FY 2018 Statement of
Budgetary Resources, will be reconciled to the amounts included in the FY 2018 Budget of the United States
Government when they become available. The Budget of the United States Government with actual numbers
60

-------
FY 2017
for FY 2018 has not yet been published. We expect it will be published by early 2019, and it will be
available on the Office of Management and Budget website at https://www.whitehouse.gov/
The actual amounts published for the year ended September 30, 2017 are listed immediately below (dollars
in millions):
Budgetary	Offsetting
Resources Obligations Receipts Net Outlays
Statement of Budgetary Resources	$	14,602 	10,355 	1,109 	9,273
Reported in Budget of the U. S. Governmem $	14,502 	10,347 	1,109 	9,271
Note 26. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available, and Permanently Not Available on the
Statement of Budgetary Resources consist of the following amounts for September 30, 2018, and September
30, 2017:
FY 2018	FY 2017
Net Adjustments to Unobligated Balance Brought


Forward, Oct. 1
$ 232,751 $
330,486
Temporarily Not Available - Rescinded Authority
(11,217)
(10,555)
Permanently Not Available:


Payments to Treasury
-
-
Rescinded authority
(148,848)
(90,348)
Canceled authority
(24,200)
(46,483)
Total Permanently Not Available
$ (173,048) $
(136,831)
Note 27. Unobligated Balances Available
Unobligated balances are a combination of two lines on the Statement of Budgetary Resources: Apportioned,
Unobligated Balances and Unobligated Balances Not Available. 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.
The unobligated balances available consist of the following as of September 30, 2018, and September 30,
2017:
FY 2018 FY 2017
Unexpired Unobligated Balance
Expired Unobligated Balance
Total
5,867,574 3
> 4,154,577
86,796
92,649
5,954,370 3
i 4,247,226
Note 28. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2018, and September 30, 2017, were
$10.0 billion and $8.32 billion, respectively.
61

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Note 29. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt accounts offset
gross outlays. For September 30, 2018, and September 30, 2017, the following receipts were generated from
these activities:
FY2018	FY2017
Trust Fund Recoveries $ 40,664	$ (49,379)
Special Fund Environmental Service 24,558	23,222
Trust Fund Appropriation 1,292,678	1,135,527
Miscellaneous Receipt and Clearing Accounts 41,583	83
Total $ 1,399,483	$ 1,109,453
Note 30. Transfers-In and Out, Statement of Changes in Net Position
A. Appropriation Transfers, In/Out:
For September 30, 2018 and September 30, 2017, the Appropriation Transfers under Budgetary Financing
Sources on the Statement of Changes in Net Position are comprised of non-expenditure transfers that affect
Unexpended Appropriations for non-invested appropriations. These amounts are included in the Budget
Authority, Net Transfers and Prior Year Unobligated Balance, and Net Transfers lines on the Statement of
Budgetary Resources. Details of the Appropriation Transfers on the Statement of Changes in Net Position
and reconciliation with the Statement of Budgetary Resources follow for September 30, 2018, and
September 30, 2017:
FY 2018	FY 2017
Net Transfers from Invested Funds	$	1,306,784 $ 1,195,715
Transfer to DOT	142,400	93,100
Transfers to Another Agency	1,004	870
Allocations Rescinded		6,600 	6,900
Total of Net Transfers on Statement of Budgetary Resources $	1,456,788 $	1,296,585
62

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B. Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2018 and September 30, 2017, Transfers In/Out under Budgetary Financing Sources on
the Statement of Changes in Net Position consist of transfers between EPA funds. These transfers affect
Cumulative Results of Operations. Details of the transfers-in and transfers-out, expenditure and non-
expenditure, follow for September 30, 2018, and September 30, 2017:
FY2018	FY2017

Fund from

Fund from


Dedicated

Dedicated

Type of Transfer/Funds
Collections
Other Funds
Collections
Other Funds
Transfers-in (out) nonexpenditure, Earmark to S&T and OIG funds
$ (23,976)
23,976
$ (24,274)
24,041
Transfers-in nonexpenditure, Oil Spill
18,209
-
(18,209)
-
Transfers-in (out) nonexpenditure, Superfund
-
-
54,464
-
Transfer-out LUST
-
-
100
-
NRDA
1,004
-
(870)
-
Total Transfer in (out) without Reimbursement, Budgetary	$	(4,763)	23,976 $	11,211	24,041
Note 31. Imputed Financing
In accordance with SFFAS No. 5, "Accounting for 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 2018 were $73.0 million. For FY 2017, the estimates were $77.3 million.
SFFAS No. 4, "Managerial Cost Accounting Standards and Concepts" and SFFAS No. 30, "Inter-Entity Cost
Implementation," requires Federal agencies to recognize the costs of goods and services received from other
Federal entities that are not fully reimbursed, if material. The EPA estimates imputed costs for inter-entity
transactions that are not at full cost and records imputed costs and financing for these unreimbursed costs
subject to materiality. The EPA applies its Headquarters General and Administrative indirect cost rate to
expenses incurred for inter-entity transactions for which other Federal agencies did not include indirect costs
to estimate the amount of unreimbursed (i.e., imputed) costs. For FY 2018 total imputed costs were $22.1
million.
In addition to the pension and retirement benefits described above, the EPA also records imputed costs and
financing for Treasury Judgment Fund payments made 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 2018, entries for Judgment Fund payments totaled $2.3
million. For FY 2017, entries for Judgment Fund payments totaled $3.6 million.
63

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Note 32. Payroll and Benefits Payable



Payroll and benefits payable to the EPA employees for the years September 30, 2018, and September 30,
2017, consist of the following:




Covered by Not Covered

FY2018 Payroll & Benefits Payable
Budgetary by Budgetary
Total

Resources Resources

Accrued Funded Payroll & Benefits $
40,487
- $
40,487
Withholdings Payable
20,553
-
20,553
Employer Contributions Payable-TSP
2,795
-
2,795
Accrued Unfunded Annual Leave
-
138,184
138,184
Total - Current $
63,835
138,184 $
202,019
FY2017 Payroll & Benefits Payable



Accrued Funded Payroll and Benefits $
31,095
- $
31,095
Withholdings Payable
32,311
-
32,311
Employer Contributions Payable-TSP
638
-
638
Accrued Unfunded Annual Leave
-
141,588
141,588
Total - Current $
64,044
141,588 $
205,632
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 cancellation of funds that expired 7 years earlier. These
amounts affect Unexpended Appropriations.




Other Funds
Other Funds


FY 2018
FY 2017

Canceled General Authority
$ 173,967 $
123,824

Total Other Adjustments
$ 173,967 $
123,824


64



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Note 34. Non-Exchange Revenue, Statement of Changes in Net Position
Non-Exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net Position as of
September 30, 2018 and September 30, 2017 consists of the following Funds from Dedicated Collections
items:

Funds from
Funds from

Dedicated
Dedicated

Collections
Collections

FY2018
FY2017
Interest on Trust Fund !
$ 80,893 $
47,445
TaxRevenue, Net of Refunds
210,731
225,194
Fines and Penalties Revenue
6,598
(701)
Special Receipt Fund Revenue
27,640
21,796
Total Nonexchange Revenue $	325,862 $	293,734
65

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Note 35. Reconciliation of Net Cost of Operations to Budget



FY 2018
FY 2017
RESOURCES USED TO FINANCE ACTIVITIES:


Budgetary Resources Obligated


Obligations Incurred
$ 11,862,249
$ 10,354,618
Less: Spending Authority from Offsetting Collections and Recoveries
(867,018)
(1,031,789)
Obligations, Net of Offsetting Collections
10,995,231
9,322,829
Less: Offsetting Receipts
(1,399,483)
(1,109,453)
Net Obligations
9,595,748
8,213,376
Other Resources


Transfers In/Out Without Reimbursement, Property
-
-
Imputed Financing Sources
97,383
103,093
Net Other Resources Used to Finance Activities
97,383
103,093
Total Resources Used To Finance Activities
S 9,693,131
$ 8,316,469
RESOURCES USED TO FINANCE ITEMS


NOT PART OF THE NET COST OF OPERATIONS:


Change in Budgetary Resources Obligated
S (1,341,001)
$ (66,195)
Budgetary Offsetting Collections and Receipts that


Do Not Affect Net Cost of Operations:


Credit Program Collections Increasing Loan Liabilities for


Guarantees or Subsidy Allowances
2,112
31
Offsetting Receipts Not Affecting Net Cost
66,142
72,980
Resources that Finance Asset Acquistion
(131,556)
(121,053)
Adjustments to Expenditure Transfers


that Do Not Affect Net Cost
(298)
(8,819)
Total Resources Used to Finance Items Not Part of the Net Cost of Operations
(1,404,601)
(123,056)
Total Resources Used to Finance theNet Cost of Operations
$ 8,288,530
$ 8,193,413

FY 2018
FY 2017
COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL


NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD:


Components Requiring or Generating Resources in Future Periods:


Increase in Annual Leave Liability
$ (3,404)
$ (8,483)
Increase in Environmental and Disposal Liability
(6,586)
3,441
Increase in Unfunded Contingencies
-
-
Upward/Downward Reestimates of Credit Subsidy Expense
-
-
Increase in Public Exchange Revenue Receivables
(498,223)
(159,362)
Increase in Workers Compensation Costs
(1,813)
(123)
Other
-
105
Total Components of Net Cost of Operations that Require or


Generate Resources in Future Periods
(510,026)
(164,422)
Components Not Requiring/Generating Resources:


Depreciation and Amortization
101,826
108,927
Expenses Not Requiring Budgetary Resources
94,467
353,651
Total Components of Net Cost that Will Not Require or Generate Resources
196,293
462,578
Total Components of Net Cost of Operations That Will Not Require or


Generate Resources in the Current Period
(313,733)
298,156
Net Cost of Operations
$ 7,974,797
$ 8,491,569
66



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Note 36. Amounts Held by Treasury (Unaudited)
Amounts held by Treasury for future appropriations consist of amounts held in trusteeship by Treasury in the
Superfund and LUST Trust Funds.
A. Superfund
Superfund is supported by general revenues, cost recoveries of funds spent to clean up hazardous waste sites,
interest income, and fines and penalties.
The following reflects the Superfund Trust Fund maintained by Treasury as of September 30, 2018, and
September 30, 2017. The amounts contained in these notes have been provided by Treasury. As indicated, a
portion of the outlays represents amounts received by the EPA's Superfund Trust Fund; such funds are
eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
SUPERFUND FY2018		EPA		Treasury	Combined
Undistributed Balances



Uninvested Fund Balance $
-
1,807
1,807
Total Undisbursed Balance
-
1,807
1,807
Interest Receivable


-
Investments, Net
4,671,302
201,942
4,873,244
Total Assets
4,671,302
203,749
4,875,051
Liabilities & Equity



Equity
4,671,302
208,391
4,879,693
Total Liabilities and Equity
4,671,302
208,391
4,879,693
Receipts



Corporate Environmental
-
-
-
Cost Recoveries
-
239,297
239,297
Fines & Penalties
-
1,294
1,294
Total Revenue
-
240,591
240,591
Appropriations Received

1,094,046
1,094,046
Interest Income
-
71,516
71,516
Total Receipts
-
1,406,153
1,406,153
Outlays



Transfers to/fromEPA, Net
1,324,412

-
Total Outlays
1,324,412
-
-
Net Income $
1,324,412
1,406,153
1,406,153
In FY 2018, the EPA received an appropriation of $1.1 billion for Superfund. Treasury's Bureau of Fiscal
Service (BFS), the manager of the Superfund Trust Fund assets, records a liability to the EPA for the amount
of the appropriation. BFS 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, 2018, and September 30, 2017, the
Treasury Trust Fund has a liability to the EPA for previously appropriated funds and special accounts of $5.0
billion and $4.8 billion, respectively.
67

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SUPERFUND FY2017
EPA
Treasury
Combined
Undistributed Balances



Uninvested Fund Balance $
-
1,422
1,422
Total Undisbursed Balance
-
1,422
1,422
Interest Receivable
-
3,387
3,387
Investments, Net
4,704,616
88,528
4,793,144
Total Assets
4,704,616
93,337
4,797,953
Liabilities & Equity



Equity
4,704,616
93,337
4,797,953
Total Liabilities and Equity
4,704,616
93,337
4,797,953
Receipts



Corporate Environmental
_
_
_
Cost Recoveries
-
49,379
49,379
Fines & Penalties
-
2,592
2,592
Total Revenue
-
51,971
51,971
Appropriations Received
-
1,038,131
1,038,131
Interest Income
-
44,166
44,166
Total Receipts
-
1,134,268
1,134,268
Outlays



Transfers to/fromEPA, Net
1,119,857
(1,119,857)
-
Total Outlays
1,119,857
(1,119,857)
-
Net Income $
1,119,857
14,411
1,134,268
B. LUST



LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2018 and
2017, there were no fund receipts from cost
recoveries. The amounts contained in
these notes are provided
by Treasury. Outlays represent appropriations received by the EPA's LUST Trust
Fund; such funds are
eliminated on consolidation with the LUST Trust Fund maintained by Treasury.


68



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LUSTFY 2018
EPA
Treasury
Combined
Undistributed Balances



Uninvested Fund Balance $
-
-
-
Total Undisbursed Balance
-
-
-
Interest Receivable
-
72
72
Investments, Net
87,588
532,500
620,088
Total Assets
87,588
532,572
620,160
Liabilities & Equity



Equity
87,588
532,572
620,160
Receipts



Highway TF Tax
-
200,338
200,338
Airport TF Tax
-
10,348
10,348
Inland TF Tax
-
45
45
Total Revenue
-
210,731
210,731
Interest Income

8,657
8,657
Total Receipts
-
219,388
219,388
Outlays



Transfers to/from EPA, Net
142,400
(142,400)
-
Total Outlays
142,400
(142,400)
-
Net Income $
142,400
76,988
219,388
LUSTFY 2017
EPA
Treasury
Combined
Undistributed Balances



Uninvested Fund Balance
$
13,690
13,690
Total Undisbursed Balance
-
13,690
13,690
Interest Receivable
-
14
14
Investments, Net
37,647
491,821
529,468
Total Assets
37,647
505,525
543,172
Liabilities & Equity



Equity
37,647
505,525
543,172
Receipts



Highway TF Tax
-
213,392
213,392
Airport TF Tax
-
11,752
11,752
Inland TF Tax
-
49
49
Total Revenue
-
225,193
225,193
Interest Income
-
3,048
3,048
Total Receipts
-
228,241
228,241
Outlays



Transfers to/from EPA, Net
107,000
(107,000)
-
Total Outlays
107,000
(107,000)
-
Net Income
$ 107,000
121,241
228,241

69



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Required Supplementary Information (Unaudited)
Environmental Protection Agency
As of September 30, 2018, and September 30, 2017
(Dollars in Thousands)
Deferred Maintenance
Deferred maintenance is maintenance that was not performed when it should have been, that was scheduled
and not performed, or that was delayed for a future period. Maintenance is the act of keeping property, plant,
and equipment (PP&E) in acceptable operating condition and includes preventive maintenance, normal
repairs, replacement of parts and structural components, and other activities needed to preserve the asset so
that it can deliver acceptable performance and achieve its expected life. Maintenance excludes activities
aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from or
significantly greater than those originally intended.
Deferred Maintenance is described as the act of keeping fixed assets in acceptable condition.
Such activities include: Preventive maintenance, replacement of parts, systems, or components, and other
activities needed to preserve or maintain the asset.
The deferred maintenance as of Fiscal Year 2018:
Asset Category
Buildings
EPA Held Equipment
Vehicles
Total Deferred Maintenance
FY2018 FY2017
$ 136,407	$ 143,583
120	620
	0_ 	9
$ 136,527	$ 144,212
In Fiscal Year 2018, in accordance with SFFAS No. 42, Deferred Maintenance and Repairs: Amending
Statements of Federal Financial Accounting Standards 6, 14, 29 and 32, the EPA presents Deferred
Maintenance and Repairs (DM&R) information by asset category as follows:
70

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Buildings:
Policy
Explanation
Maintenance and repairs policies and how
they are applied.
The maintenance and repair policy is to maintain
facilities and real property installed equipment to fully
meet mission needs at each site. Systems are maintained
to function efficiently at full capacity and to meet or
exceed life expectancy of buildings and building
systems.
How we rank and prioritize maintenance
and repair activities among other activities.
Building and facility program projects are scored and
ranked individually based on seven weighted factors to
determine priority needs. High scoring projects are
prioritized above lower scoring projects. The seven
factors considered are: health and safety, energy
conservation, environmental compliance, program
requirements, repair and upkeep, space alteration, and
operational urgency. Repair and Improvement (R&I)
projects are identified and prioritized on a local basis.
Factors considered in determining
acceptable condition standards.
The nine building systems must function at a level that
fully meet mission needs. The nine building systems are:
structure, roof, exterior components and finish, interior
finish, HVAC, electrical, plumbing, conveyance, and
specialized program support equipment. Each system is
rated from 0 to 5 during facility assessments. Ratings are
used to determine facility condition index and estimated
deferred maintenance.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
Facilities assessments and the resulting DM&R estimates
are applied to capitalize PP&E only. Full facility
assessments using the NASA parametric model are used
to determine facilities and systems indices and deferred
maintenance estimates.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than
non-capitalized or fully depreciated general
PP&E.
Buildings are not excluded from DM&R estimates.
Explain significant changes from the prior
year.
No significant changes.
71

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EPA Held Equipment
Policy
Explanation
Maintenance and repairs policies and how
they are applied.
Managers of the equipment consider manufacturers
recommendations in determining maintenance
requirements.
How we rank and prioritize maintenance
and repair activities among other activities.
Equipment is maintained based on manufacture's
recommendations.
Factors considered in determining
acceptable condition standards.
Manufacturer recommendations.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
DM&R relates to all EPA Held Equipment as determined
by individual site managers.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than
non-capitalized or fully depreciated general
PP&E.
Individual site managers determine the need to measure
and/or report DM&R based on mission needs.
Explain significant changes from the prior
year.
Individual site equipment managers decide on a case-by-
case basis the need to maintain equipment.
72

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Vehicles
Policy
Explanation
Maintenance and repairs policies and how they
are applied.
Vehicle managers maintain vehicles owned by the EPA
in accordance with the recommendations of the
manufacturer.
How we rank and prioritize maintenance and
repair activities among other activities.
The goal is to maintain the vehicle as built and as
recommended by the manufacturer. Repairs and
maintenance are also described as system critical or
minor. System critical repairs and maintenance are high
priority and are immediately taken care of. Minor
repairs are lower priority and may be taken care of at a
later date (time/scheduling permitting). These are not
critical to in-field functionality, but the repairs are
needed to maintain the vehicle as built.
Factors considered in determining acceptable
condition standards.
The vehicle is inspected to ensure that it (the vehicle)
and related specialized equipment are in good working
order. The criteria being that the vehicle is being
maintained as built and as recommended by the
manufacturer.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
All vehicles are capitalized.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than non-
capitalized or fully depreciated general PP&E.
None.
Explain significant changes from the prior
year.
No significant changes.
Beginning in FY 2015, requirements for recognizing and reporting significant and expected to be permanent
impairment of general PP&E (except Internal Use Software) remaining in use are in SFFAS NO. 44,
accounting for Impairment of General Property, Plant, and Equipment
(G-PP&E) Remaining in Use.
This statement establishes accounting and financial reporting standards for impairment of general property,
plant, and equipment remaining in use, except for internal use software.
G-PP&E is considered impaired when there is a significant and permanent decline in the service utility of G-
PP&E or expected service utility for construction work in progress. A decline is permanent when
management has no reasonable expectation that the lost service utility will be replaced or restored.
This statement does not anticipate that entities will have to establish additional or separate procedures
beyond those that may already exist, such as those related to deferred maintenance and repairs, to search for
impairments. Impairments can be identified and brought to management's attention in a variety of ways.
Although a presumption exists that there are existing processes and internal controls in place to reasonably
assure identification and communication of potential material impairments, this statement does not require
entities to conduct an annual or other periodic survey solely for the purpose of applying these standards.
73

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Management may determine that existing processes and internal controls are not sufficient to reasonably
assure identification of potential material impairments and impairments and implement appropriate
additional processes and internal controls.
74

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Supplemental Combined Statement of Budgetary Resources
Environmental Protection Agency
For the Period Ending September 30, 2018

(Dollars in Thousands)






Leaking







Undergroun


State &



Env. Prog.
d Storage
Science &

Tribal Ass.



& Mgmt.
Tank
Tech.
Superfund
Grants
Other
Total
BUDGETARY RESOURCES







Unobligated balance from prior year budget







authority, net 5
! 336,376
5,898
107,913
3,515,848
274,147
239,746
4,479,928
Appropriations (discretionary and mandatory)
2,607,999
192,341
706,473
1,280,835
4,165,963
1,272,302
10,225,913
Borrowing authority (discretionary and mandatory)
-
-
-
-
-
2,500,000
2,500,000
Spending authority from offsetting collections
280,203
-
24,564
17,330
-
288,193
610,290
Total Budgetary Resources $
! 3,224,578
198,239
838,950
4,814,013
4,440,110
4,300,241
17,816,131
MEMORANDUM (NON-ADD) Entries:







Net adjustments to unobligted balance brought







forward, Oct. 1
33,884
2,256
10,924
126,085
45,777
13,825
232,751
STATUS OF BUDGETARY RESOURCES







New obligations and upward adjustments $
! 2,819,758
188,134
716,507
1,506,418
4,072,796
2,558,636
11,862,249
Unobligated balance, end of year:






-
Apportioned, unexpired accounts
341,156
7,776
102,156
3,364,711
274,605
1,581,914
5,672,318
Unapportioned, unexpired accounts
1,828
2,329
-
(57,116)
92,709
155,018
194,768
Expired unobligated balance, end of year
61,836
-
20,287
-
-
4,673
86,796
Total unobligated balance, end of period
404,820
10,105
122,443
3,307,595
367,314
1,741,605
5,953,882
Total Status of Budgetary Resources $
! 3,224,578
198,239
838,950
4,814,013
4,440,110
4,300,241
17,816,131
OUTLAYS, NET







Outlays, net (discretionary and mandatory) $
! 2,511,277
186,550
704,486
1,339,821
3,566,137
1,176,291
9,484,562
Distributed offsetting receipts
-
-
-
(1,292,678)
-
(106,805)
(1,399,483)
Agency outlays, net (discretionary and mandatory) $
! 2,511,277
186,550
704,486
47,143
3,566,137
1,069,486
8,085,079
75

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Required Supplemental Stewardship Information (Unaudited)
Environmental Protection Agency
Required Supplemental Stewardship Information (Unaudited)
For the Year Ended September 30, 2018
(Dollars in Thousands)
Investment in The Nation's Research and Development:
The EPA's Office of Research and Development provides the crucial underpinnings for EPA decision-
making. Through conducting cutting-edge science and technical analysis, ORD develops sustainable
solutions to our environmental problems and employs more innovative and effective approaches to reducing
environmental risks. Public and private sector institutions have long been significant contributors to our
nation's environment and human health research agenda. The EPA, 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, the framework, and technologies we need to
detect, abate, and avoid environmental problems.
Among the Agency's highest priorities are research programs that address: the development and application
of alternative techniques for prioritizing chemicals for further testing through computational toxicology; the
environmental effects of pollutants on children's health; the potential risks and effects of manufactured
nanomaterials on human health and the environment; the impacts of global change and providing
information to policy makers to help them adapt to a changing climate; the potential risks of unregulated
contaminants in drinking water; the health effects of air pollutants such as particulate matter; the protection
of the nation's ecosystems; and the provision of near-term, appropriate, affordable, reliable, tested, and
effective technologies and guidance for potential threats to homeland security. The EPA also supports
regulatory decision-making with chemical risk assessments.
For FY 2018, the full cost of the Agency's Research and Development activities totaled over $547M. Below
is a breakout of the expenses (dollars in thousands):1
FY2018
492,648
54,684
See Section II of the PAR for more detailed information on the results of the Agency's investment in
research and development.
Programmatic Expenses
Allocated Expenses
FY2014 FY2015
510,911 535,352
73,622	78,028
FY2016 FY2017
541,190 532,153
82,646 103,451
1 Allocated Expenses calculated specifically for the Required Supplemental Stewardship Information report and do not represent
the overall Agency indirect cost rates. Allocated expenses include general and administrative expenses of headquarter
organizations that provide support services to the entire agency, general and administrative expenses of the regional and
headquarter offices that provide support services to national programs within their organization, and inter-entity costs provided by
Office of Personal Management.
76

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Investment in The Nation's Infrastructure:
The Agency makes significant investments in the nation's drinking water and clean water infrastructure,
primarily through the two SRF programs and the WIFIA program.
WIFIA: The EPA provides through the WIFIA program long-term, low cost supplemental credit assistance
under customized terms for creditworthy water and wastewater projects. The WIFIA program directly
supports the Agency's goal to ensure waters are clean through improved water infrastructure. The program
requires a small appropriation compared to its potential loan volume. For example, the FY17 WIFIA
appropriation of $30 million could potentially spur up to $5 billion in total infrastructure investment when
combined with other sources of funding. The WIFIA program is designed to attract private participation,
encourage new revenue streams for infrastructure investment, and allow public agencies to get more projects
done.
State Revolving Funds: The EPA provides capital, in the form of capitalization grants, to state revolving
funds which state governments use to make loans to eligible 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.
Construction Grants Program: During the 1970s and 1980s, the Construction Grants Program provided more
than $60 billion of direct grants for the construction of public wastewater treatment projects. These projects,
which constituted a significant contribution to the nation's water infrastructure, included sewage treatment
plants, pumping stations, and collection and intercept sewers, rehabilitation of sewer systems, and the control
of combined sewer overflows. The construction grants led to the improvement of water quality in thousands
of municipalities nationwide. Congress set 1990 as the last year that funds would be appropriated for
Construction Grants. Projects funded in 1990 and prior will continue until completion. After 1990, the EPA
shifted the focus of municipal financial assistance from grants to loans that are provided by State Revolving
Funds.
The Agency also is appropriated funds to finance the construction of infrastructure outside the Revolving
Funds programs. These are reported below as Other Infrastructure Grants.
The Agency's appropriated investments in the nation's Water Infrastructure are outlined below (dollars in
thousands):

FY2014
FY2015
FY2016
FY2017
FY2018
Construction Grants
$ 1,447
17,462
11,344
8,686
-
Clean Water SRF
$ 1,534,453
1,715,630
1,459,820
1,247,919
1,442,613
Drinking Water SRF
$ 1,187,212
1,268,360
1,213,201
994,297
890,460
Other Infrastructure Grants
$ 118,706
96,439
62,011
44,916
48,198
Allocated Expenses
$ 516,102
590,595
529,815
480,415
438,823
WIFIA2
$
-
-
30,000
63,000
See the Goal 2 - Clean and Safe Water portion in Section II of the AFR for more detailed information on the
results of the Agency's investment in infrastructure.
2 Amounts for WIFIA include administrative expenses.
77

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Human Capital
Agencies are required to report expenses incurred to train the public with the intent of increasing or
maintaining the nation's economic productive capacity. Training, public awareness, and research fellowships
are components of many of the Agency's programs and are effective in achieving the Agency's mission of
protecting public health and the environment, but the focus is on enhancing the nation's environmental, not
economic, capacity.
The Agency's expenses related to investments in the Human Capital are outlined below (dollars in
thousands):
Training and Awareness Grants $
Fellowships
Allocated Expenses
FY2014	FY2015	FY2016	FY2017	FY2018
$ 23,255	27,047	29,116	22,090	19,351
8,082	6,579	4,630	2,077	1,460
4,226	5,146	5,336	4,073	2,525
Total
$ 35,563	38,772	39,082	28,240	23,336
78

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AUDIT OF ERA'S FISCAL YEARS 2018 AND 2017
CONSOLIDATED FINANCIAL STATEMENTS

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O v^i/y- f U.S. ENVIRONMENTAL PROTECTION AGENCY
\pRO/ OFFICE OF INSPECTOR GENERAL
Operating efficiently and effectively
EPA's Fiscal Years 2018
and 2017 Consolidated
Financial Statements
Report No. 19-F-0003
November 14, 2018

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Abbreviations
CFC
Cincinnati Finance Center
EPA
U.S. Environmental Protection Agency
FBWT
Fund Balance with Treasury
FFMIA
Federal Financial Management Improvement Act of 1996
FMFIA
Federal Managers' Financial Integrity Act of 1982
FY
Fiscal Year
GAO
U.S. Government Accountability Office
GSA
General Services Administration
NCC
National Computer Center
NIST
National Institute of Standards and Technology
OARM
Office of Administration and Resources Management
OCFO
Office of the Chief Financial Officer
OIG
Office of Inspector General
OMB
Office of Management and Budget
PIV
Personal Identity Verification
PTY
Potomac Yard
RMDS
Resource Management Directive System
SLCM
System Life Cycle Management
SFFAS
Statement of Federal Financial Accounting Standards
U.S.C.
United States Code
WCF
Working Capital Fund
Are you aware of fraud, waste or abuse in an
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(888) 546-8740
(202) 566-2599 (fax)
OIG Hotline@epa.gov
Learn more about our OIG Hotline.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (2410T)
Washington, DC 20460
(202) 566-2391
www.epa.gov/oiq
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<^tDsrx
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
19-F-0003
November 14, 2018
Why We Did This Review
We performed this audit in
accordance with the Government
Management Reform Act of
1994, which requires the U.S.
Environmental Protection
Agency's (EPA's) Office of
Inspector General (OIG) to audit
the financial statements prepared
by the agency each year. Our
primary objectives were to
determine whether:
•	The EPA's consolidated
financial statements were
fairly stated in all material
respects.
•	The EPA's internal controls
over financial reporting were
in place.
•	EPA management complied
with applicable laws,
regulations, contracts and
grant agreements.
The requirement for audited
financial statements was enacted
to help bring about improvements
in agencies' financial
management practices, systems
and control so that timely,
reliable information is available
for managing federal programs.
This report addresses the
following:
• Operating efficiently and
effectively.
Send all inquiries to our public
affairs office at (202) 566-2391
or www.epa.gov/oia.
Listing of OIG reports.
EPA's Fiscal Years 2018 and 2017
Consolidated Financial Statements
EPA Receives an Unmodified Opinion
We rendered an unmodified opinion on the
EPA's consolidated financial statements for
fiscal years 2018 and 2017, meaning they were
fairly presented and free of material
misstatement.
Internal Control Material Weakness and
Significant Deficiencies Noted
We noted the following material weakness:
•	The EPA's accounting for unearned revenue for Superfund special
accounts continues to be a material weakness.
We noted the following significant deficiencies:
•	Additional efforts are needed to resolve cash differences with the
U.S. Department of the Treasury.
•	The EPA misstated uncollectible debt.
•	The EPA improperly increased accounts receivable and related revenue.
•	The EPA materially overstated earned revenue.
•	The EPA improperly processed General Services Administration
rent payments.
•	The EPA should restrict access to computer rooms with financial and
mixed-financial systems.
•	The EPA needs to perform a documented evaluation on upgrading
equipment used to implement physical environmental controls at the
National Computer Center.
Compliance with Laws and Regulations
We did not note any significant noncompliance with laws and regulations.
Recommendations and Planned Agency Corrective Actions
The EPA agreed with Recommendations 1 through 9 of our report and has
either implemented corrective actions or provided an estimated time frame
for completion. The agency disagreed with Recommendations 10 through 15,
citing the need for clarifying information. EPA management set up a
November 26, 2018, meeting with the OIG to discuss these findings. We
consider Recommendations 10 through 15 unresolved pending the agency's
response to the final report.
We found the EPA's
financial statements to be
fairly presented and free
of material misstatement.

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
November 14, 2018
MEMORANDUM
SUBJECT: EPA's Fiscal Years 2018 and 2017 Consolidated Financial Statements
Report No. 19-F-0003
FROM: Paul C. Curtis, Director
Financial Audits

TO:
Holly Greaves, Chief Financial Officer
Vaughn Noga, Principal Deputy Assistant Administrator
and Deputy Chief Information Officer
Office of Environmental Information
Donna J. Vizian, Principal Deputy Assistant Administrator
Office of Administration and Resources Management
Attached is our report on the U.S. Environmental Protection Agency's (EPA's) fiscal years 2018 and
2017 consolidated financial statements. The project number for this audit was OA&E-FY18-0189.
We are reporting one internal control material weakness and seven significant deficiencies.
Attachment 1 contains details on the material weakness and significant deficiencies. We did not
note any instances of noncompliance.
This audit report represents the opinion of the Office of Inspector General (OIG), and the findings 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 the findings in this audit report.
Accordingly, the findings described in this audit report are not binding upon the EPA in any
enforcement proceeding brought by the EPA or the U.S. Department of Justice.
The agency agreed with Recommendations 1 through 9 of our report and has either implemented
corrective actions or provided an estimated time frame for completion. The EPA disagreed with
Recommendations 10 through 15, citing the need for clarifying information.
Action Required
In accordance with EPA Manual 2750, the resolution process begins immediately with the issuance of
this report. We are requesting a meeting within 30 days between the Principal Deputy Assistant
Administrator for Administration and Resources Management, the Principal Deputy Assistant
Administrator for Environmental Information, and the OIG's Assistant Inspector General for Audit and
Evaluation. If resolution is still not reached, the Office of Administration and Resources Management and

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the Office of Environmental Information are required to complete and submit a dispute resolution request
to the Chief Financial Officer to continue resolution.
This report will be available at www.epa.gov/oig.
Attachments (3)

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EPA's Fiscal Years 2018 and 2017
Consolidated Financial Statements
19-F-0003
Table of Contents
Inspector General's Report on EPA's Fiscal Years
2018 and 2017 Consolidated Financial Statements	1
Report on the Financial Statements	 1
Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis	 3
Report on Internal Control over Financial Reporting		3
Tests of Compliance with Laws, Regulations, Contracts and Grant Agreements		7
Prior Audit Coverage		8
Agency Comments and OIG Evaluation		9
Attachments
1. Internal Control Material Weakness and Significant Deficiencies	 10
Material Weakness
SPECIAL ACCOUNTS
EPA's Accounting for Unearned Revenue for Superfund Special
Accounts Continues to Be a Material Weakness	 11
Significant Deficiencies
CASH
EPA Needs to Undertake Additional Efforts to Resolve Cash
Differences with Treasury	 14
ACCOUNTS RECEIVABLE / REVENUE
EPA Misstated Expenses Uncollectible Debt		16
EPA Improperly Increased Accounts Receivable and Related Revenue		18
EPA Materially Misstated Earned Revenue		20
-continued-

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EPA's Fiscal Years 2018 and 2017
Consolidated Financial Statements
19-F-0003
EXPENSES
EPA Improperly Processed GSA Rent Payments	21
INFORMATION TECHNOLOGY
EPA Should Restrict Access to Computer Rooms with Financial
and Mixed-Financial Systems	23
EPA Needs to Perform a Documented Evaluation on Upgrading
Equipment Used to Implement Physical Environmental Controls
at the National Computer Center	27
2.	Status of Prior Audit Report Recommendations	29
3.	Status of Current Recommendations and Potential Monetary Benefits	33
Appendices
I.	EPA's FYs 2018 and 2017 Consolidated Financial Statements
II.	Agency Response to Draft Report
III.	Distribution

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Inspector General's Report on EPA's Fiscal Years
2018 and 2017 Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
Report on the Financial Statements
We have audited the accompanying financial statements of the U.S. Environmental Protection
Agency (EPA), which comprise the consolidated balance sheet, as of September 30, 2018, and
September 30, 2017, and the related consolidated statements of net cost, net cost by major
program, changes in net position, and custodial activity; the combined statement of budgetary
resources for the years then ended; and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based upon our
audit. We conducted our audit in accordance with generally accepted government auditing
standards; the standards applicable to financial statements contained in Government Auditing
Standards issued by the Controller General of the United States; and Office of Management
and Budget (OMB) Bulletin No. 19-01, 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 involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the
financial statements to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
19-F-0003
87
1

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The financial statements include expenses of grantees, contractors and other federal agencies.
Our audit work pertaining to these expenses included testing only within the EPA. The
U.S. Department of the Treasury collects and accounts for excise taxes that are deposited into
the Leaking Underground Storage Tank Trust Fund. The U.S. Treasury is also responsible for
investing amounts not needed for current disbursements and transferring funds to the EPA as
authorized in legislation. Since the U.S. Treasury, and not the 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 the EPA's financial statements. The OIG is organizationally
independent with respect to all other aspects of the agency's activities.
Opinion
In our opinion, the consolidated financial statements, including the accompanying notes,
present fairly, in all material respects, the consolidated assets, liabilities, net position, net
cost, net cost by major program, changes in net position, custodial activity, and combined
budgetary resources of the EPA as of and for the years ended September 30, 2018 and 2017,
in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter—Software Capitalization
As described in Note 1 to the financial statements, in fiscal year (FY) 2017, the agency
changed its capitalization policy by increasing the capitalization threshold from $250,000 to
$5 million for new purchases in FY 2017 and thereafter. Statement of Federal Financial
Accounting Standards (SFFAS) No. 10, Accounting for Internal Use Software, allows for
agencies to select their own capitalization threshold. However, the standard states that
agencies should consider whether period cost would be distorted or asset values understated
by expensing the purchase. We found that the EPA did not consider the cost impact on the
financial statements and instead relied mainly on the capitalization policy of several other
agencies that also have adopted a higher capitalization threshold. We could not
independently determine the impact that the change in the capitalization threshold would
have on the agency's statements. In addition, in FY 2017, the agency wrote off
approximately $300 million in software development costs that could not be readily charged
to a project or for projects abandoned. Such costs were unrelated to the change in
capitalization threshold. Our opinion was not modified in respect to this matter.
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Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis
Our audit was conducted for the purpose of forming an opinion on the financial statements as a
whole. The Required Supplementary Stewardship Information, Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis are presented
for purposes of additional analysis and are not a required part of the basic financial statements.
Such information is the responsibility of management. We obtained information from EPA
management about its methods for preparing Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and Management's Discussion
and Analysis, and we reviewed this information for consistency with the financial statements.
We did not identify any material inconsistencies between the information presented in the EPA's
consolidated financial statements and the information presented in the EPA's Required
Supplementary Stewardship Information, Required Supplementary Information, Supplemental
Information, and Management's Discussion and Analysis.
Our audit was not designed to express an opinion and, accordingly, we do not express an opinion
on the EPA's Required Supplementary Stewardship Information, Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis.
Report on Internal Control over Financial Reporting
Opinion on Internal Control. In planning and performing our audit, we considered the EPA's
internal control over financial reporting by obtaining an understanding of the agency's internal
control, determining whether internal control had been placed in operation, assessing control
risk, and performing tests of controls. We did this as a basis for designing our auditing
procedures for the purpose of expressing an opinion on the financial statements and to comply
with OMB audit guidance, not to express an opinion on internal control. Accordingly, we do not
express an opinion on internal control over financial reporting nor on management's assertion on
internal control included in Management's Discussion and Analysis. We limited our internal
control testing to those controls necessary to achieve the objectives described in OMB Bulletin
No. 19-01, Audit Requirements for Federal Financial Statements. We did not test all internal
controls relevant to operating objectives as broadly defined by the Federal Managers' Financial
Integrity Act of 1982 (FMFIA).
Material Weakness and Significant Deficiencies. Our consideration of the internal control over
financial reporting would not necessarily disclose all matters in the internal control over financial
reporting that might be significant deficiencies. A deficiency in internal control exists when the
design or operation of a control does not allow management or employees, in the normal course
of performing their assigned functions, to prevent or detect and correct misstatements on a timely
basis. A material weakness is a deficiency or combination of deficiencies in internal control,
such that there is a reasonable possibility that a material misstatement of the entity's financial
statements will not be prevented or detected and corrected in a timely manner. A significant
deficiency is a deficiency or a combination of deficiencies in internal control that is less severe
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than a material weakness yet is important enough to merit attention by those charged with
governance.
Because of inherent limitations in internal control, 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 significant deficiencies, one of which we
consider to be a material weakness. These issues are summarized below and detailed in
Attachment 1.
Material Weakness
SPECIAL ACCOUNTS
EPA's Accounting for Unearned Revenue for Superfund Special Accounts
Continues to Be a Material Weakness
We found that the EPA did not properly record $309,929,010 of unearned revenue for
Superfund special account activity. Federal government internal control standards require
accurate recording of transactions and SFFAS No. 7 directs agencies to record cash
advances received for long-term projects as unearned revenue and recognize exchanged
[earned] revenue at the time a government entity provides goods or services to the public
or to another entity.
Significant Deficiencies
CASH
EPA Needs to Undertake Additional Efforts to Resolve Cash Differences
with Treasury
As of June 30, 2018, the EPA had not resolved $2,233,425 in cash differences between
EPA and U.S. Treasury cash balances. Pursuant to Treasury guidance, the EPA should
correct and resolve any differences between Treasury's balance and the EPA's Fund
Balance with Treasury. However, the EPA's Office of the Chief Financial Officer did not
have effective internal controls to adequately monitor internal cash differences and ensure
that the EPA resolved the differences. Unresolved differences may result in the EPA
misstating its Fund Balance with Treasury and financial statements and increase the risk
of fraud.
ACCOUNTS RECEIVABLE / REVENUE
EPA Misstated Expenses Uncollectible Debt
We found that the EPA misstated its general ledger Expenses Uncollectible Debt account
by reflecting a $8.5 million credit balance. Federal accounting standards define expenses
as having a debit balance. The misstatement occurred when the EPA recorded
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transactions to adjust its Allowance for Doubtful Accounts. In doing so, the entries
caused incorrect balances in related accounts. As a result, uncollectible expense and
accounts related to the entries are misstated in the EPA's financial statements.
EPA Improperly Increased Accounts Receivable and Related Revenue
The EPA improperly increased accounts receivable and related revenue by $3,715,531.
The EPA increased the amount of an account receivable based on cash received rather
than an amount stipulated in a legal claim. This occurred because the EPA did not
(1)	record marketable securities at fair market value when they were received or
(2)	recognize a gain when marketable securities were sold for an amount higher than the
book value. SFFAS No. 1 requires federal entities to recognize accounts receivable when
a legal claim exists. The EPA's Resource Management Directive System 2550D states
that the agency will record marketable securities at fair market value when they are
received. SFFAS No. 7 further requires the recognition of a gain or loss when marketable
securities are sold for an amount different from the book value. When unrecorded
securities were sold at an amount greater than the receivable, the EPA understated the
gains by $3,715,531 in its financial statements.
EPA Materially Overstated Earned Revenue
During FY 2018, the EPA did not properly eliminate internal Working Capital Fund
earned revenue of $147 million. Agency standards require intra-entity balances to be
eliminated for consolidated financial statement reporting. The EPA processed a journal
voucher to eliminate internal Working Capital Fund earned revenue; however, the agency
did not follow standard operating procedures when preparing the entry or verify the entry
properly eliminated Working Capital Fund earned revenue. As a result, the EPA's
financial statements are materially misstated.
EXPENSES
EPA Improperly Processed GSA Rent Payments
The EPA processed over $58,338,789 of rent payments to the General Services
Administration (GSA) without proper authorization or approval. EPA guidance states that
program offices will be responsible for the oversight and approval of bills for GSA rent
invoices. Federal guidance states that transactions are authorized and executed only by
persons acting within the scope of their authority.
INFORMATION TECHNOLOGY
EPA Should Restrict Access to Computer Rooms with Financial
and Mixed-Financial Systems
The EPA does not adequately restrict access to computer rooms with financial and
mixed-financial applications, nor does it adequately train people with access to the
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computer rooms, as required by EPA procedures and National Institute of Standards and
Technology guidance. This occurred because the EPA did not perform the following
control activities:
•	Revoke employee access to the computer rooms when access was no longer
necessary.
•	Review quarterly reports for the Potomac Yard computer room and reviewed
incomplete quarterly reports for the National Computer Center computer room.
•	Maintain an inventory of cards used by visitors to access the National Computer
Center computer room.
•	Verify the identity of cardholders prior to allowing access to computer rooms.
•	Provide alternative facility training when the contracted vendor stopped offering
training.
As a result, the agency increases the risk that computer equipment may be intentionally
or unintentionally harmed, which could impact the availability of the financial and
mixed-financial applications.
EPA Needs to Perform a Documented Evaluation of Upgrading Equipment
Used to Implement Physical Environmental Controls at the National
Computer Center
The equipment supporting the physical and environmental controls for the computer
room at the EPA's National Computer Center has not been maintained or reviewed to see
whether it still meets the needs of the computer center. This computer room became
operational in 2002.
Attachment 2 contains the status of issues reported in prior years' reports. The issues included in
the attachment should be considered among the EPA's significant deficiencies for FY 2018.
We reported less significant internal control matters to the agency 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 Control
OMB Bulletin No. 19-01, Audit Requirements for Federal Financial Statements, requires the
OIG to compare material weaknesses disclosed during the audit with those material weaknesses
reported in the agency's FMFIA report that relate to the financial statements. The OIG is also
required to identify material weaknesses disclosed by the audit, which were not reported in the
agency's FMFIA report.
For financial statement audit and financial reporting purposes, OMB defines material weaknesses
in internal control as a deficiency or combination of deficiencies in internal control such that
there is a reasonable possibility that a material misstatement of the entity's financial statements
will not be prevented or detected and corrected on a timely basis.
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The agency reported Accounting for Unearned Revenue as a material weakness in FY 2018.
Accounting for Unearned Revenue has been reported as a material weakness since FY 2016.
The agency has reported that it is developing a corrective action plan for Accounting for
Unearned Revenue.
Details concerning our findings on significant deficiencies can be found in Attachment 1.
Tests of Compliance with Laws, Regulations, Contracts and
Grant Agreements
EPA management is responsible for complying with laws, regulations, contracts and grant
agreements applicable to the agency. As part of obtaining reasonable assurance about whether
the agency's financial statements are free of material misstatement, we performed tests of its
compliance with certain provisions of laws, including those governing the use of budgetary
authority, regulations, contracts and grant agreements that have a direct effect on the
determination of material amounts and disclosures in the financial statements. We also
performed certain other limited procedures as described in Codifications of Statements on
Auditing Standards, AU-C 250.14-16, "Consideration of Laws and Regulations in an Audit of
Financial Statements." OMB Bulletin 19-01, Audit Requirements for Federal Financial
Statements, requires that we evaluate compliance with federal financial statement system
requirements, including the requirements referred to in the Federal Financial Management
Improvement Act of 1996 (FFMIA). We limited our tests of compliance to these provisions and
did not test compliance with all laws and regulations applicable to the EPA.
Opinion on Compliance with Laws, Regulations, Contracts and Grant Agreements
Providing an opinion on compliance with certain provisions of laws, regulations, contracts
and grant agreements was not an objective of our audit and, accordingly, we do not express
such an opinion. Ongoing investigations involving EPA grantees and contractors could
disclose violations of laws and regulations, but a determination about these cases has not
been made.
We did not identify any significant matters involving compliance with laws and regulations
that came to our attention during the course of the audit.
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. To meet the FFMIA requirement, we performed tests of compliance
with FFMIA Section 803(a) requirements and used the OMB Memorandum M-09-06-23,
Implementation Guidance for the Federal Financial Management Improvement Act, dated
January 9, 2009, to determine substantial noncompliance with FFMIA.
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The results of our tests did not disclose any instances of noncompliance with FFMIA
requirements, including where the agency's financial management systems did not
substantially comply with the applicable federal accounting standard.
We did not identify any significant matters involving compliance with laws and
regulations related to the agency's financial management systems that came to our
attention during the course of the audit.
In its Management Assurances, the EPA reported three incidents of potential violations of
the Antideficiency Act. We did not identify any other potential violations of this act
during the course of our audit.
Audit Work Required Under the Hazardous Substance Superfund Trust Fund
We also performed audit work to meet the requirements found in 42 U.S.C. § 961 l(k)
with respect to the Hazardous Substance Superfund Trust Fund, and the stipulation to
conduct an annual audit of payments, obligations, reimbursements or other uses of the
fund. The significant deficiencies reported above also relate to Superfund.
Prior Audit Coverage
During previous financial or financial-related audits, we reported weaknesses that impacted our audit
objectives in the following areas:
•	The EPA undercapitalized software costs, leading to restated FY 2013 financial
statements and a continued material weakness.
•	The EPA did not capitalize lab renovation costs.
•	The EPA's internal controls over the accountable personal property inventory process
need improvement.
•	The EPA's property management system does not reconcile to its accounting system.
•	The EPA did not properly record or reconcile unearned revenue for Superfund special
accounts.
•	Originating offices did not forward accounts receivable source documents in a timely
manner to the finance center.
•	The EPA should improve its efforts to resolve its long-standing cash differences with the
U.S. Treasury.
•	Financial management system user account management needs improvement.
•	The EPA's Office of the Chief Financial Officer lacks internal controls when assuming
responsibility for account management procedures of financial systems.
•	The EPA needs controls to monitor direct access to its accounting system.
•	The EPA needs to appoint a Project Manager to oversee management of Compass
Financials and improve acquisition planning.
Attachment 2 summarizes the current status of corrective actions taken on prior audit report
recommendations related to these issues. During our audit, we found that the issues reported in
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prior audits and listed in Attachment 2 still exist and should be considered as outstanding
significant deficiencies and noncompliance issues unless otherwise noted.
Agency Comments and OIG Evaluation
In a memorandum dated November 9, 2018, the Chief Financial Officer responded to
our draft report. The EPA agreed with our findings on cash, accounts receivable, revenue,
expenses and corresponding Recommendations 1 through 9. The EPA disagreed with our
findings regarding restricting access to computer rooms and documenting an evaluation on
upgrading equipment used to implement physical environmental controls and corresponding
Recommendations 10 through 15. EPA management set up a November 26, 2018, meeting
with the OIG to discuss these findings. We consider Recommendations 10 through 15
unresolved pending the agency's response to the final report.
The rationale for our conclusions and a summary of the agency's comments are included in the
appropriate sections of this report. The agency's complete response is included as Appendix II
of this report.
This report is intended solely for the information and use of the management of the EPA, OMB
and Congress, and it is not intended to be and should not be used by anyone other than these
specified parties.
Paul C. Curtis
Certified Public Accountant
Director, Financial Audits
Office of Inspector General
U.S. Environmental Protection Agency
November 14, 2018
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Attachment 1
Internal Control Material Weakness and
Significant Deficiencies
Table of Contents
Material Weakness
SPECIAL ACCOUNTS
1	EPA's Accounting for Unearned Revenue for Superfund
Special Accounts Continues to Be a Material Weakness	 11
Significant Deficiencies
CASH
2	EPA Needs to Undertake Additional Efforts to Resolve
Cash Differences with Treasury	 14
ACCOUNTS RECEIVABLE / REVENUE
3	EPA Misstated Expenses Uncollectible Debt	 16
4	EPA Improperly Increased Accounts Receivable
and Related Revenue	 18
5	EPA Materially Misstated Earned Revenue	 20
EXPENSES
6	EPA Improperly Processed GSA Rent Payments	 21
INFORMATION TECHNOLOGY
7	EPA Should Restrict Access to Computer Rooms
with Financial and Mix-Financial Systems	 23
8	EPA Needs to Perform a Documented Evaluation
on Upgrading Equipment Used to Implement Physical
Environmental Controls at the National Computer Center	 27
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1—EPA's Accounting for Unearned Revenue for Superfund Special
Accounts Continues to Be a Material Weakness
We found that the EPA did not properly record $309,929,010 of unearned revenue for Superfund
special account activity. Federal government internal control standards require accurate
recording of transactions, and SFFAS No. 7 directs agencies to record cash advances received for
long-term projects as unearned revenue and recognize exchanged [earned] revenue at the time a
government entity provides goods or services to the public or to another entity.
The EPA processed a journal voucher to reclassify special account earned and unearned revenue
activity for the FY 2018 second quarter. However, the EPA did not consider previously reported
earned revenue for future costs incurred, expenses incurred, unbilled oversight costs, and special
account collection movements while preparing the special account reclassification entry. During
our examination of the FY 2018 second quarter special account reclassification journal entry, we
found six errors totaling $257,127,141 that involved misstated earned and unearned revenue on
the financial statements. We also found 21 transactions totaling $52,801,869 that improperly
impacted earned revenue. The EPA did not modify its accounting model to properly record all
Superfund special accounts activity or perform a comprehensive reconciliation of Superfund
special account general ledger balances to the special accounts database during FY 2018. As a
result, the EPA cannot ensure the accuracy of the unearned revenue and earned revenue on the
financial statements.
Federal guidance directs agencies to record cash advances received for long-term projects as
unearned revenue, and to reconcile general ledger control totals to file totals. For example:
•	SFFAS No. 7 is the accounting standard for revenue and other financing sources. The
standard directs agencies to record a cash advance for long-term projects as unearned
revenue. Revenue should be recognized as costs are incurred to provide goods and
services.
•	Section 122(b)(3) of the Comprehensive Environmental Response, Compensation, and
Liability Act [42 U.S.C. 9622(b)(3)], and Executive Order 12580, authorize the EPA to
retain and use funds received through an agreement with potentially responsible parties to
address past and/or future response cost. The EPA retains these funds in site-specific
accounts called "special accounts." The EPA should record special account settlement
funds received as unearned revenue, and the agency should reduce unearned revenue and
recognize earned revenue as expenses are incurred.
•	The U.S. General Accountability Office's (GAO's) Standards for Internal Control in the
Federal Government requires accurate and timely recording of transactions and events, as
well as comparison of file totals with control totals.
In FY 2018, the EPA made six errors in the agency's second quarter special account
reclassification entry, which misstated revenue and unearned revenue. Table 1 summarizes the
errors that our audit identified.
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Table 1: Summary of errors
Description
Dollar amount
(absolute value)
Superfund nonfederal special account future cost expenses were reclassified to
earned revenue. The EPA's nonfederal special account future cost posting
model already recognized earned revenue for those costs.
$67,552,634.08
Superfund federal special account future cost expenses were reclassified to
earned revenue. The EPA previously recognized earned revenue for federal
expenses incurred.
5,766,302.83
Nonfederal Superfund unbilled oversight revenue was inappropriately included
in the reclassification entry to unearned revenue.
26,508,714.64
Federal Superfund unbilled oversight was inappropriately included in the
reclassification entry to unearned revenue.
15,689.74
Superfund special account transactions used to move special account collection
activity to other subaccounts were inappropriately included in the reclassification
entry to unearned revenue.
1,936,620.72
Quarterly reclassification journal voucher entry was not flagged to reverse
during the third quarter. The entry should automatically reverse during the first
month of the next quarter.
155,347,178.79
Total
$257,127,140.80
Source: OIG analysis.
As a result, the EPA did not properly record revenue and unearned revenue for Superfund
special account activity during FY 2018, which misstated earned and unearned revenue on the
Consolidated Balance Sheet and the Statement of Net Cost in the EPA's financial statements.
In OIG Report No. 17-F-0046, Audit of EPA's Fiscal Years 2016 and 2015 Consolidated
Financial Statements, issued November 15, 2016, we reported, as a material weakness, that the
EPA did not properly record or reconcile unearned revenue for Superfund special accounts. The
EPA agreed with our recommendations to modify the accounting model in Compass Financials,
the agency's accounting system, and to prepare a comprehensive quarterly reconciliation of
Superfund special accounts general ledger balances to the special accounts database detail.
However, during our testing for the FY 2018 financial audit, we found that the EPA still had not
implemented the recommendation and misrecorded 21 transactions totaling over $52 million of
receivable and collection transactions.
Table 2 notes our FY 2016 recommendations to the Chief Financial Officer and the status of the
EPA's corrective actions, which should address the accounting for such transactions.
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Table 2: FY 2016 recommendations, corrective actions and status
No.
OIG recommendation
EPA corrective action
Status of
corrective
action
2
Modify the accounting model in
Compass Financials to properly
record all special account
receivables and collections as
unearned revenue and reduce
the unearned revenue and
recognize earned revenue as
expenses are incurred.
The agency will modify accounting models
in Compass to properly record Superfund
special account receivables once OMB and
Treasury have approved the agency's
accounting approach. In preparation for
year-end processing, configuration of the
posting of Compass models is on hold
until 02/28/2018.
Not implemented.
Revised date of
completion is
12/31/2018.
3
Prepare a comprehensive
quarterly reconciliation of
Superfund special accounts
general ledger balances to the
special accounts database
detail.
The agency will conduct the quarterly
reconciliation of the Superfund special
accounts general ledger to the special
accounts database detail. In preparation
for year-end processing, configuration of
the posting of Compass models is on hold
until 03/31/2018.
Not implemented.
Revised date of
completion is
12/31/2018.
Source: OIG analysis.
When the EPA does not properly record unearned revenue for Superfund special accounts or
reconcile Superfund special accounts general ledger balances to the special accounts database
detail, the EPA cannot ensure the accuracy of the unearned revenue and financial statements.
Improper accounting of these settlement funds could lead to funds being spent on sites not
stipulated in the settlement agreements and could jeopardize future clean-up of sites for which
the funds were intended. Since the EPA has not implemented either recommendation in Table 2,
we continue to report this as a material weakness.
Recommendation
We recommend that the Chief Financial Officer:
1. Ensure that the special account reclassification entry includes a review to determine
whether previously reported earned revenue for future costs incurred, expenses incurred,
unbilled oversight costs and special account collection movements should or should not
be included, and include supporting documents identifying the accounts and amounts
reviewed.
Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendation. The agency's estimated completion date
for corrective actions is March 29, 2019.
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2—EPA Needs to Undertake Additional Efforts to Resolve
Cash Differences with Treasury
As of June 30, 2018, the EPA had not resolved $2,223,425 in cash differences between EPA and
U.S. Treasury cash balances. Pursuant to Treasury guidance, the EPA should correct and resolve
any differences between the Treasury's balance and the EPA's Fund Balance with Treasury
(FBWT). However, the EPA's Office of the Chief Financial Officer (OCFO) did not have
effective internal controls to adequately monitor internal cash differences and ensure that the
EPA resolved the differences. Unresolved differences may result in the EPA misstating its
FBWT and financial statements and increase the risk of fraud.
Treasury Financial Manual, Volume 1, Section 3335, titled "Reconciling FMS 224, Section II,"
states that agencies should reconcile regional finance center transactions separately from
Intra-governmental Payment and Collection (IPAC) transactions by comparing transactions
reported in accounting systems with transactions reported to Treasury by regional finance centers
and through the IP AC system. In the month following the reporting month, agencies should
correct any disclosed differences. For our audit, we considered cash differences to be long-
standing if they were unresolved for more than 1 month after the initial reporting month.
The EPA's Resource Management Directive System (RMDS) No. 2540-03-P1, titled I''unci
Balance with Treasury Management Standard Form 224 Reconciliation, requires the EPA to
review and track monthly differences between its FBWT and the Treasury's balance. The
directive requires the OCFO's General Ledger Analysis and Reporting Branch to conduct a
monthly review of the EPA's financial system of record and report any issues to the respective
finance center. The General Ledger Analysis and Reporting Branch is responsible for tracking all
budget clearing account items from posting to final disposition. The OCFO prepares an internal
monthly cash difference report (according to the accounting point and treasury symbol) to
identify and resolve differences between Treasury and EPA records. EPA finance centers and
responsible staff are required to provide comments, as needed, to the General Ledger Analysis
and Reporting Branch concerning the monthly cash difference reports.
Based on the OCFO's monthly cash difference reports, we have reported in prior audits that EPA
finance centers and responsible staff are not resolving cash differences between Treasury and
EPA records in a timely manner. Table 3 shows cash differences as of June 30, 2018, which were
unresolved for at least 2 months.
Table 3: Cash differences as of June 30, 2018
Responsible office
Accounting point
location code
Amount
Las Vegas Finance Center (responsible for payroll
accounting point cash reconciliation)
68010015
$769,749
Accounting and Cost Analysis Division (responsible for
cash reconciliation of the former Washington Finance
Center)
68010099
$1,452,860
Cincinnati Finance Center
68010727
$816
Total
$2,223,425
Source: OIG analysis of EPA data.
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The OCFO did not adequately monitor internal cash differences at the transaction level to ensure
that the EPA resolved any differences with the Treasury. The General Ledger Analysis and
Reporting Branch relied on EPA finance centers and responsible staff to resolve individual cash
differences. However, the OCFO's Accounting and Cost Analysis Division, and the Las Vegas
and Cincinnati Finance Centers, did not timely resolve cash differences for the accounting point
locations stated in Table 3. Therefore, the OCFO did not have effective internal controls to
resolve individual cash differences.
By not adequately monitoring and resolving all cash differences, the EPA increases the risk of
unrecorded transactions and fraud. Unrecorded transactions misstate the agency's FBWT and
EPA financial statements.
Recommendation
We recommend that the Chief Financial Officer:
2. Require the Accounting and Cost Analysis Division, and the Las Vegas and Cincinnati
Finance Centers, to research and resolve cash differences.
Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendation. The agency's estimated completion
date for corrective actions is March 29, 2019.
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3—EPA Misstated Expenses Uncollectible Debt
We found that the EPA misstated its general ledger Expenses Uncollectible Debt account by
reflecting a $8.5 million credit balance. Federal accounting standards define expenses as having
a debit balance. The misstatement occurred when the EPA recorded transactions to adjust its
Allowance for Doubtful Accounts. In doing so, the entries caused incorrect balances in related
accounts. As a result, uncollectible expense and accounts related to the entries are misstated in
the EPA's financial statements.
The U.S. Department of the Treasury's Treasury Financial Manual, Volume 1, United States
Standard General Ledger Part 1, Section II, requires expense accounts to have a debit balance.
The GAO's Standards for Internal Control in the Federal Government sets standards for federal
entities. Federal government internal control standards require accurate and timely recording of
transactions and events.
In accordance with EPA Comptroller Policy 93-02, Policies for Documenting Agency Financial
Transactions, the EPA uses standard vouchers to record accounting events that occur on a
recurring basis and have predetermined debit(s) and credit(s).
During our examination of accounts, we found that the EPA recorded several transactions
resulting in a $8.5 million credit balance in the Expenses Uncollectible Debt account, which is a
debit balance account. A credit balance in this account indicates that the agency has revenue
from uncollectible debts or the general ledger account is otherwise misstated. The misstatement
occurred because:
• In fiscal year FY 2017, the EPA recorded a standard voucher to correct an error in
the fourth quarter Allowance for Doubtful Accounts calculation. The voucher was
improperly reversed in the FY 2018 first quarter and caused an incorrect credit posting
in the Expense Uncollectible Debt account.
•	The EPA recorded a standard voucher to reverse an account receivable and its related
Allowance for Doubtful Account. By reversing the receivable and the allowance, which
represents cumulative bad debt expense estimates recorded over several years, the EPA
created a credit posting in the Expenses Uncollectible Debt account. The proper
transaction for recording the removal of the receivable would be to record the difference
between the balance in the receivable and allowance as a loss or as an additional write-off
of a receivable.
•	The agency determined that a receivable previously considered partially uncollectible
was collectible and posted a transaction to adjust an allowance for doubtful accounts and
related Expenses Uncollectible Debt (bad debt expense). The adjustment resulted in
crediting the Expenses Uncollectible Debt account.
As a result, operating expenses and other related accounts are misstated on the financial
statements.
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Recommendations
We recommend that the Chief Financial Officer:
3.	Review the Allowance for Doubtful Accounts calculation to ensure that adjusting entries
are accurate.
4.	Review entries posted to Accounts Receivable and the Allowance for Doubtful Accounts
to determine the net impact of expenses and revenues from prior periods and ensure that
financial statements are not misstated.
5.	Review adjusting entries and their reversals to verify whether account balances are posted
properly and do not contain abnormal balances or activity.
Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendations and has completed corrective actions.
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4—EPA Improperly Increased Accounts Receivable
and Related Revenue
The EPA improperly increased accounts receivable and related revenue by $3,715,531. The EPA
increased the amount of an account receivable based on cash received rather than an amount
stipulated in a legal claim. This occurred because the EPA did not (1) record marketable
securities at fair market value when they were received or (2) recognize a gain when marketable
securities were sold for an amount higher than the book value. SFFAS No. 1 requires federal
entities to recognize accounts receivable when a legal claim exists. The EPA's RMDS 2550D
states that the agency will record marketable securities at fair market value when they are
received. SFFAS No. 7 further requires the recognition of a gain or loss when marketable
securities are sold for an amount different from the book value. When unrecorded securities were
sold at an amount greater than the receivable, the EPA understated the gains by $3,715,531 in its
financial statements.
SFFAS No. 1, paragraph 41, states, "A receivable should be recognized when a federal entity
establishes a claim to cash or other assets against other entities.. .based on legal provisions."
RMDS 2550D, Chapter 14, 7.a., Recording Securities at Fair Market Value, states, "When EPA
receives marketable securities, they will be recorded as a collection at their fair market value on
the day they are received." SFFAS No. 7, paragraph 35, states, "When a transaction.. .at a price
is unusual or nonrecurring, a gain or loss should be recognized rather than revenue or expense so
as to differentiate such transactions." SFFAS No. 7, paragraph 36(e), states, "When an asset
other than inventory is sold, any gain (or loss) should be recognized when the asset is delivered
to the purchaser."
The EPA did not appropriately record accounts receivable, revenue or gains on the disposition of
assets. The EPA established a $2.8 million receivable based on the amount stipulated in the
consent decree. The EPA received cash and investment securities as outlined in the consent
decree. The market value of the securities on the settlement date was approximately $3,159,860,
which is $1,962,737 more than what should have been recognized as the book value of the
securities when they were received.
When the securities were sold, the EPA increased the existing receivable and recognized revenue
of $2,862,323, based on the amount of proceeds received from the sale of securities, which was
greater than the outstanding balance due on the receivable. Upon further review of activity
related to this receivable, we found that the EPA increased the receivable and recognized
revenue in the amount of $853,208 because of dividend income and the sale of additional
securities. The total increase in receivables and revenue recorded was $3,715,531, which should
have been recognized as gains on the disposition of assets. As a result, revenue and gains on the
disposition of assets are misstated in the EPA's financial statements.
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Recommendations
We recommend that the Chief Financial Officer:
6.	Update the policy for the proper accounting and recognition of gains or losses from
marketable securities based on the sale of stock.
7.	Record or adjust accounts receivables only for amounts stipulated in settlement
agreements.
Agency Comments and OIG Evaluation
The EPA agreed with our findings. The agency's estimated completion date for corrective
actions on Recommendation 6 is March 29, 2019. Corrective actions for Recommendation 7
have been completed.
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5—EPA Materially Misstated Earned Revenue
During FY 2018, the EPA did not properly eliminate internal Working Capital Fund (WCF)
earned revenue of $147 million. Agency standards require intra-entity balances to be eliminated
for consolidated financial statement reporting. The EPA processed a journal voucher to eliminate
internal WCF earned revenue; however, the agency did not follow standard operating procedures
when preparing the entry or verify the entry properly eliminated WCF earned revenue. As a
result, the EPA's financial statements are materially misstated.
EPA Office of the Chief Financial Officer's Standard Operating Procedure for Intra-agency
Eliminations requires the elimination of WCF earned revenue intra-agency balances for financial
statement reporting.
Federal government internal control standards require accurate and timely recording of
transactions and events. The GAO's Standards for Internal Control in the Federal Government
sets internal control standards for federal entities.
Our review of FY 2018 year-end general ledger balances identified a balance of $147 million
in the agency's internal WCF earned revenue account. Internal WCF earned revenue should
eliminate on a consolidated basis and result in a zero balance for reporting purposes. Upon
further review, we determined that the agency's current year elimination entries were not
consistent with the prior year. The agency reported that standard operating procedures were
not followed for the elimination entry's preparation, and the wrong agency report was used.
In addition, the agency did not verify the WCF elimination entry properly eliminated internal
WCF earned revenue.
As a result, the EPA did not properly eliminate internal WCF earned revenue, which materially
overstated earned revenue on the Statement of Net Cost in the EPA's financial statements. After
discussing the issue with the EPA, the agency indicated it would correct the entry to properly
eliminate internal WCF earned revenue.
Recommendation
We recommend that the Chief Financial Officer:
8. Update the EPA's standard operating procedures for preparing Working Capital Fund
elimination entries to include verification of entries and proper ending balances.
Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendation and has completed corrective actions.
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6—EPA Improperly Processed GSA Rent Payments
The EPA processed over $58,338,789 of rent payments to the GSA without proper authorization
or approval. EPA guidance states that program offices will be responsible for the oversight and
approval of bills for GSA rent invoices. Federal guidance states that transactions are authorized
and executed only by persons acting within the scope of their authority.
While EPA program offices improperly authorized or approved GSA rent invoices, the EPA's
Cincinnati Finance Center (CFC) processed these rent payments without evidence of proper
authorization or approval. By not approving rent invoices prior to payment, material errors could
occur in the form of paying for property that was not used and allowing unauthorized
transactions to be included in the EPA's financial reporting.
The EPA follows internal directive RMDS 2550C-04-P3, titled Management of Non-Standard
Interagency Agreements (NSIA), which states that EPA program offices will "be responsible for
project-level oversight of the NSIA and bill approval for NSIA bills unless otherwise specified."
The directive also states that EPA program offices will "approve/disapprove Trading Partner
Agency invoices via the Inter-Governmental Document Online Tracking System web link," and
will "review bill/cost information from TPs [Trading Partners] for proper NSIA project review."
In addition, the GAO's Standards for Internal Control in the Federal Government sets internal
control standards for federal entities, and notes that "transactions are authorized and executed
only by persons acting within the scope of their authority. This is the principal means of assuring
that only valid transactions to exchange, transfer, use, or commit resources are initiated or
entered into."
During our testing, we found no evidence to support the review or approval of 6 months of rent
payments to GSA totaling $58,338,789 (Table 4).
Table 4: Summary of GSA rent samples
Transaction
number
Date
Fund
code
Sample line
item amount
1801RENTGSA
10/27/2017
B
$11,569,026
1802RENTGSA
11/21/2017
B
14,000,000
1802RENTGSA
11/21/2017
C
3,966,084
1805RENTGSA
02/28/2018
B
11,000,000
1806RENTGSA
03/27/2018
T
1,500,000
1806RENTGSA
03/27/2018
B
16,303,679



$58,338,789
Source: OIG analysis.
EPA project officers responsible for GSA rent payments had previously approved GSA rent
invoices via emails to the CFC, but project officers stopped sending such approvals. The most
recent approval email that the CFC received from project officers was in June 2017. However,
the CFC continued to process payments in Compass, the EPA's financial system, without
evidence of review and approval.
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We also found that GSA rent invoices are not processed through the Inter-Governmental
Document Online Tracking System (IDOTS) using the approval function, which would require
project officer approval before processing the payments in Compass. Processing GSA rental
payments through IDOTS would not only ensure that project officers are notified when invoices
await approval, but also provide evidence of such approvals.
The EPA averages $19 million per month in GSA rent payments, and annual payments could be
over $235 million. By not approving rent invoices prior to payment, material errors could occur
in the form of paying for property that was not used and potentially allowing over $235 million
in unauthorized transactions to be included in the EPA's financial reporting.
Recommendation
We recommend that the Chief Financial Officer:
9. Require project officers to review and submit approvals or disapprovals of General
Services Administration rent invoices each month.
Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendation and has completed corrective actions.
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7—EPA Should Restrict Access to Computer Rooms with
Financial and Mixed-Financial Systems
The EPA does not adequately restrict access to computer rooms with financial and mixed-
financial applications, nor does it adequately train people with access to the computer rooms, as
required by EPA procedures and National Institute of Standards and Technology (NIST)
guidance. This occurred because the EPA did not perform the following control activities:
•	Revoke employee access to the computer rooms when access was no longer necessary.
•	Review quarterly reports for the Potomac Yard (PTY) computer room and reviewed
incomplete quarterly reports for the National Computer Center (NCC) computer room.
•	Maintain an inventory of cards used by visitors to access the NCC computer room.
•	Verify the identity of cardholders prior to allowing access to computer rooms.
•	Provide alternative facility training when the contracted vendor stopped offering training.
As a result, the agency increases the risk that computer equipment may be intentionally or
unintentionally harmed, which could impact the availability of financial and mixed-financial
applications.
We tested access for 36 of the 380 individuals granted access to the NCC or PTY computer
rooms. Of the 36 individuals tested (26 for NCC and 10 for PTY), access was not properly
restricted for 14 individuals as follows (and shown in Figure 1):
•	Five individuals indicated computer room access was unnecessary to perform their
current job functions or access was unnecessarily retained by a former EPA employee or
contractor.
•	Nine individuals had unescorted access to the computer rooms.
These individuals indicated that they required access, but their
job duties did not involve hardware maintenance
of devices in the computer room. This included	Figure 1: Individuals with access
janitorial staff, individuals who perform pest
control and semiannual occupational health
and safety inspections, and a carpenter.
to NCC and PTY data centers
Unescorted
Access 9
, Unecessary /
V	Access /
is
Proper
Access
Source: OIG image.
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Other problems regarding physical access to the EPA's computer rooms included the following:
•	The EPA was missing four of the 24 Personal Identity Verification (PIV) cards that
allowed access to the NCC computer room for individuals1 not assigned to that room.
•	No one was stationed at each of the computer rooms' entry points, nor did the entry
points use multi-factor authentication to verify that PIV cards were being used by
individuals authorized to be in the computer rooms. Multi-factor authentication uses
multiple items that individuals have or know to validate identity.
•	We were informed that the required facility training that covered the use of fire
extinguishers and emergency power shutoffs was not provided to individuals who could
access the computer room.
To enforce physical access authorizations, as required by PE-3 Physical Access Control, NIST
Special Publication 800-53, Revision 4, dated April 2013, organizations need to be "[vjerifying
individual access authorizations before granting access to the facility."
Part 6 of the EPA's Information Security-Interim Physical and Environmental Protection
Procedures vl.9 (CIO-2150.3-P-11.1), dated August 6, 2012, requires that the review and
approval of the access list and authorization credentials must be done quarterly, and states:
•	Access to EPA buildings, rooms, work areas, spaces, and
structures housing information systems, equipment, and data
shall be limited to authorized personnel.
•	The level of access provided to each individual must not exceed
the level of access required to complete the individual's job
responsibilities.
•	Individual access authorizations must be verified before access to
the facility is granted.
•	All necessary personnel must be informed of the emergency power
shutoff locations and they must be trained to operate them safely.
•	Personnel must be trained on how to use a fire extinguisher and
must receive annual refresher training.
There were multiple reasons why access to the computer rooms was not properly restricted,
including:
•	We were informed no controls exist to prompt the removal of computer room access for
an individual when access by that individual is no longer required.
1 While most cards have an individual's name and picture, these cards had a description and no picture (e.g., the
Fire Department or a contractor).
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•	Quarterly reviews of computer room access for the NCC computer room are incomplete
and were only being performed for the PTY computer room on an as requested basis by
the supervisors of individuals who could access the room.
•	An Office of Environmental Information representative indicated that individuals with
unescorted access and whose job duties did not involve hardware maintenance of devices
in the computer room should have a public trust clearance. The representative was
uncertain who would monitor these individuals in the computer room.
•	No inventory of unassigned PIV cards (with computer room access rights) was taken to
promptly remove access granted to the missing cards.
•	PIV card scanners do not use multi-factor authentication, and there is no visual
verification of individuals accessing the computer room.
Further, Office of Environmental Information representatives indicated that past training covered
fire suppression and emergency power cutoff for individuals granted access to the computer
room, but the contractor stopped providing that training years ago and the EPA did not find an
alternative training solution.
Malicious individuals that gain unauthorized access to a computer room may cause damage to
equipment. Additionally, individuals without adequate training on the use of fire suppression and
emergency power cutoff may accidentally inflict damage to computer room equipment. If the
computer room equipment is damaged, the financial and mixed-financial applications would be
unavailable until they are restored.
Recommendations
We recommend that the Assistant Administrator for Environmental Information and
Chief Information Officer:
10.	Develop and implement controls to remove an individual's Personal Identity Verification
card access rights to computer rooms with financial and mixed-financial applications
when that individual no longer requires access.
11.	As required by the EPA's Information Security-Interim Physical and Environmental
Protection Procedures v 1.9 (CIO-2150.3-P-11.1), dated August 6, 2012, perform
quarterly reviews of access to computer rooms with financial and mixed-financial
applications, to determine whether individuals require physical access to the equipment
in the computer room to complete their job responsibilities.
12.	Implement a process to provide access to and monitor individuals who occasionally need
access to a computer room with financial and mixed-financial applications but not to the
computer equipment.
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13.	Maintain an inventory of all Personal Identity Verification cards with access to computer
rooms with financial and mixed-financial applications that are not assigned to individuals
and remove access when cards are discovered missing.
14.	Implement controls to enforce the required verification of individuals' identity every time
individuals enter the computer rooms.
Agency Comments and OIG Evaluation
The EPA disagreed with our findings and recommendations. The agency would like further
meetings to discuss the findings. Recommendations 10 through 14 remain unresolved.
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8—EPA Needs to Perform a Documented Evaluation on Upgrading
Equipment Used to Implement Physical Environmental
Controls at the National Computer Center
Equipment supporting the physical and environmental controls for the computer room at the
NCC has not been maintained or reviewed to see if it still meets the needs of the computer
center. This computer room became operational in 2002. During our visit to the NCC Data
Center we observed that:
A joystick is an input
device used to
manually change the
views of cameras.
• Surveillance cameras used to monitor physical access to the
inside of the computer room were not fully functioning
because repairs were needed to the joystick used to control
the cameras. The computer room operators indicated that
the camera system in the computer room has been down on
numerous occasions.
• An Office of Administration and Resources Management (OARM) representative
indicated that the back-up generator used to provide alternative power to the computer
room in the event of an extended power outage holds approximately 2,800 gallons of fuel
that would provide energy to the computer room for approximately 24 hours. The OARM
representative also indicated that there is an 8,000-gallon fuel tank for a smaller more
fuel-efficient generator used to provide emergency energy to heating, ventilation and air
conditioning units. The representative indicated that during emergencies, such as
hurricanes, it may be difficult to obtain fuel to refill the tanks. The representative
indicated that in the event of an extended power outage, it may be too difficult to add
updates that would transfer fuel from the larger tank to the smaller tank to support
continued operations until the fuel tanks could be replenished. But according to an Office
of Environmental Information representative at the NCC, only hosted applications that
subscribe to recovery services resume operations within 72 hours. The hosted
applications that do not subscribe to recovery services take 30 days to resume operations.
This may affect the EPA's financial and mixed-financial applications hosted at the NCC.
NIST SP 800-53, Revision 4, Security and Privacy Controls for Federal Information Systems
and Organizations PE-6, requires organizations to monitor physical access to a facility where
information systems reside to detect and respond to physical security incidents. Further, PE-11 of
this publication requires agencies to provide a short-term uninterrupted power supply to facilitate
an orderly shutdown of the information system or to transition to a long-term alternate power.
EPA Procedure CIO-2150.3-P-11.1, Information Security-Interim Physical and Environmental
Protection Procedures VI.9, reflects NIST guidance for requiring the EPA to install surveillance
equipment to monitor physical access to information systems.
The EPA's System Life Cycle Management (SLCM) Policy, CIO 2121.1, dated December 21,
2017, specifies Operation and Maintenance as one of six phases in the life cycle of a system in
the EPA. The SLCM Procedure, CIO 2121-P-03.0, dated December 21, 2017, establishes the
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agency's approach and practices in, among other things, the operation and maintenance of EPA
information systems and states:
This phase ensures that the system operates properly in its production
environment and that maintenance takes place. During this time, the Project
Manager and System Manager maintain schedules and periodically conduct
reviews to ensure the health of the system and to validate its suitability for
meeting the business requirements. The System Manager uses structured
techniques to detect defects, capture user satisfaction, review the system
requirements, and evaluate the suitability of existing and emerging
technologies to continue to meet the mission need.
SLCM procedures for the "Operations and Maintenance" phase calls for a review of system
requirements and an evaluation of the suitability of existing and emerging technologies. OMB
Circular A94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs,
recommends a benefit-cost analysis technique as a formal economic analysis of government
programs or projects.
EPA personnel indicated that they were unaware of whether there has been an analysis to
determine whether the original generators and surveillance system supporting the physical and
environmental controls of the computer room are currently suitable, considering technologies
that have emerged on the market since 2002.
Without a functioning surveillance system, the EPA is not readily able to monitor incidents
involving individuals and equipment within the NCC computer room that hosts financial and
mixed-financial systems. Further, without sufficient fuel for backup generators, the NCC—
which hosts financial and mixed financial systems—may not be able to provide long-term power
in the event of an extended power outage.
Recommendation
We recommend that the Assistant Administrator for Administration and Resources Management:
15. Perform a review of system requirements and evaluate the suitability of existing
technology to replace or implement updates to the computer room's surveillance system
and generators. Update or replace, if warranted, the equipment based on the results of the
evaluation.
Agency Comments and OIG Evaluation
The EPA disagreed with our findings and recommendation. The agency would like further
meetings to discuss the findings. Recommendation 15 remains unresolved.
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Attachment 2
Status of Prior Audit Report Recommendations
The EPA is working to strengthen its audit management procedures to address audit findings in a
timely manner and to complete corrective actions expeditiously and effectively. Strengthened
procedures will also help improve environmental results. In FY 2018, the EPA's Chief Financial
Officer, as the Agency Follow-Up Official, were fully engaged in working with the Audit
Follow-Up Coordinators and senior agency leaders to stress the need to for concisely written
corrective actions that addressed the intent of the recommendations and that have achievable due
dates. The EPA also accomplished other notable actions to strengthen its audit management
procedures:
•	The OCFO worked closely with Agency Audit Follow-Up Coordinators during
FY 2018 to ensure that corrective action dates were being met and the required
certification memorandums were being submitted. OCFO efforts significantly
helped with the EPA's responses to the OIG's spring and fall 2018 Semiannual
Report to Congress.
•	The agency provided training on the revised EPA Manual 2750, Audit Management
Procedures, during FY 2018. All Agency Audit Follow-Up Coordinators and other
interested parties attended the training.
•	The agency continued to have quarterly meetings with Agency Audit Follow-Up
Coordinators to discuss issues and concerns, and to emphasize adherence to corrective
action due dates and the need to keep the Management Audit Tracking System current.
The OIG was asked to participate in the agency's spring quarterly meeting, which
resulted in a better understanding of OIG and EPA roles and responsibilities.
In addition, the EPA maintained its commitment to engage early with the OIG on audit
findings and to develop effective corrective actions that address OIG recommendations.
Table 5 outlines the status of past significant deficiency findings that have not been resolved
to date.
Table 5: Significant deficiency issues not fully resolved
• EPA's Accounting for Software Continues to Be a Material Weakness
In our FYs 2014, 2015 and 2016 audits, we identified the agency's accounting for software as a
material weakness. In FY 2014, the agency found that it had undercapitalized software by
expensing approximately $255 million in software costs over a 7-year period. The undercapitalized
software and related equity accounts indicate that the agency has a material weakness in internal
control over identifying and capitalizing software; and internal control failed to detect and correct
the errors, resulting in a misstatement of the FY 2013 financial statements. During FY 2017, the
agency continued to take corrective actions to improve its accounting for software. While the
agency has made progress and taken steps to correct weaknesses, not all corrective actions have
been completed. Corrective actions for the remaining recommendations are not due to be
completed until 2018.
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• EPA Did Not Capitalize Lab Renovation Costs
In our FY 2014 audit, we found that the EPA did not capitalize approximately $8 million of
Research Triangle Park lab renovations. As a result, the EPA did not properly classify the lab
renovations as a capital improvement. The agency capitalized and booked the Research Triangle
Park lab renovation costs and related depreciation. One corrective action was partially completed.
The EPA's Office of General Counsel believed that the 1999 legal opinion was still a viable
legal opinion but did not provide examples to guide the agency's determinations of when
renovation work should be funded from agency program appropriations or Building and Facilities
funds. Corrective actions for other recommendations related to this finding were not due until
September 2017; however, the agency revised the excepted completion date to February 28, 2018.
As of June 8, 2018, the Office of General Counsel was unable to provide global examples to
correct the corrective action.
• EPA's Internal Controls Over Accountable Personal Property Inventory Process Need
Improvement
In our FY 2014 audit, we noted that the EPA reported a $2.6 million difference between the amount
of accountable personal property recorded in the property management system (Maximo) and the
amount of physical inventory for FY 2014. The EPA also identified 573 property items not recorded
in Maximo. During our FY 2015 audit, we found that the agency made progress and took steps to
correct the differences between the amount of personal property recorded in Maximo and the
amount of physical inventory. Although the agency implemented corrective actions, we have not
assessed the effectiveness of these actions.
• EPA's Property Management System Does Not Reconcile to Its Accounting System
(Compass)
During our FY 2014 audit, we found that the EPA did not reconcile $100 million of capital
equipment within its property management subsystem (Maximo) to relevant financial data within its
accounting system (Compass). The inability to reconcile the property subsystem with Compass can
compromise the effectiveness and reliability of financial reporting. We previously reported on this
issue in our FYs 2012 and 2013 financial statement audit reports. In FY 2014, the agency issued
procedures to reconcile capital property. The agency stated that it had begun to resolve the
differences between Maximo and Compass; however, problems continue to exist. In FYs 2015 and
2017, we again reported this weakness as a significant deficiency; therefore, the EPA's corrective
actions were not yet effective. In FY 2017, the agency informed us that this corrective action was
completed in September 2016; however, no supporting documentation has been provided to date.
Therefore, we were not able to assess the effectiveness of the action.
• EPA Did Not Properly Record or Reconcile Unearned Revenue for Superfund Special
Accounts
During FY 2015, the EPA misstated earned and unearned revenue for Superfund special accounts.
The EPA changed its accounting practice in FY 2015 to record settlement proceeds in Superfund
special accounts as unearned revenue. However, in our FY 2017 audit, we found that the EPA did
not properly record $168 million of unearned revenue for Superfund special accounts or perform a
comprehensive reconciliation of Superfund special accounts unearned revenue general ledger
balances to the special accounts database detail. The EPA made these errors because it did not
modify the accounting model for special accounts in Compass Financials. During our FY 2018
audit, we found that the EPA would not be able to complete its corrective actions to modify the
accounting model or reconcile Superfund special accounts unearned revenue general ledger
balances to the special accounts database.
• Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the
Finance Center
In FY 2014, we found that the EPA and the Department of Justice did not forward accounts
receivable source documents to the finance center in a timely manner. During FY 2015, the EPA's
Office of Enforcement and Compliance Assurance issued a memorandum reminding the regions to
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provide accounts receivable enforcement documentation to the finance center in a timely manner.
In addition, the OCFO updated the EPA's Superfund guidance to direct originating offices to send
accounts receivable control forms to the finance center in a timely manner. While we have noted
some improvements in the CFC's timely receipt of legal documents, we still identified instances of
untimely receipt during FYs 2015, 2017 and 2018. Therefore, the agency's corrective actions are
not completely effective, and we will continue to evaluate how timely accounts receivable source
documents are when received.
• EPA Should Improve Its Efforts to Resolve Long-Standing Cash Differences with Treasury
During our FY 2015 audit, we found that the EPA had not resolved $2.6 million in long-standing
cash differences between the EPA and Treasury balances. Based on our findings, we
recommended that the Chief Financial Officer require the General Ledger Analysis and Reporting
Branch to monitor and work with the finance centers to resolve all internal cash differences to
enable the EPA to resolve all differences with Treasury. We also recommended that the Chief
Financial Officer require the Payroll accounting point and Washington Finance Center to research
and resolve cash differences. The agency agreed with our finding and recommendations.
According to the agency's corrective action status report, as of November 2, 2016, the agency
completed its corrective action for the first recommendation. During our FY 2016 audit, we found
that the EPA made efforts to identify and resolve its long-standing cash differences and that the
agency was working on completing its corrective action to require the Payroll accounting point and
the Washington Finance Center to research and resolve cash differences. We did not make any
additional recommendations regarding this issue in our FY 2016 financial audit report but included
it as an unresolved significant deficiency. During our FY 2017 audit, we noted major improvements,
but long-standing unresolved cash differences of $2.2 million remain at the Washington Finance
Center. Since the EPA is still working on resolving cash differences and completing its corrective
action, we did not make any new recommendations in our FY 2017 financial audit report.
• Financial Management System User Account Management Needs Improvement
During our FY 2009 audit, we found that the EPA had not established policies that clearly define
incompatible functions and associated processes to ensure that the proper separation of duties is
enforced within the financial system application. Based on our findings, we recommended in our
FY 2009 report that the OCFO ensure that all new and updated financial management systems
include an automated control to enforce separation of duties. The agency agreed with our finding
and recommendation. The EPA had considered this recommendation closed; however, the OCFO
agreed in FY 2016 to develop alternative corrective actions for this recommendation, with a
planned completion date of December 31, 2017. In FY 2017, the OCFO extended the completion
date to December 31, 2018.
• OCFO Lacks Internal Controls When Assuming Responsibility for Account Management
Procedures of Financial Systems
During our FY 2015 audit, we found that the OCFO's Application Management staff assumed
responsibility for managing oversight of users' access to the Payment Tracking System without
ensuring that the system had documentation covering key account management procedures.
Based on our findings, we recommended in our FY 2015 report that the Chief Financial Officer
implement an internal control process for transferring the management of an application's user
access to Application Management staff. We also recommended that the Chief Financial Officer
conduct an inventory of OCFO systems managed by Application Management staff and create or
update supporting access management documentation for each application. Further, we
recommended that the Chief Financial Officer work with the Contracting Officer to update
applicable contract clauses and distribute updated access management documentation to
contractors supporting the user account management function for applications managed by
Application Management staff. The agency agreed with our finding and recommendations.
In FY 2018, the OCFO extended the completion date for the first and second recommendations
to December 31, 2018.
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• EPA Needs Controls to Monitor Direct Access to the Compass Financials Database
During our FY 2017 audit, we found that the EPA did not establish controls to monitor direct access
to data within the Compass Financials database. Based on our findings, we recommended in our
FY 2017 report that the Chief Financial Officer work with the Compass Financials service provider
to establish controls for creating and locking administrative accounts. We also recommended that
the Chief Financial Officer work with the Compass Financials service provider to develop and
implement a methodology to monitor accounts with administrative capabilities. Further, we
recommended that the Chief Financial Officer enter the Continuous Monitoring Assessment
recommendations into the agency's system used for monitoring the remediation of information
security corrective actions. The agency concurred with our recommendations. According to the
agency's corrective action status report, as of November 1, 2018, the agency is adhering to the
planned completion date of September 30, 2021, for the first and second recommendations.
Corrective actions for the third recommendation have been completed.
• EPA Needs to Appoint a Project Manager to Oversee Management of Compass Financials
and Improve Acquisition Planning
During our FY 2017 audit, we found that the EPA's Compass Financials application—a major
Information Technology investment—lacks the oversight to ensure that personnel implement
agency policies and procedures to guide projects through the acquisition process. Based on our
finding, we recommended in our FY 2017 report that the Chief Financial Officer: (1) require the
Compass Financials Project Manager to obtain the Federal Acquisition Certification for Program
and Project Managers with the Information Technology specialization within the 1-year deadline, as
required by the Office of Management and Budget; and (2) take corrective actions if the Project
Manager is not able to complete the certification requirements by the deadline. The agency
concurred with our recommendation. According to the agency's corrective action status report, as
of November 1, 2018, the agency now plans to complete the recommendation on October 18,
2019.
Source: OIG analysis.
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No.
13
15
17
17
17
19
19
20
22
25
Attachment 3
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Potential
Planned	Monetary
Completion	Benefits
Subject	Status1 Action Official	Date	(In $000s)
Ensure that the special account reclassification entry includes a R Chief Financial Officer 3/29/19
review to determine whether previously reported earned revenue
for future costs incurred, expenses incurred, unbilled oversight
costs and special account collection movements should or
should not be included, and include supporting documents
identifying the accounts and amounts reviewed.
Require the Accounting and Cost Analysis Division, and the	R Chief Financial Officer 3/29/19
Las Vegas and Cincinnati Finance Centers, to research and
resolve cash differences.
Review the Allowance for Doubtful Accounts calculation to	q Chief Financial Officer
ensure that adjusting entries are accurate.
Review entries posted to Accounts Receivable and the	q Chief Financial Officer
Allowance for Doubtful Accounts to determine the net impact of
expenses and revenues from prior periods and ensure that
financial statements are not misstated.
Review adjusting entries and their reversals to verify whether q Chief Financial Officer
account balances are posted properly and do not contain
abnormal balances or activity.
Update the policy for the proper accounting and recognition of r Chief Financial Officer 3/29/19
gains or losses from marketable securities based on the sale
of stock.
Record or adjust accounts receivables only for amounts	q Chief Financial Officer
stipulated in settlement agreements.
Update the EPA's standard operating procedures for preparing C Chief Financial Officer
Working Capital Fund elimination entries to include verification of
entries and proper ending balances.
Require project officers to review and submit approvals or	C Chief Financial Officer
disapprovals of General Services Administration rent invoices
each month.
Develop and implement controls to remove an individual's	u Assistant Administrator for
Personal Identity Verification card access rights to computer	Environmental Information
rooms with financial and mixed-financial applications when that	anc| chief Information
individual no longer requires access.	Officer
119
33

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RECOMMENDATIONS
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
Potential
Monetary
Benefits
(in $000s)
11
25
As required by the EPA's Information Security-Interim Physical
and Environmental Protection Procedures v1.9 (C10-2150,3-P-
11.1), dated August 6, 2012, perform quarterly reviews of access
to computer rooms with financial and mixed-financial
applications, to determine whether individuals require physical
access to the equipment in the computer room to complete their
job responsibilities.
U
Assistant Administrator for
Environmental Information
and Chief Information
Officer


12
25
Implement a process to provide access to and monitor
individuals who occasionally need access to a computer room
with financial and mixed-financial applications but not to the
computer equipment.
U
Assistant Administrator for
Environmental Information
and Chief Information
Officer


13
26
Maintain an inventory of all Personal Identity Verification cards
with access to computer rooms with financial and mixed-financial
applications that are not assigned to individuals and remove
access when cards are discovered missing.
u
Assistant Administrator for
Environmental Information
and Chief Information
Officer


14
26
Implement controls to enforce the required verification of
individuals' identity every time individuals enter the
computer rooms.
u
Assistant Administrator for
Environmental Information
and Chief Information
Officer


15
28
Perform a review of system requirements and evaluate the
suitability of existing technology to replace or implement updates
to the computer room's surveillance system and generators.
Update or replace, if warranted, the equipment based on the
u
Assistant Administrator for
Administration and
Resources Management


results of the evaluation.
1 C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
19-F-0003
120
34

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EPA's FYs 2018 and 2017
Consolidated Financial Statements
121

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Appendix II
Agency Response to Draft Report
19-F-0003
122

-------
^¦l,s?»yA
£%	UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
mmmm. .mrrr,	rf.
J	WASHINGTON, D.C. 20460
*	¦-"P"
NOV 09 2018
MEMORANDUM
SUBJECT: Response to Office of Inspector General Draft Audit Report No. OA&E FY 18-0189,
"EPA's Fiscal Years 2018 and 2017 Consolidated Financial Statements, " dated
November 9, 201.8.
« L i '
FROM:	!\V. hrcnvc\H?hitiT"i
"Financial Officer
r 'v. *•
lOjiice of the Chief Financial Officer
aughn Noga, Principal Deputy Assistant Administratt4
Office of Environmental Information
\ « {	< "/f
)onna L. Vizian, Principal Deputy Assistant Administrator L;
Office of Administration and Resources Management
TO:	Paul C. Curtis, Director
Financial Directorate
Office of Audit and Evaluation
Thank you for the opportunity to respond to the issues and recommendations in the subject draft audit
report. The following is a summary of the agency's overall position, along with its position on each of
the report recommendations. We have provided high-level intended corrective actions and estimated
completion dates to the extent we can.
AGENCY'S OVERALL POSITION
The agency concurs with nine of the recommendations and non-concurs with six recommendations.
Internet Address (URL)- http //www epa gov
Recycled/Recyclable • Pnnted with Vegetable 0,1 Based Inks on 100% Postconsurner. Process Chlorine Free Recycled Paper

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AGENCY'S RESPONSE TO DRAFT AUDIT RECOMMENDATIONS
Agreements
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion by
Quarter and FY
1
We recommend that the special
account reclassification entry
include a review to determine
whether previously reported
earned revenue for future costs
incurred, expenses incurred,
unbilled oversight costs and
special account collection
movements should or should
not be included, and whether to
include supporting documents
identifying the accounts and
amounts reviewed.
The EPA agreed to modify the
accounting model in Compass
Financials, the agency's accounting
system, and to prepare a comprehensive
quarterly reconciliation of Superfund
special accounts general ledger balances
to the special accounts database. The
accounting models are developed and
will be implemented in the second
quarter of FY 2019. The conversion of
prior accounting data into the approved
process will be made at that time.
Pending the implemented solution,
journal vouchers to reclassify special
accounts and earned/unearned revenue
activity were processed to ensure the
accuracy of the accounts.
March 29, 2019
2
We recommend that the Chief
Financial Officer require the
Accounting and Cost Analysis
Division, and the Las Vegas
and Cincinnati Finance Centers,
to research and resolve cash
differences.
The agency will continue to review
processes and research old cash balance
differences.
March 29, 2019
3
We recommend that the Chief
Financial Officer review the
Allowance for Doubtful
Accounts calculation to ensure
that adjusting entries are
accurate.
The EPA reviewed the Allowance for
Doubtful Accounts calculation and
made an adjusting entry to ensure the
account was accurate.
Completed
4
We recommend that the Chief
Financial Officer review entries
posted to Accounts Receivable
and the Allowance for Doubtful
Accounts to determine the net
impact of expenses and
revenues from prior periods and
ensure that financial statements
are not misstated.
The agency will review entries posted to
Accounts Receivable and the Allowance
for Doubtful Accounts to ensure they
are correctly stated. For FY 2018, the
agency processed an adjustment to
correct the amounts presented in the
financial statement.
Completed
124

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No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion by
Quarter and FY
5
We recommend that the Chief
Financial Officer review
adjusting entries and their
reversals to verify whether
account balances are posted
properly and do not contain
abnormal balances or activity.
The agency has strengthened processes
to incorporate flagging stock and rare
cash transactions. Additional reviews
are now conducted by the appropriate
subject matter experts followed by
subsequent management approval.
Completed
6
We recommend that the Chief
Financial Officer update the
policy for the proper accounting
and recognition of gains or
losses from marketable
securities based on the sale of
stock.
The agency will issue an administrative
update to RMDS 2550D-14 "Superfund
Accounts Receivable and Billings'".
March 29, 2019
7
We recommend that the Chief
Financial Officer record or
adjust accounts receivables only
for amounts stipulated in
settlement agreements.
The agency has recorded, or adjusted
accounts receivable based on amounts in
stipulated penalties.
Completed
8
We recommend that the Chief
Financial Officer update the
EPA's standard operating
procedures for preparing
Working Capital Fund
elimination entries to include
verification of entries and
proper ending balances.
The EPA has updated the Financial
Statement Review Check List, within
the appropriate standard operating
procedures, to incorporate verification
of elimination amounts.
Completed
9
We recommend that the Chief
Financial Officer require project
officers to review and submit
approvals or disapprovals of
General Services
Administration rent invoices
each month.
The agencies POs and EPA Real Estate
specialists will continue to do their
monthly reviews of the invoices and
leases, and contact GSA directly when
there are discrepancies with the invoice
and/or occupancy agreements. In
addition, the agency now requires POs
to acknowledge receipt of emails
providing invoices from the GSA
system Rent-on-the-Web.
Completed
Disagreements
No.
Recommendation
Agency Explanation/Response
Proposed Alternative
10
We recommend that the
Assistant Administrator for
Environmental Information
and Chief Information
The Office of Environmental
Information and The Office of
Administration and Resources
Management are in the process
N/A
125

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Officer develop and
implement controls to
remove an individual's PIV
card access rights to
computer rooms with
financial and mixed-
financial applications when
that individual no longer
requires access.
of coordinating a meeting with
the OIG to discuss Findings 10-
15. At this time, we respectfully
disagree with the findings until
we can have a clarifying
discussion.

11
We recommend that the
Assistant Administrator for
Environmental Information
and Chief Information
Officer as required by
EPA's Information Security
- Interim Physical and
Environmental Protection
Procedures vl.9 (CIO-
2150.3-P-l 1.1), dated
August 6, 2012, perform
quarterly reviews of access
to computer rooms with
financial and mixed-
financial applications, to
determine whether
individuals require physical
access to the equipment in
the computer room to
complete their job
responsibilities.
The Office of Environmental
Information and The Office of
Administration and Resources
Management are in the process
of coordinating a meeting with
the OIG to discuss Findings 10-
15. At this time, we respectfully
disagree with the findings until
we can have a clarifying
discussion.
N/A
12
We recommend that the
Assistant Administrator for
Environmental Information
and Chief Information
Officer implement a process
to provide access to and
monitor individuals who
occasionally need access to
a computer room with
financial and mixed-
financial applications but
not to the computer
equipment.
The Office of Environmental
Information and The Office of
Administration and Resources
Management are in the process
of coordinating a meeting with
the OIG to discuss Findings 10-
15. At this time, we respectfully
disagree with the findings until
we can have a clarifying
discussion.
N/A
13
We recommend that the
Assistant Administrator for
Environmental Information
and Chief Information
Officer maintain an
The Office of Environmental
Information and The Office of
Administration and Resources
Management are in the process
N/A
126

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inventory of all Personal
Identity Verification cards
with access to computer
rooms with financial and
mixed-financial applications
that are not assigned to
individuals and remove
access when cards are
discovered missing.
of coordinating a meeting with
the OIG to discuss Findings 10-
15. At this time, we respectfully
disagree with the findings until
we can have a clarifying
discussion.

14
We recommend that the
Assistant Administrator for
Environmental Information
and Chief Information
Officer
implement controls to
enforce the required
verification of individuals'
identity every time
individuals enter the
computer rooms.
The Office of Environmental
Information and The Office of
Administration and Resources
Management are in the process
of coordinating a meeting with
the OIG to discuss Findings 10-
15. At this time, we respectfully
disagree with the findings until
we can have a clarifying
discussion.
N/A
15
We recommend that the
Assistant Administrator for
the Office Administration
and resources Management
perform a review of system
requirements and evaluate
the suitability of existing
technology to replace or
implement updates to the
computer room's
surveillance system and
generators. Update or
replace, if warranted, the
equipment based on the
results of the evaluation.
The Office of Environmental
Information and The Office of
Administration and Resources
Management are in the process
of coordinating a meeting with
the OIG to discuss Findings 10-
15. At this time, we respectfully
disagree with the findings until
we can have a clarifying
discussion.
N/A
127

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CONTACT INFORMATION
If you have any questions regarding this response, please contact OCFO's Audit Follow-up Coordinator,
Benita Deane, at 202-564-2079.
cc: David Bloom
Charles Sheehan
Kevin Christensen
Richard Eyermann
Howard Osborne
Jeanne Conklin
Meshell Jones-Peeler
John O'Connor
Malena Brookshire
Greg Luebbering
Sherri' L. Anthony
Rudy Brevard
Wanda Arlington
Margaret Hiatt
Robert L Smith
Bobbie P. Trent Jr.
Benita Deane
128

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Appendix III
Distribution
The Administrator
Deputy Administrator
Special Advisor, Office of the Administrator
Chief of Staff
Chief of Operations
Chief Financial Officer
Assistant Administrator for Administration and Resources Management
Assistant Administrator for Land and Emergency Management
Principal Deputy Assistant Administrator for Administration and Resources Management
Principal Deputy Assistant Administrator and Deputy Chief Information Officer for
Environmental Information
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Director, Office of Continuous Improvement, Office of the Administrator
Deputy Chief Financial Officer
Associate Chief Financial Officer
Controller, Office of the Chief Financial Officer
Deputy Controller, Office of the Chief Financial Officer
Director, Office of Budget, Office of the Chief Financial Officer
Director, Office of Planning, Analysis and Accountability, Office of the Chief Financial Officer
Director, Office of Technology Solutions, Office of the Chief Financial Officer
Director, Office of Resource and Information Management, Office of the Chief Financial Officer
Director, Research Triangle Park Finance Center, Office of the Chief Financial Officer
Director, Cincinnati Finance Center, Office of the Chief Financial Officer
Director, Office of Grants and Debarment, Office of Administration and Resources Management
Director, Office of Acquisition Solutions, Office of Administration and Resources Management
Director, Office of Administration, Office of Administration and Resources Management
Director, Office of Resources, Operations and Management, Office of Administration and
Resources Management
Deputy Director, Office of Resources, Operations and Management, Office of Administration
and Resources Management
Director, Office of Superfund Remediation and Technology Innovation, Office of Land and
Emergency Management
Director, Office of Information Technology Operations, Office of Environmental Information
Director, Office of Information Security and Privacy, Office of Environmental Information
Audit Follow-Up Coordinator, Office of the Administrator
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Environmental Information
Audit Follow-Up Coordinator, Office of Land and Emergency Management
Audit Follow-Up Coordinator, Office of Grants and Debarment, Office of Administration and
Resources Management
129

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Accompanying
formation

-------
MANAGEMENT INTEGRITY AND CHALLENGES
Overview of EPA's Efforts
Management challenges and integrity weaknesses represent vulnerabilities in program operations that may
impair EPA's ability to achieve its mission and threaten the agency's safeguards against fraud, waste, abuse
and mismanagement These areas are identified through internal agency reviews and independent reviews
by EPA's external evaluators, such as OMB, GAO, and EPA's OIG. This section of the AFR discusses in detail
two components related to challenges and weaknesses: 1) key management challenges identified by EPA's
OIG, followed by the agency's response and 2) a brief discussion of EPA's progress in addressing its FY 2018
material weaknesses.
Under the FMFIA, all federal agencies must provide reasonable assurance that internal controls are
adequate to support the achievement of their intended mission, goals and objectives. (See Section I,
"Management Discussion and Analysis," for the Acting Administrator's Statement of Assurance.) Agencies
also must report any material weaknesses identified through internal and/or external reviews and their
strategies to remedy the problems. Material weaknesses are vulnerabilities that could significantly impair or
threaten fulfillment of the agency's programs or mission. In FY 2018, no new material weaknesses were
identified by OIG or the agency. (See following subsection for a discussion of EPA's progress in addressing
its material weakness.)
The agency's senior managers remain committed to maintaining effective and efficient internal controls to
ensure that program activities are carried out in accordance with applicable laws and sound management
policy. The agency will continue to address its remaining weaknesses and report on its progress.
131

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2018 KEY MANAGEMENT CHALLENGES
Office of Inspector General-Identified Key Management Challenges	
The Reports Consolidation Act of 2000 requires the OIG to report on the agency's most serious management
and performance challenges, known as the key management challenges. Management challenges represent
vulnerabilities in program operations and their susceptibility to fraud, waste, abuse or mismanagement. For
FY 2018, the OIG identified five challenges. The table below includes issues the OIG identified as key
management challenges facing EPA, the years in which the OIG identified the challenge, and the relationship
of the challenge to the agency's goals in its strategic plan
f http://epa.gov/planandbudget/strategicplan.html].
OIG Identified Key Management Challenges for the EPA
FY 2016
FY 2017
FY 2018
EPA
strategic
goal
Oversight of States, Territories, and Tribes Authorized to
Accomplish Environmental Goals: The EPA has made
important progress, but our work continues to identify
challenges throughout agency programs and regions, and
many of our recommendations to establish consistent
baselines and monitor programs are still not fully
implemented.
•
•
•
Cross-Goal
Enhancing Information Technology Security to Combat
Cyber Threats (formerly Limited Capability to Respond to
Cyber Security Attacks): Though the EPA continues to initiate
actions to further strengthen or improve its information
security program, the agency lacks a holistic approach to
managing accountability over its contractors and lacks
follow-up on corrective actions taken.
•
•
•
Cross- Goal
Workforce Planning / Workload Analysis: The EPA needs
to identify its workload needs to that it can more effectively
prioritize and allocate limited resources to accomplish its
work.
•
•
•
Cross- Goal
Mandated Reporting Requirements: The agency faces
challenges in tracking and submitting reports mandated by
law that contain key program information for Congress, the
EPA Administrator and the public.


•
Cross-Goal
Data Quality for Program Performance and Decision-
Making: Poor data quality negatively impacts the EPA's
effectiveness in overseeing programs that directly impact
public health.


•
Cross-Goal
132

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^tD srx
V U.S. ENVIRONMENTAL PROTECTION AGENCY
(wl
V PRO^
OFFICE OF INSPECTOR GENERAL
FY 2018
EPA Management
Challenges
18-N-0174
May 8, 2018

-------
Abbreviations
EPA
FTE
FY
GAO
OIG
U.S. Environmental Protection Agency
Full-Time Equivalent
Fiscal Year
U.S. Government Accountability Office
Office of Inspector General
Are you aware of fraud, waste or abuse in an
EPA program?
EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW (2431T)
Washington, DC 20460
(888) 546-8740
(202) 566-2599 (fax)
OIG Hotline@epa.gov
Learn more about our OIG Hotline.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (2410T)
Washington, DC 20460
(202) 566-2391
www.epa.gov/oiq
Subscribe to our Email Updates
Follow us on Twitter @EPAoig
Send us your Project Suggestions
134

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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
18-N-0174
May 8, 2018
What Are Management
Challenges?
According to the Government
Performance and Results Act
Modernization Act of 2010,
major management challenges
are programs or management
functions, within or across
agencies, that have greater
vulnerability to waste, fraud,
abuse and mismanagement,
where a failure to perform well
could seriously affect the ability
of an agency or the federal
government to achieve its
mission or goals.
As required by the Reports
Consolidation Act of 2000,
we are providing issues we
consider as the U.S.
Environmental Protection
Agency's (EPA's) major
management challenges for
fiscal year 2018.
EPA's Fiscal Year 2018 Management Challenges
What We Found
Attention to agency management challenges could result in stronger
results and protection for the public, and increased confidence in
management integrity and accountability.
The EPA Needs to Improve Oversight of States, Territories and Tribes
Authorized to Accomplish Environmental Goals:
•	The EPA has made important progress, but our work continues to identify
challenges throughout agency programs and regions, and many of our
recommendations are still not fully implemented.
The EPA Needs to Improve Its Workload Analysis to Accomplish Its Mission
Efficiently and Effectively:
•	The EPA needs to identify its workload needs so that it can more effectively
prioritize and allocate limited resources to accomplish its work.
The EPA Needs to Enhance Information Technology Security to Combat Cyber
Threats:
•	Though the EPA continues to initiate actions to further strengthen or improve
its information security program, the agency lacks a holistic approach to
managing accountability over its contractors and lacks follow-up on corrective
actions taken.
The EPA Needs to Improve on Fulfilling Mandated Reporting Requirements:
• The agency faces challenges in tracking and submitting reports mandated by
law that contain key program information for Congress, the EPA Administrator
and the public.
Send all inquiries to our public	77ie EPA Needs Improved Data Quality for Program Performance and Decision-
affairs office at (202) 566-2391	Makinq-
or visit www.epa.gov/oiq.
• Poor data quality negatively impacts the EPA's effectiveness in overseeing
Listing of PIG reports.	programs that directly impact public health.
135

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^£DSX
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE
INSPECTOR
GENERAL
May 8, 2018
MEMORANDUM
SUBJECT: EPA's Fiscal Year 2018 Management Challenges Report
No. 18-N-0174
FROM: Arthur A. Elkins Jr.
TO:	Scott Pruitt, Administrator
We are providing you with a list of areas that the Office of Inspector General (OIG) considers as major
management challenges confronting the U.S. Environmental Protection Agency (EPA). The project number
for this report was OPE-FY18-0101. According to the Government Performance and Results Act
Modernization Act of 2010, major challenges are programs or management functions, within or across
agencies, that have greater vulnerability to waste, fraud, abuse and mismanagement, where a failure to
perform well could seriously affect the ability of an agency or the federal government to achieve its mission
or goals.
The Inspector General Act of 1978, as amended, directs Inspectors General to provide leadership to
agencies through audits, evaluations and investigations, as well as additional analysis of agency operations.
The enclosed management challenges reflect findings and themes resulting from many such efforts.
Drawing high-level agency attention to these key issues is an essential component of the OIG's mission.
The Reports Consolidation Act of 2000 requires our office to annually report what we consider the most
serious management and performance challenges facing the agency. Additional challenges may exist in
areas that we have not yet reviewed, and other significant findings could result from additional work.
The attachment summarizes what we consider to be the most serious management and performance
challenges facing the agency, and assesses the agency's progress in addressing those challenges.
Challenges
Page
The EPA Needs to Improve Oversight of States, Territories and Tribes Authorized to
Accomplish Environmental Goals
1
The EPA Needs to Improve Its Workload Analysis to Accomplish Its Mission Efficiently
and Effectively
6
The EPA Needs to Enhance Information Technology Security to Combat Cyber Threats
11
The EPA Needs to Improve on Fulfilling Mandated Reporting Requirements
17
The EPA Needs Improved Data Quality for Program Performance and Decision-Making
20
136

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Like the U.S. Government Accountability Office does with its High-Risk List, each year we assess the
agency's efforts against the following five criteria required to justify removal of management challenges
from the prior year's list:
1.	Demonstrated top leadership commitment.
2.	Agency capacity - people and resources to reduce risks, and processes for reporting and
accountability.
3.	Corrective action plan - analysis identifying root causes, targeted plans to address root causes,
and solutions.
4.	Monitoring efforts - established performance measures and data collection/analysis.
5.	Demonstrated progress - evidence of implemented corrective actions and appropriate
adjustments to action plans based on data.
The U.S. Government Accountability Office's 2017 High-Risk Series report describes these five criteria
as a road map for efforts to improve and ultimately address high-risk issues. Addressing some of the
criteria leads to progress, while satisfying all of the criteria is central to removal from the list.
This year, we retained three management challenges from last year's report due to persistent issues, and
added two issues (mandated reporting requirements and improved data quality).
We will post this report to our website at www.epa.gov/oig. We welcome the opportunity to discuss our
list of challenges and any comments you or your staff might have.
Attachment
137

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CHALLENGE: The EPA Needs to Improve Oversight of States,
Territories and Tribes Authorized to Accomplish Environmental Goals
CHALLENGE FOR THE AGENCY
Over the past 10 years both the U.S. Environmental Protection
Agency's (EPA's) Office of Inspector General (OIG) and the U.S.
Government Accountability Office (GAO) have consistently
found that the EPA needs to improve its oversight of states,
territories and tribes that have authority (or "delegated
authority") to implement environmental programs and
enforce environmental laws. The agency has improved its
oversight and addressed deficiencies. However, our recent
audits indicate this remains a management challenge.
BACKGROUND
To accomplish its mission, the EPA develops regulations and establishes programs to implement
environmental laws. The EPA can delegate this authority to states, territories and tribes. Delegation
occurs after the EPA determines the governmental entity has the legal authority and capacity to
operate an environmental protection and enforcement program consistent with federal standards. The
EPA then performs oversight to provide reasonable assurance that human health and the environment
are being protected. The EPA has to monitor delegated programs to determine whether they continue
to meet federal standards and verify that federal funds help achieve environmental protection goals.
The EPA relies on states, territories and tribes with delegated authority to obtain environmental data
and implement compliance and enforcement programs. According to the Environmental Council of
States, states have assumed more than 96 percent of the delegable authorities under federal law. The
table below summarizes the extent that environmental authorities are delegated by the EPA.
Delegated environmental authorities
Federal law and federal programs
delegated by the EPA
States with
delegated
authority
Territories with
delegated
authority
Tribes with
delegated
authority
•	Clean Air Act
•	Title V
50
5
1
•	Clean Water Act
•	National Pollutant DischargeElimination System
46
1
0
•	Resource Conservation and Recovery Act
•	Hazardous Waste Program1
48
1
0
•	Safe Drinking Water Act
•	Public Water Supply Supervision Program
49
5
1
Source: OIG analysis.
1The District of Columbia implements a Hazardous Waste Program under the Resource Conservation and Recovery Act.
1 ^8
18-N-0174	1

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Even though the states, territories and tribes implement these human health and environmental
protection programs, the EPA retains authority to enforce environmental laws. Headquarters and
regional staff perform a variety of formal and informal oversight activities but those activities are not
always consistently implemented, leading to differences in the effectiveness of delegated programs
and results from those programs.
THE AGENCY'S PROGRESS
We first reported this management challenge in fiscal year (FY) 2008. Since then, the EPA has
reviewed some of the inconsistencies in its oversight of state, territorial and tribal programs. The
agency has also used its enforcement authorities when states, territories or tribes did not use their
delegated authority to protect human health and the environment. The EPA continues to develop and
implement policies to improve consistency in its oversight of delegated programs.
Strategic Planning and Agency Emphasis on Oversight
The agency's new strategic plan, issued in February 2018, emphasizes oversight of delegated
programs as an area of focus. The FYs 2018-2022 Strategic Plan outlines three agency goals:
1)	Core Mission: Deliver real results to provide Americans with clean air, land, and water, and
ensure chemical safety.
2)	Cooperative Federalism: Rebalance the power between Washington and the states tocreate
tangible environmental results for the American people.
3)	Rule of Law and Process: Administer the law, as Congress intended, to re foe us the agency on
its statutory obligations under the law.
The strategic plan seeks to transform how the agency conducts business by refocusing the EPA on its
role of supporting the states, territories and tribes in implementing environmental programs.
Oversight is essential to each of the three goals. For instance:
•	Under Goal 1 (Core Mission), the agency's approval of state/tribal implementation plans,
approval of vehicle and engine emission certification applications, and compliance actions in
cases of noncompliance are examples of oversight functions the EPA will perform to fulfill one
of its core missions—to improve air quality.
•	Goal 2 (Cooperative Federalism) reiterates the importance of the EPA's role and, in cases of
delegated programs, the relationship between the EPA and states, tribes or territoriesas
co-regulators to protect public health and the environment. This includes oversight by the EPA
that is efficient, effective and within its statutory responsibilities.
•	Goal 3 (Rule of Law and Process) focuses on the agency's implementation of the rule of law and
process as it administers the various environmental laws Congress has charged to the EPA. In
doing so, the plan calls for the agency to work with states, tribes and territories to ensure
compliance with the law and establish consistency and certainty for the regulated community.
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Agency Actions to Improve Oversight
In August 2016, the EPA released "Promoting Environmental Program Health and Integrity: Principles
and Best Practices for Oversight of State Permitting Programs," for the agency and states to use to
enhance the efficiency and effectiveness of the oversight system. The document states it was
developed to "deliver on a commitment in the EPA's cross-agency strategy to launch a new era of
state, tribal, local and international partnerships and to help respond to recommendations for
strengthening oversight from the EPA's Office of Inspector General." This strategy is the result of the
efforts of the State Program Health and Integrity Workgroup. This interagency workgroup is composed
of the EPA's national program offices for air, enforcement and water, as well as states and media
associations. The workgroup gathers and analyzes information on oversight of state practices,
identifies gaps, and develops solutions.
Region 1 improved accountability in the performance partnership grant process. According to the
agency's Office of Water 2017 Federal Managers' Financial Integrity Act assurance letter, Region 1
strengthened the oversight process for performance partnership grants by enhancing the level of detail
and documentation required in the states' reports, routing the annual report to all EPA technical
contacts through the use of a SharePoint site, and engaging the participation of EPA senior
programmatic managers.
EPA program offices and regions have responded to OIG report recommendations by implementing
corrective actions to improve its oversight activities:
•	In a June 2016 report (16-P-0217), on the EPA's financial oversight of Superfund state contracts,
we found that the EPA incurred total obligations and expenditures in excess of the authorized
cost ceiling for 51 of the 504 active and closed contracts; did not perform timely, complete and
accurate financial closings for 20 such contracts to ensure that both the EPA and the state had
satisfied their cost share requirement; and did not have all the up-to-date information needed
for an accurate Superfund state contract accrual calculation. The agency completed corrective
actions to address the report recommendations.
•	In a September 2015 early warning report (15-P-0298), we recommended that Region 9
withhold $8,787,000 for the Hawaii Drinking Water State Revolving Fund capitalization grant
until the region is satisfied with progress on implementing the corrective action plan. After
being briefed on our report, EPA Region 9 initiated an enforcement action against the Hawaii
Department of Health for not meeting its loan commitment and disbursement targets. Region 9
advised Hawaii that the FY 2015 Drinking Water State Revolving Fund capitalization grant would
be withheld and the region may withhold further awards.
•	In response to a February 2015 quick reaction report (15-P-0099), the EPA completed all
corrective actions to address findings that Region 8 was not conducting inspections at
establishments in North Dakota that produce pesticides, or inspections of pesticides imported
into the state. The EPA initiated inspections, developed a multi-year plan for future inspections,
compiled a list of the inspections conducted annually for Region 8's North Dakota end-of-year
report, and reviewed the end-of year report to confirm that inspections have been initiated.
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WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required to
justify removal: (1) agency capacity, (2) a corrective action plan and (3) monitoring efforts. EPA
leadership needs to demonstrate an organizational commitment to correcting problems with the
agency's oversight of key state, territorial and tribal programs designed to protect human health and the
environment. To demonstrate this commitment, the agency should show it has the proper people,
resources and processes, and has developed a framework for addressing oversight issues. The agency
also needs to develop a system for monitoring state, tribal and territorial oversight effectiveness so that
it can consistently work toward demonstrating its progress in correcting this management challenge
across all program offices. Our recent reports indicate oversight challenges in many EPA programs:
•	In a February 2018 report (18-P-0079). we found that the EPA cannot ensure that its Federal
Insecticide, Fungicide, and Rodenticide Act cooperative agreement funding achieves agency
goals and reduces risks to human health and the environment from pesticide misuse. We made
recommendations to improve oversight. Corrective actions are pending.
•	In a September 2017 report (17-P-0402), we found that EPA Region 2 needs to improve its
internal processes over Puerto Rico's assistance agreements. The region may have inefficiently
used over $217,000 in taxpayer funds, may need additional support for grant award decisions,
and may not have evidence that taxpayer funds have been properly used under two
cooperative agreements. Corrective actions are pending.
•	In an April 2017 report (17-P-0174), we found that while most states and some tribes have fish
advisories in place, this information is often confusing, complex, and does not effectively reach
appropriate segments of the population. Under the Clean Water Act, the EPA can take a
stronger leadership role in working with states and tribes to ensure that effective fish advisory
information reaches all such segments of the population. Corrective actions are pending.
•	In an October 2016 management alert (17-P-0004). we found that EPA Region 5 had the
authority and sufficient information to issue a Safe Drinking Water Act Section 1431
emergency order to protect residents in Flint, Michigan, from lead-contaminated water as
early as
June 2015. Corrective actions are pending.
•	In a May 2016 report (16-P-0166), we found that EPA Region 9 needed improved internal
controls for oversight of Guam's consolidated cooperative agreements. Without adequate
internal controls and oversight, more than $67 million in consolidated cooperative agreement
funds may not have been administered efficiently and effectively. Corrective actions are pending.
•	In March 2016 (16-P-0108), we reported that EPA efforts to bring small drinking water systems
into compliance through enforcement and compliance assistance resulted in some
improvement over time. However, across EPA Regions 2, 6 and 7, we found inconsistencies in
adherence to the EPA's Enforcement Response Policy. Corrective actions are pending.
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•	In an April 2015 report (15-P-0137), we found that the U.S. Virgin Islands did not meet program
requirements for numerous activities related to implementing Clean Air Act, Clean Water Act,
Safe Drinking Water Act and Underground Storage Tank/Leaking Underground Storage Tank
programs. Corrective actions are pending.
In addition to EPA OIG findings about oversight of delegated authority, the GAO has also conducted a
series of audits related to state issues. A few examples follow:
•	In a September 2017 report (GAO-17-424), the GAO reported that the EPA does not have
nationwide information about lead infrastructure because the lead and copper rule does not
require states to provide the agency with information on the whereabouts of lead pipe lines.
The GAO recommended that the EPA require states to report information about lead pipes as
well as all 90^ percentile sample results for small water systems. The GAO further
recommended that states develop a statistical analysis to identify water systems that might
pose a greater likelihood for lead and copper rule violations.
•	In a February 2016 report (GAO-16-281), the GAO reported that the EPA had notcollected
necessary information or conducted oversight activities to determine whether state and
EPA-managed Underground Injection Control class II programs were protecting underground
sources of drinking water. Some of the recommendations from the GAO were that the EPA
require programs to report well-specific inspections data, clarify guidance on enforcement
data reporting, and analyze the resources needed to oversee programs.
•	In an August 2015 report (GAO-15-567), the GAO found that financial indicators collected by
the EPA as part of its oversight responsibilities did not show states' abilities to sustain their
Clean Water and Drinking Water State Revolving Funds. The GAO recommended that the EPA
update its financial indicator guidance to include measures for identifying the growth of the
states' funds. The GAO also recommended that, during the reviews, the EPA develop
projections of state programs by predicting the future lending capacity.
•	In a May 2012 report (GAO-12-335), the GAO reported that the 2013 Clean Water Act
Section 319 oversight guidance was not sufficient. The GAO also found that the agency did
not make changes to the Section 319 program measures of effectiveness, as recommended
by the GAO.
While there has been progress in improving agency oversight of delegated programs, the audit
community continues to identify ways in which the EPA can make further improvements. We maintain
this as a management challenge for FY 2018 and will continue to conduct reviews of the EPA's
oversight of delegated programs.
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CHALLENGE: The EPA Needs to Improve Its Workload Analysis to
Accomplish Its Mission Efficiently and Effectively
CHALLENGE FOR THE AGENCY
The EPA has riot incorporated workload
analysis into its resource allocations despite
years of reporting by the EPA OIG and GAO.
The EPA has not fully implemented controls
and a methodology to determine workforce
levels based upon analysis of the agency's
workload. The EPA's ability to assess its
workload—and subsequently estimate workforce levels necessary to carry out that workload-
is critically important to mission accomplishment. Due to the broad implications for accomplishing the
EPA's mission, we have included this as an agency management challenge since 2012.
BACKGROUND
Over the past 22 years, the EPA OIG and GAO have issued over 15 reports citing the need for the EPA
to implement workload analysis into its human resource distributions. In the 1980s, the EPA conducted
comprehensive workload analyses to determine appropriate workforce levels and each year, with
regional consensus, evaluated need and allocated its human resources accordingly. In 1987, the EPA
decided it would discontinue these analyses and instead focus on marginal changes to full-time
equivalent (FTE) distribution. The EPA has reported that it has done some limited workforce analyses in
the FY 2017 financial statements.
In 2010, we reported that the EPA did not have policies and procedures requiring that workforce levels
be determined based upon workload analysis. In 2011, we reported that the EPA does not require
program offices to collect and maintain workload data. Without such data, program offices are limited
in their ability to analyze their workload and justify resource needs. The GAO also reported in
October 2011 that the EPA's process for budgeting and allocating resources did not fully consider the
agency's current workload. As recently as 2017, the EPA OIG reported that the distribution of
Superfund FTEs among EPA regions did not support the current regional workload. The GAO has also
reported on the EPA's workload concerns and issued eight reports between 2000 and 2018.
Since 2005, EPA offices have studied workload issues at least six different times, spending nearly
$3 million for various contractors to study the issues. However, for the most part, the EPA has not used
the findings resulting from these studies. According to the EPA, the results and recommendations from
the completed studies were generally not feasible to implement.
Over the last decade, the EPA's workforce levels have declined by 2,500 positions (including losses due
to early-outs and buyouts in 2014 and 2017). Without a clear understanding of its workload, it is
unclear whether this decline jeopardizes the EPA's ability to meet its statutory requirements and
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overall mission to protect human health and the environment, or if the decline represents a natural
and justifiable progression, because the EPA has completed major regulations implementing
environmental statutes and states have assumed primacy over most media programs.
THE AGENCY'S PROGRESS
The agency has not adopted an overall plan to address workforce analysis, but has initiated some
pilots and surveys to address the issue.
In 2013, we conducted a follow-up (13-P-0366) on actions the EPA has taken to address previous
OIG recommendations. We found that the EPA:
•	Initiated pilot projects in Regions 1 and 6 to analyze the workload for air State Implementation
Plans and permits, as well as water grants and permits.
•	Surveyed numerous front-line agency managers on the functions performed, thereby creating
an inventory of common functions among program offices.
•	Through the Office of the Chief Financial Officer, consulted with 23 other federal agencies
about their workload methodologies. As a result of that analysis, the EPA selected an approach
referred to as the "Table Top" method used by the U.S. Coast Guard, designed to use subject
matter experts and actual data to provide estimates of workload. The Table Top approach
provides flexibility in implementation, which allows for differences in organizational functions
and workloads rather than attempting to fit all regions and programs into a one-size-fits-all
approach. The EPA has conducted limited testing on this approach within two program areas-
grants and Superfund Cost Recovery. According to EPA officials, while the methodology appears
promising for grants, it became overly complicated for Superfund Cost Recovery.
During 2014, the EPA continued to test the workload model in other areas, including:
•	Working with Grant Project Officers to evaluate and try to balance uneven workloads.
•	Developing a Project Officer Estimator Tool for organizations to examine Project Officer
workloads.
•	Working with Grants Specialists to refine the Interagency & Grants Estimator Tool.
•	Submitting a Draft Funds Control Manual to the Office of Management and Budget, and
receiving and incorporating the Office of Management and Budget's comments.
In January 2016, the EPA issued a draft Funds Control Manual. The manual is intended to fulfill the
EPA's corrective actions for several unimplemented recommendations from prior OIG reports on
workload analysis. The manual highlights several tools the EPA has developed to help programs
examine and understand connections between hours of work (or FTEs) and specific tasks, products,
results or outcomes. The EPA says that the tools are designed to complement existing financial, budget
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and program information that organizations already track and use. As of February 2018, the EPA's draft
Funds Control Manual was still awaiting Office of Management and Budget approval. Once
implemented, the Funds Control Manual will meet the intent of unimplemented recommendations
from two EPA OIG reports.
In a July 2016 report (16-P-0002). we reported that Grants Specialists in Regions 4 and 5 indicated that
workload was the reason administrative baseline monitoring reviews were not completed or were not
completed timely. We recommended that the agency develop and implement a plan to complete
administrative baseline monitoring reviews as required by scheduling reviews around workload peaks.
The EPA's Office of Administration and Resources Management reported implementing a new baseline
monitoring approach in October 2017 to have Project Officers obtain information from Grants
Specialists regarding indirect costs, disadvantaged business enterprise and single audits, to incorporate
in the baseline monitoring review preparations.
In the FY 2017 Agency Financial Report, the EPA responded:
As acknowledged by OIG, there are inherent difficulties in applying workload analyses
for the highly variable, multi-year, and non-linear activities that comprise most of the
EPA's work. These difficulties limit the utility of detailed FTE-based workload analyses
for broader agency program estimates. For example, during the FY 2016 budget process,
the agency examined broad workload trends as a basis to move resources to address
major challenges. In each specific area, agency senior management considered longer-
term trends and overall staffing rather than individual tasks and portions of FTEs, such
as increased programmatic requirements. As a result, in its FY 2016 President's Budget
proposal, the agency requested and received additional FTE for these programs. In
FY 2016, Congress passed additional Toxic Substances Control Act (TSCA) fees legislation
and for FY 2016, FY 2017 and moving forward, the agency is examining fee-associated
workload.
The agency's strategy is to find the best value to be derived from detailed workload
analysis. Rather than detailed FTE models, the EPA focused workload analyses on
current operations. The agency found that detailed FTE models created a sense of false
precision, quickly became out-of-date due to changing regulations, requirements and
systems, and were overly sensitive to relatively small changes in the input. Reflecting on
this experience, the workload analysis guidance that the EPA added to the Funds
Control Manual (per the IG's recommendation) provides information about several
types of workload analyses rather than solely discussing FTE workload models. Instead,
the guidance discusses several workload tools that EPA programs can use to help
manage their program operations and resources.
Over the last few years, the EPA workload analyses examined task-driven functions,
focusing on understanding how much time managers and staff invest in each function's
major tasks. The analyses helped the EPA identify major challenges and opportunities,
target streamlining and Lean efforts, clarify guidance, prioritize training, and structure
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other support efforts and initiatives. Analyses included: grants and interagency
agreement officers; project officers; IT security officers; Funds Control Officers; and fee-
related duties.
WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required to
justify removal: (1) agency capacity, (2) a corrective action plan and (3) monitoring efforts. Regarding
each of these three points:
1.	The EPA has not developed and implemented a definitive workload analysis system. The EPA
needs to more broadly quantify what its full workload entails so that it can more effectively
prioritize and allocate available resources to accomplish agency work. The EPA's ability to
assess its workload and estimate workforce levels necessary to carry out that workload is
critical to mission accomplishment.
2.	EPA offices have not conducted a systematic workload analysis or identified workforce needs
for budget justification purposes; such analysis is critically important to mission
accomplishment. The EPA currently plans to apply workload analysis tools to task-driven agency
functions, such as grants and contracts. While we understand the difficulty in applyingsuch
tools to the EPA's highly variable and non-linear activities, the EPA still needs to more broadly
quantify what its full workload entails so that it can more effectively prioritize and allocate
limited resources to accomplish agency work.
3.	The OIG and GAO have recently reported the following workload issues:
• In 2015, the EPA awarded roughly $3.9 billion (about 49 percent of its budget) in grants
to states, local governments, tribes and other recipients. These grants supported such
activities as repairing aging water infrastructure, cleaning up hazardous waste sites,
improving air quality and preventing pollution. In its January 2017 report (GAO	),
the GAO concluded that the EPA's ability to manage this portfolio depended primarily
on grant specialists and project officers, but the agency did not have the information it
needed to allocate grants management resources in an effective and efficient manner.
In addition, the EPA had not identified project officer critical skills and competencies or
monitored its recruitment and retention efforts for grant specialists. The GAO
recommended that the EPA develop documented processes that could be consistently
applied by EPA offices to collect and analyze data about grants management workloads,
and use the data to inform staff allocation. The GAO also recommended that the EPA
review project officer critical skills and competencies and determine training needs to
address gaps, develop recruitment and retention performance measures, and collect
performance data for these measures. The EPA agreed with the five recommendations;
four of the corrective actions are still pending.
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• In a September 2017 EPA OIG report (17-P-0397). we noted that the distribution of
Superfund FTEs among EPA regions did not support current regional workloads. As a
result, some regions had to prioritize work and slow down, discontinue or not start
cleanup work due to lack of personnel. In a survey of EPA regions, six of 10 regions said
they were not able to start, or had to discontinue, work due to lack of FTEs, which could
impede efforts to protect human health and the environment. The agency agreed with
our recommendations, including to implement a national prioritization of Superfund
sites and regularly distribute regional FTEs according to the national prioritization. The
corrective actions are pending.
We will continue to monitor agency progress through this and other ongoing work.
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CHALLENGE: The EPA Needs to Enhance Information Technology
Security to Combat Cyber Threats
CHALLENGE FOR THE AGENCY
The EPA continues to face a management challenge in
implementing a vigorous cybersecurity program that
strengthens its network defenses and data security in a
time of ever-increasing threats to federal government
networks. The recent 2017 global cyberattack that spread
across 150 countries as a result of stolen government
hacking tools, used to compromise misconfigured
computers for a ransom, highlights the myriad of
challenges the EPA faces to protect its network.
Despite progress, recent audits highlight that the need to
fully implement information security throughout the EPA
still requires continued senior-level emphasis. Most notably, the EPA relies heavily on contractor
personnel to implement and manage the configurations and operations of agency-networked resources.
However, the EPA lacks processes for verifying that contractors who play a key role in agency operations
have the training required to fulfill their responsibilities, or have completed the required background
investigations for contractor personnel in high-risk positions with information security responsibilities.
A recent audit noted that the EPA's ability to protect its network is hampered by its inability to
implement a process to maintain an up-to-date inventory of hardware assets connected to the
agency's network. Further, continued management emphasis is required on resolving audit findings
citing the need to improve the effectiveness and efficiency of the agency's computer network
operations and address emerging challenges for the agency in managing contractors who provide
critical support for agency systems.
BACKGROUND
Protecting the EPA's network and data is as important today as it was in 2001 when we first reported
this issue as a management challenge. Securing networks that connect to the internet is increasingly
more challenging, with sophisticated attacks taking place that affect all interconnected parties,
including federal networks. In 2017, there were several high-profile cybersecurity incidents that
undermined the public's confidence in information security and the measures employed to protect
people's data. This included incidents at industry-leading companies, such as:
•	Equifax, where cybercriminals penetrated the company's network and stole the personaldata
of 145 million people.
•	Yahoo, where cybercriminals hacked all of the company's 3 billion accounts, and the company
acknowledged the attack could have occurred almost 4 years before the company announced it.
Cybersecurity
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Compromise of data networks extends beyond private industry firms; similar attacks have emphasized
the need for federal agencies to be vigilant in protecting their networks. The Office of Personnel
Management announced in 2015 that the agency experienced two separate but related cybersecurity
incidents that resulted in the loss of 21.5 million individuals' Social Security numbers, 5.6 million
fingerprints, and user names and passwords for applicants filling out background investigation forms
online. The Office of Personnel Management noted that cybercriminals stole the personnel data for
4.2 million current and former government employees. It is projected that these data breaches could
cost the tax payers between $133.3 to $329.8 million in response efforts.
To address these complex issues in protecting its network from cyberattack, the EPA has made
significant strides in developing a policy framework to enable information technology systems to
adhere to federal information security requirements. This includes developing an extensive policy and
procedure catalog of a significant portion of federal information security requirements, and making
them available to all its 24 headquarters and regional offices across the nation. However, the EPA
manages the implementation of this policy framework in a decentralized manner; recent audit and
investigative work indicates that insufficient oversight and reporting prevent the agency from realizing
a fully implemented information security program capable of effectively managing the remediation of
known and emerging security threats.
THE AGENCY'S PROGRESS
In response to our FY 2017 management challenge (17-N-0219), the EPA indicated that "The agency is
committed to protecting its information and technology assets. The EPA understands the prevalence
and complexity of the ever-growing cyber security attacks and is aware of the potential impact to the
Agency's mission if information assets are compromised." Further, the EPA noted that "It is developing
a process to train Contract Officer Representatives on their responsibilities for monitoring contractors
to ensure they meet specified EPA information security responsibilities." This includes taking the
following actions:
•	Monitoring contractors who operate information systems on behalf of the EPA to ensure they
perform the mandated information security assessments.
•	Ensuringthat contractors with significant information security responsibilities complete
role-based training.
The EPA continues to initiate actions to further strengthen or improve its information security program.
However, our recent audit work continues to highlight that the EPA faces challenges in addressing
outstanding weaknesses within its information security program and in managing contractors who
provide key support in operating or managing systems on behalf of the agency. The EPA's Office of
Environmental Information is primarily responsible for information technology management.
Our FY 2017 annual audit of the EPA's information security program (17-P-0044) disclosed that more
work is needed by the agency to achieve managed and measurable information security functions to
manage cybersecurity risks. In this regard, the EPA's information security program was not graded as
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effective for any of the Cybersecurity Framework Security Functions defined by the National Institute
of Standards and Technology. The table below summarizes the areas where significant management
emphasis is needed for the EPA to obtain an effective rating of its information security program:
Results of testing assessed as "Not Met"
Cybersecurity
Framework Security Metric
Function	domain	Federal Information Security Modernization Act metric
Identify
Risk
Management
The EPA has not consistently implemented a process for using standard data
elements/taxonomy to develop and maintain an up-to-date inventory of hardware assets
connected to the organization's network with the detailed information necessary for
tracking and reporting.
Protect
Identity and
Access
Management
Security and
Privacy
Training
The EPA has not fully implemented an Identity, Credential and Access Management
strategy to guide its Identity, Credential and Access Management processes and
activities.
The EPA did not identify and track status of specialized security and privacy training for
all personnel (including employees, contractors and other organization users) with
significant information security and privacy responsibilities requiring specialized training.
As a result, the EPA is unaware as to whether information security contractors possess the
skills and training needed to protect the agency's information, data and network from
security breaches.
Source: OIG analysis.
In addition, our annual reports on the EPA's FYs 2017 and 2016 financial statements (18-F-0039 and
17-F-0046. respectively) disclosed that information technology processes need to be improved to protect
the integrity of EPA data used for decision-making and that the EPA lags behind in taking steps to
remediate longstanding information system controls needed to protect financial data. In particular, our
audits noted that:
•	The EPA's financial accounting system (Compass Financials) application—a major information
technology investment—lacked an oversight structure to verify that personnel implemented
agency policies and procedures, and to guide the project through the acquisition process. Based
on the EPA's $3 million cost-savings estimate for competitively procuring hosting services for
Compass Financials, the agency may have overspent $250,000 by having to extend the sole-
source contract due to lack of oversight.
•	The EPA did not have a documented process for handling emergency or unscheduled changes to
the Office of the Chief Financial Officer's financial system's configuration. Additionally, direct
modifications to the Compass Financials database lacked documented approvals, as well as
verifications of implemented changes to the database asrequired.
In particular, increased management oversight is needed over agency contractors to comply with
mandated information system security requirements:
•	In our September 2015 report on EPA contract systems (15-P-0290). we noted that personnel
with oversight responsibilities for contractor systems were not aware of the requirements
outlined in EPA information security procedures. As a result, EPA contractors did notconduct
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required annual security assessments, provide security assessment results to the agency for
review, and establish the required incident response capability. Data breaches costing from
$1.4 million to over $12 million could have occurred if the systems were compromised.
•	In another September 2015 report (15-P-0295), of the EPA's administration of cloud services,
we found that the EPA was not fully aware of the extent of its use of cloud services and thereby
was missing an opportunity to help make the most efficient use of its limited resources regarding
cloud-based acquisitions. The inadequate oversight of a cloud service provider resulted in the
agency placing an EPA system within the vendor's network that (1) did not comply with federal
security requirements and (2) contained vendor terms of service that were not compliant with
the Federal Risk and Authorization Management Program.
•	Our FY 2015 annual audit of the EPA's information security program (16-P-0039) disclosed that
agency management of contractor systems required significant management attention to correct
noted deficiencies. We found that significant improvements were needed to (1) enforce
contractor compliance with required security controls, (2) maintain an accurate inventory of
contractor systems and (3) identify contractor systems that interface with EPA systems.
The EPA took steps to address some of the recommendations noted in the above reports. Nonetheless,
current audit work continues to note that the EPA lacked a holistic approach to managing
accountability over its contractors and ensuring personnel responsible for overseeing contractors were
aware of their responsibilities.
•	Our FY 2016 annual audit of the EPA's information security program (17-P-0044) disclosed that
the agency did not identify and track the status of specialized security training for contractors
with significant information security responsibilities. Our follow-up activity during FY 2017 noted
that the agency made little progress in correcting this deficiency, and we again reported this issue
in our FY 2017 annual report on the EPA's information security program(18-P-0031).
•	Our July 2017 report (17-P-0344) noted that $153 million of the $166 million of contracts did not
contain requirements for support contractors to complete required role-based training, even
though the contractors had access to EPA systems that could bypass implemented security
controls. We found that personnel overseeing contractors were not monitoring whether the
contractor completed the required training or knew about the training requirement. Further, we
found that the EPA had not reviewed its contracts to verify whether the contacts contained a
clause that requires contractors with significant information security responsibilities to complete
role-based training, even though the EPA developed a contract clause for this purpose. Also,
personnel overseeing the EPA's information security program did not implement an oversight
process to monitor the completion of specialized training, or report the status of contractors'
completion of role-based training as outlined in EPA policy and other federal guidance.
•	Our September 2017 management alert (17-P-0409) noted that the EPA had not initiated, at a
minimum, a Tier 4 background investigation for any of the nine sampled contractor personnel
with privileged access to agency information systems and data. The EPA is required to initiatea
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background investigation prior to granting access to agency systems and data. The table below
summarizes the results of our analysis. These contractor personnel hold various information
technology specialist positions with the ability to make changes to security controls in the
systems they access, and the personnel should have been assigned a high-risk designation.
Risk designations for contractor personnel
Contractor
Type of
investigation
conducted
EPA office's risk
designation
Position
1
Tier 1
Not Designated
Email IT Analyst
2
Tier 2
Moderate Risk
Computer Security Analyst
3
Tier 2
Moderate Risk
Manager Email
4
Tier 2
Moderate Risk
Active Directory Engineer
5
Tier 2
Moderate Risk
Senior System Engineer
6
Tier 2
Moderate Risk
Senior System Analyst
7
Tier 1
Not Designated
Enterprise Computer Security Information Manager
8
Tier 2
Moderate Risk
System Administrator
9
Tier 2
Moderate Risk
Technical Support Analyst I
Source: OIG analysis of EPA background investigation data from Office of Administrative Services Information System
as of June 21, 2017.
The OIG in its investigative role has taken a measured approach in working with the EPA with regard to
cybersecurity prevention and remediation. The OIG's Office of Investigations has reached out to the
agency's Incident Response Center personnel and the Federal Bureau of Investigation's Cybercrime Task
Force to get a broader view of cybersecurity threats and to work with experts in identifying trends and
solutions. However, the EPA must be willing to engage in these efforts to create an environment to
broaden network situational and threat awareness to proactively combat cyber threats.
WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required
to justify removal: (1) demonstrated top leadership commitment, (2) monitoring efforts and
(3) demonstrated progress. The EPA has taken steps to address many of our audit recommendations.
However, the following actions remain to address cybersecurity challenges:
1. Develop and implement a processthat:
a)	Strengthens internal controls for monitoring and completing corrective actions on all
open audits.
b)	Maintains appropriate documentation to support completion of corrective actions;
if delegated to sub-offices, the process should include regular inspections by the Office of
Environmental Information's Audit Follow-Up Coordinator.
c)	Specifies when sub-offices must complete corrective actions as completed.
d)	Requires verification that corrective actions fixed the issue(s) that led to the recommendation.
e)	Requires sub-offices to continue to use the improved processes.
f)	Requires Office of Environmental Information managers to update the office's Audit
Follow-Up Coordinator on the status of upcoming corrective actions.
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2.	Remediate weaknesses identified during the FY 2017 annual audit of the EPA's information
security program.
3.	Implement a process to train EPA Contract Officer Representatives on their responsibilities for
monitoring contractors to verify they meet specified EPA information security responsibilities.
4.	Implement plans to review all EPA contracts and task orders and place the EPA-developed
contract clause requiring contractors to complete role-based training into all EPA contracts
and task orders.
5.	Implement a process to create a listing of agency contractors with significant information
security responsibilities who require role-based training, validate that the identified
contractors complete the annual role-based training requirement, and report the information
as required by the Federal Information Security Modernization Act.
6.	Identify the equipment needed to restore operations and network connectivity for the
financial and mixed-financial applications housed at the EPA's data center.
7.	Monitorthe actions of contractors with direct access to data within the agency's core financial
application.
8.	Create data storage plans for key financial applications.
9.	Implement controls within the EPA's financial systems to prevent personnel with incompatible
duties from processing financial transactions.
10.	Require the Compass Financials Project Manager to obtain the FederalAcquisition Certification
for Program and Project Managers with the Information Technology specialization.
11.	Establish controls for creating and locking administrative accounts in Compass Financials.
12.	Develop and implement a methodology to monitor accounts with administrative capabilitiesin
Compass Financials.
13.	Enter the Continuous Monitoring Assessment recommendations into theagency's system used
for monitoring the remediation of information security corrective actions.
14.	Develop a process for obtaining the current inventory listing and document the process in the
National Computer Center's Disaster Recovery Plan and Information System ContingencyPlan.
15.	Participate and cooperate more with the OIG, external law enforcement agencies and industry
experts to take a proactive role in identifying trends and sharing intelligence about cyber
threats and solutions. The EPA should do more to expose exploits and vulnerabilities with
other federal agencies and work together to combat the issues of cybersecurity.
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CHALLENGE: The EPA Needs to Improve on Fulfilling Mandated
Reporting Requirements
CHALLENGE FOR THE AGENCY
OIG work over the last 8 years has shown
that the agency faces issues in tracking and
submitting reports mandated by law that
contain key program information for use by
Congress, the Administrator and the public.
When the EPA does not fulfill reporting
requirements, the agency is in violation of
the law and does not demonstrate how and whether it is achieving the goals Congress set for the
associated programs. Without these reports, Congress and the public are not informed about theEPA's
progress toward achieving goals or the challenges programs face during implementation. Our findings
across multiple programs emphasize the need for EPA management to take agencywide action to
verify that required reports are submitted. As the OIG continues to identify this issue in multiple
programs across the EPA, the agency should develop a comprehensive approach to address this
challenge.
BACKGROUND
The EPA OIG identified instances across five programs where the EPA has failed to meet legal reporting
requirements to Congress between 2010 and 2018. The OIG recommended that the agency meet the
specific reporting requirements and establish internal controls to track issuance of these required
reports. Fulfilling mandated reporting requirements will inform future rulemaking and decision making.
In response to our work, the EPA has issued some required reports that it previously had not provided,
and has issued a memorandum to the EPA's Assistant Administrators and Associate Administrators
reminding them of the agency's standard practice in tracking reports to Congress. However, much
additional work remains.
Congress mandates reports to provide Congress with information about progress, but the reports also
provide legislators with information for future legislative and funding decision making. By not fulfilling
reporting requirements, Congress and the public, as well as the EPA Administrator, are not receiving
information about programs' progress and challenges or about how the EPA is working to fulfill the
agency mission to protect human health and the environment.
THE AGENCY'S PROGRESS
The OIG is including required reporting as an EPA management challenge based on our broad findings
and on the importance of EPA meeting requirements. Some of the following issues identified in our
work over the past 8 years demonstrate the breadth of this challenge and show how the agency has
worked to address the issue on a program-by-program basis but needs a comprehensive effort. For the
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OIG reports where this issue was identified, the EPA ultimately agreed to or implemented corrective
actions by planning and submitting required program reports:
•	In response to a July 2016 report (16-P-0246), the agency issued a required but long-awaited
Office of Environmental Education Report to Congress, the EPA Administrator and the public in
response to our report on insufficient reporting. The OIG found that after 2005, the office did
not fund and convene the National Environmental Education Advisory Council as required by
the National Environmental Education Act until 2012. One result of this lapse in funding and
convening the council was that the council was not always able to provide congressionally
required reports on the extent and quality of environmental education in the nation. The OIG
recommended that the EPA ensure that the council is appointed and submits required reports
to Congress. The EPA agreed and issued the required report.
•	In response to a September 2011 report (ll-P-0708), the agency submitted a long-required
report related to residual effects of methamphetamine labs. The OIG had found that the Office
of Research and Development failed to submit a report to Congress required under the
Methamphetamine Remediation Research Act of 2007 detailing how the agency would usethe
results of a study of the residual effects of methamphetamine labs to carry out all
methamphetamine-related activities. The office completed a literature review on residual
effects in 2010, but did not transmit a report to Congress; a copy of its draft research plan was
provided in 2009 and the office updated congressional staff on the status of this study in 2010.
The EPA agency confirmed there were no internal controls to identify or track the status of
EPA's legislative requirements. In lieu of an agencywide control system, individual EPA program
offices were responsible for tracking and completing legislative requirements. The OIG
recommended that the EPA develop internal controls to ensure that legislative requirements
are identified and tracked, and that their status is reported to Congress as required. The agency
implemented the recommendation and developed a system to track Reports to Congress and
ensure legislative requirements are met.
•	In response to a June 2010 report (10-P-0154), the agency submitted a long-overdue report on
urban air toxics. The OIG found that the Office of Research and Development had failed to
submit a second report to Congress required under Section 112(k) of the Clean Air Act on
actions taken by the agency to reduce risks posed by urban air toxics from area sources. The
agency submitted the first required report to Congress in July 2000, which was 2 years after the
deadline specified by the Clean Air Act. However, the second report, required in 2002, was not
submitted. The OIG concluded that submitting this report would inform Congress on the status
of the program and the contributing factors to the delayed implementation of the program. The
OIG recommended that the EPA develop and submit the required second Urban Air Toxics
Report to Congress by the end of FY 2010. The Office of Research and Development ultimately
submitted that required second report to Congress in August 2014.
WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required to
justify removal: (1) demonstrated top leadership commitment, (2) a corrective action plan and
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(3) demonstrated progress. Although the EPA is working to implement recommendations to comply
with reporting requirements for individual programs, the OIG continues to identify this issue.
Therefore, EPA leadership needs to make a comprehensive effort to address this issue across the
agency by reducing the rate of missing reports; identifying the causes of not issuing reports, with
targeted plans to address the causes; and implementing corrective actions to address these issues.
• Following a January 2018 report (18-P-0071), the agency and the OIG are engaged in resolution
efforts to resolve the recommendations to submit required reports to Congress on a water
program. The OIG found that the Office of Water failed to fulfill the legal requirement under
Section 7 of the Beaches Environmental Assessment and Coastal Health Act of 2000 (known as the
BEACH Act) to report to Congress every 4 years on the program's progress and impact on water
quality and public health. The act requires that the EPA report to Congress on recommendations
for additional criteria or actions to improve water quality, provide a national assessment of the
implementation of the act, and note areas for improvement in monitoring. The EPA last submitted
this required report to Congress in 2006, though it was due in 2010 and again in 2014. According
to EPA staff, lack of resources to complete the report and disagreement between the EPA and
Office of Management and Budget on whether the program was still needed led the EPA to cease
its congressional reporting. The EPA's guidance for issuing such reports did not include a process
for addressing or appealing such disagreements. The OIG recommended that the EPA submit the
mandated reports to Congress and review and update controls for identifying, tracking and
submitting mandated reports. In response, in March 2018, the agency issued a memorandum,
Reminder of Existing Practices Regarding Statutorily-Mandated Reports to Congress, as a reminder
that all legislatively mandated reports are to be placed in ADPTracker. Other recommendations
remain unresolved with resolution efforts in progress.
• In response to an August 2016 report (16-P-0275), the agency agreed to provide some required
reports to Congress for an air program but additional reports were required. The OIG had found
that the Office of Research and Development failed to fulfill a legal requirement under
Section 204 of the Energy Independence and Security Act of 2007 to report to Congress every
3 years on the environmental and resource conservation impacts of the renewable fuel
standard program. The office issued an initial report to Congress for the Renewable Fuel
Standard Program in 2011, but did not issue subsequent triennial reports. The agency
attributed this to competing research priorities, reductions to the office's budget, and the
3-year reporting cycle not allowing time for significant scientific advances to occur. The OIG
recommended that the EPA fulfill its obligation to provide triennial reports to Congress on the
impacts of biofuels as required. The agency agreed with this recommendation and planned to
complete corrective actions in June 2018.
The EPA needs to fulfill its responsibilities by issuing all required reports. To address this agencywide
concern, EPA top leadership needs to develop and implement a process for tracking and submitting
required reports, including devoting the people and resources required to reduce risks, and
establishing processes for reporting and accountability. As the agency works to resolve this issue, the
OIG will look for a corrective action plan, evidence of monitoring efforts, and demonstrated progress in
issuing all required reports.
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CHALLENGE: The EPA Needs Improved Data Quality for Program
Performance and Decision-Making
CHALLENGE FOR THE AGENCY
In recent years, our work identified
weaknesses in quality controls for EPA
program data. Recent work by the OIG
continues to support data quality as a
management challenge. Data quality—the
totality of features and characteristics such
as accuracy, reliability and other limitations
that bear on the data's ability to meet the
stated or implied needs and expectations of the data user—matters because managers use data to
manage the EPA's programs to achieve the agency's goals. Thus, it takes high-quality data to support
high-quality decisions. Using high-quality data to inform EPA management decisions is enshrined in
long-standing policy and public law. Since 1979, EPA policy has required an agencywide quality system
supporting environmental programs and by non-EPA organizations performing work in behalf of the
EPA through extramural agreements. Further, the Government Performance and Results Act
Modernization Act of 2010 states that agencies must execute an annual performance plan that, among
other things, includes a description of how the agency will ensure the accuracy and reliability of data
used to measure progress toward performance goals.
BACKGROUND
To accomplish its mission, the EPA develops regulations and establishes programs that implement
environmental laws. The EPA performs oversight of these programs—including programs implemented
by the agency, delegated states, territories or tribes—to protect human health and the environment.
Effective oversight should provide reasonable assurance that program goals are achieved and activities
comply with all relevant laws and regulations. The EPA relies on data to help assess program
performance and public benefit, and those assessments depend on the quality of the data that
underpin the analyses.
We identified data standards and data quality in the FY 2007 management challenges report. At that
time, we found that the EPA was not routinely incorporating data standards and collecting information
for all programs. Data standards and data quality were removed from the management challenges list
for FY 2008. However, because recent OIG work points again to a pattern of data quality issues, we are
reintroducing data quality for program data as an FY 2018 management challenge.
Recent OIG reports show that poor data quality negatively impacts the EPA's effectiveness in
overseeing programs that directly impact public health, such as managing air quality, Clean Air Act
facilities, drinking water, toxic releases to surface waters, Superfund sites and environmental
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education. Data quality issues also subject the EPA to significant financial risks and delayed cleanups
while the public must endure prolonged exposure to unsafe substances and restrictions on the public
use of needed natural resources.
These reports point to a systemic problem with data quality, making data analysis more difficult and
less reliable than desired. The EPA and public rely heavily upon the agency's data to determine
program performance and benefits to the public. The agency uses a variety of data to manage many
programs and inform decisions about those programs. Therefore, for the EPA to effectively manage its
programs, data must be timely, accurate and suitable for the intended purposes. Data quality directly
impacts decision quality, and poor data quality can also mask risks to public health and tax dollars.
THE AGENCY'S PROGRESS
In response to OIG reports, the EPA took corrective actions to address enforcement data quality for
Clean Air Act facilities, benzene standard compliance, and environmental education data quality issues.
In addition, the EPA began development of the Safe Drinking Water Information System-Prime, which
should allow electronic verification of data and provide data quality functional enhancements. The EPA
also opted to improve electronic reporting tools for Toxics Release Inventory and Discharge Monitoring
data to address data quality limitations. Details follow:
•	In a March 2016 management alert (16-P-0126), we reported that the EPA had poor data
quality and lacked internal controls to oversee and manage its Resource Conservation and
Recovery Act and Comprehensive Environmental Response, Compensation, and Liability Act
financial assurance program. As such, the EPA was vulnerable to considerable financial
exposure, and the public may be at risk for delayed cleanups, prolonged human and
environmental exposures to unsafe substances, and extended restrictions on the public use of
needed natural resources. The agency completed corrective actions to address the report
recommendations.
•	In a July 2016 report (16-P-0246), we noted that the EPA did not obtain consistent performance
data from environmental education grantees. Thus, the EPA could not assess its environmental
education program results and benefits, was limited to reporting on individual grant and
cooperative agreement outputs, and was significantly impaired in its ability to provide evidence
of results and instill confidence that it has the capacity to properly manage both the program
and its significant grant funds. The agency completed corrective actions to address the report
recommendations.
•	In a June 2017 report (17-P-0249), we noted that EPA management controls were not effective
in providing reasonable assurance that facility-reported data were of sufficient quality to assess
compliance or maintain the integrity of credit-related information for the benzene standards.
Benzene is one of three key pollutants contributing the most to cancer risks nationwide, and
benzene exposure has been linked to blood disorders and cancers, including leukemia. Mobile
sources are responsible for most of the outdoor risks from benzene, and the EPA hasclassified
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benzene as a regional cancer risk driver. EPA staff must research and correct questionable data
quality before the EPA can determine whether facilities comply with the benzene standards and
purchased credits were proper. Poor data quality can also delay EPA actions to identify and
resolve instances where facilities may produce or import gasoline exceeding the benzene
standards. The agency completed corrective actions to address the report recommendations.
• In a July 2017 report (17-P-0326), we noted that recent EPA reviews of public water systems'
monitoring and reporting for drinking water quality have not been as comprehensive or
nationally consistent as previous reviews. There was also a risk that drinking water quality
information reported to the EPA was not always reliable. This situation can lead to conditions
where the EPA and public may not know if water arriving at taps meets national drinkingwater
standards. In 2016, approximately one in five public water systems reported monitoring and
reporting violations, with 40 percent of those violations related to the Total Coliform Rule and
pathogens in drinking water. Another example of this risk is the lapse in effective monitoring
and reporting that contributed to prolonged exposure to lead-contaminated drinking water in
Flint, Michigan. The lack of in-depth public water system reviews and the low reliability of
drinking water data reported to the EPA impede the agency's ability to oversee the national
drinking water program. The EPA is currently taking action to address these limitations. No
recommendations were issued for this report.
WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required to
justify removal: (1) agency capacity, (2) a corrective action plan, (3) monitoring efforts and
(4) demonstrated progress. EPA leadership needs to demonstrate commitment to verify data used for
program performance and that management has sufficient quality.
To demonstrate this commitment, the agency should show that it has the proper people and processes
in place to deploy the agency data quality policies and procedures to all program data and actively
manage its data to achieve the desired quality. Recent reports show that the EPA still needs to address
data gaps in financial and enforcement data to ensure information is timely, accurate and suitable for
assessing the capacity of companies with multiple environmental liabilities to conduct cleanups
without unduly exposing public health or taxpayers to risks. While the move to electronic reporting
should ease the agency's access to data and simplify reporting, electronically reported data will still
need verification and validation to ensure accuracy, timeliness and proper format.
There are issues related to electronically reported data. For example, while Safe Drinking Water
Information System-Prime will provide some electronic data quality enhancements, primacy states
(i.e., those states granted primary responsibility for enforcing and implementing the Safe Drinking
Water Act) are not required to use that system for data reporting, since it is a voluntary system. States
that choose not to participate cause data gaps. Further, the EPA should ensure that all program data
used to assess and manage program performance are aligned with the stated program goals and
objectives and that the data are of sufficient quality and suitability to inform decisions.
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•	In a December 2017 report (18-P-0059). we noted that the EPA lacked a data system with
the capability to track multiple environmental liabilities and the resources and technical
ability to validate self-insurance for companies with multiple environmental liabilities. The
inability to validate a company's self-insurance represents a high-risk issue to the EPA; if a
company
defaults on its cleanup obligations, EPA and federal funds may be required to finance
cleanups that should be paid for by the polluter. Invalid self-insurance may also result in
contamination being left at sites for long periods; larger, more complicated cleanups; higher
costs; and longer human and environmental exposures to unsafe substances. The agency
partially agreed with our recommendations and work is underway to reach agreement on
the unresolved recommendations. Other corrective actions are pending.
•	In an October 2017 report (18-P-0001), we noted that the Toxics Release Inventory and the
Discharge Monitoring Report Comparison Dashboard had limited utility for identifying
possible surface water dischargers that lacked a National Pollutant Discharge Elimination
System permit due to a lack of discharger address information. Without specific discharger
address information in the Discharge Monitoring Report Pollutant Loading Tool, attempting
to manually match a National Pollutant Discharge Elimination System facility to a Toxics
Release Inventory facility was resource-intensive and inexact, impacting the EPA's ability to
regulate facilities. Further, the Pollutant Loading Tool cannot identify unpermitted
dischargers to surface water based on Toxics Release Inventory data, which means the EPA
and public cannot know when or how much pollution occurs from those dischargers.
Corrective actions are pending.
•	In a May 2016 report (16-P-0164), we noted that the Clean Air Act Facility inspection data on
the EPA Enforcement and Compliance History Online website did not reflect that many
facilities had received a full compliance inspection, and it was not verified that data were
properly migrated into the database used by the website. Inaccurate data hinder EPA
oversightand
reduce assurance that the delegated compliance programs comply with the agency's
guidance. Further, unreported or inaccurate data presented on the publicly available
Enforcement and Compliance History Online website could misinform the public about the
status of facilities. The EPA completed corrective actions on two recommendations for
updating the compliance monitoring system and conducting regular data reviews with state
and local agencies. However, the EPA still needs to establish a regular data quality check
process, specify the length of time states and local air districts should retain evaluation
records, direct California local air districts that do not have a current compliance monitoring
plan to submit plans to Region 9 and provide guidance to California local air districts as to
how and when to submit compliance monitoring plans, and develop a schedule for reviewing
and approving draft compliance monitoring plans.
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Agency Response to Office of Inspector General-Identified Key Management Challenges
Challenge #1 - EPA Needs to Improve Oversight of States, Territories and Tribes Authorized to
Accomplish Environmental Goals
Agency Response: The EPA recognizes states have the primary role in implementing many federal
programs, while the EPA maintains responsibility and accountability for upholding the rule of law,
advancing national environmental goals and ensuring that federal statutes are consistently implemented
and enforced. As part of the Agency's reform plan on tailoring state oversight, the EPA will define, develop,
pilot, evaluate and launch a comprehensive system to evaluate state and local implementation of federal
environmental programs by 2020. In FY 2018, the EPA established a State Oversight Workgroup comprised
of headquarters and regional representatives, charged with baselining the current state of the Agency's
oversight activities, analyzing the variations of oversight activities between regions and states and working
to standardize work flows. With input from the Environmental Council of States, the EPA will streamline,
reduce and tailor its oversight activities to focus on national program integrity and technical assistance to
states as needed.
Efforts the Agency has taken to address this management challenge include the following:
Conducted a survey of the regions to baseline statutorily-required and discretionary oversight
activities.
Establishing a guiding principles document for state-delegated environmental programs and
enforcement policies. The document will drawfromthe 2016 ECOS Oversight Principles.
Developing a template intended to establish clear expectations of the oversight for an air permitting
program (Title V) and a water permitting program. The template will be tested by selected regions
and states.
The EPA anticipates 3-6 region-state pairs will work through the template for a specific oversight activity
by the end of FY 2018, with a goal of refining the template and rolling out the template in all states in FY
2019. The EPA will also solicit for the next set of program areas to target
The EPA has a long-term performance goal supporting Goal 2/Objective 2.1, Enhance Shared Accountability
in the FY2018 - 2022 EPA Strategic Plan: "By September 30, 2022, increase the use of alternative shared
governance approaches to address state, tribal, and local community reviews" and a supporting FY 2020
annual performance goal "Number of alternative shared governance approaches to address state, tribal,
and local community reviews." The annual performance goal target for FY 2019 is 20 and has not been
determined for FY 2020. The FY 2020 target will be determined based on the FY 2018 full year results.
The EPA is working to design a comprehensive and consistent shared governance approach to evaluate the
implementation oversight of state delegated programs. Shared governance is the concept where
management of federal environmental programs is shared with state, tribal, or local governments. In
collaboration with the Environmental Council of the States, the EPA is developing a new oversight
framework that tests this concept with the regions and states for the NPDES and Title V programs. This
framework is comprised of two documents: 1) Principles to guide oversight of the state delegated
programs, including recognition of state primacy, standards of review, effective communication, and
elevation of issues, and a 2) Template to guide region-state discussion around oversight activities including
standards of review, timelines, and the process for dispute resolution. Together, these will document the
shared governance approach.
Responsible Agency Official: Robin Richardson, Principal Deputy Associate Administrator,
Office of Congressional and Intergovernmental Relations
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Challenge #2 - EPA Needs to Improve Its Workload Analysis to Accomplish Its Mission Efficiently
and Effectively
Agency Response: The EPA believes it has effectively used workload analyses to examine several critical
processes, including grants and IT security. The EPA Lean management system efforts, and multi-year
planning initiatives will offer additional options for addressing priority work. Current Kaizen efforts
include state oversight, the EPA's field presence, flexibility in state and tribal assistance, community and
infrastructure investments, FOIA responses, reporting requirements, the EPA laboratories, environmental
permitting, and acquisitions. The Agency also plans to examine its full-time equivalent requests and how
they relate to current work and business process improvement efforts.
The Agency agrees with OIG about the importance of grants management, since grants are the largest type
of Agency spending with the most direct effect on our state and tribal partners. In the last few years, the
Agency conducted workload analyses to examine workload by Project Officer, Grants Specialists and other
metrics and used results to update policies, processes and procedures.
The Superfund program will develop a multi-year FTE plan, review Army Corps of Engineers and Naval
Facilities Engineering Command workload management and FTE distribution practices, and implement a
national risk-based prioritization of all sites. The Agency will explore how to coordinate certain
enforcement functions where specialists in one region provide expertise to several other regions.
In addition to these efforts, in the last few years, the EPA conducted workload analysis for:
IT security officers - Information Security Task Force analyses of Information Security Officer duties
Funds Control Officers - FCO workload including contracts, payroll, travel, etc.
Fee-related duties - Existing and new fees workload
Targeted analyses will also contribute to the Agency's multi-year approach to resource and workforce
planning by helping identify potential investment opportunities and informing workforce decisions. The
multi-year effort will advance the Agency's planning capabilities and identify strategic priorities and
opportunities and help inform decisions of how best to align resources and FTE with the Agency's
priorities.
Additionally, the budget process incorporates FTE reviews and allocations In 2018, FTE were re-allocated
to better align with the Agency's new strategic goals and objectives.
As the OIG acknowledges, the EPA's highly variable, multi-year, and non-linear functions and activities limit
the utility of detailed FTE-based workload analyses to determine precise FTE levels. The Agency
deliberately discontinued using comprehensive workload analyses because they require substantial work
to develop, maintain and refine, and quickly become out of date, particularly when the Agency is in the
midst of numerous efforts to improve processes. The Agency believes these difficulties are why it has been
unable to find examples of agencies similar to the EPA using comprehensive workload models in their
budget formulation FTE decision-making processes. However, the EPA believes there is value in using
trend and macro-level workload reviews to estimate program needs and using workload analyses of task-
driven functions.
Responsible Agency Official: Carol Terris, Director, Office of Budget
Challenge #3 - EPA Needs to Enhance Information Technology Security to Combat Cyber Threats
Agency Response: The Agency is committed to protecting its information and technology assets. The EPA
understands the prevalence and complexity of the ever-growing cyber security attacks and is aware of the
potential impact to the Agency's mission if information assets are compromised. The Agency has
established and implemented adequate processes for tracking audit recommendations and the status of
corrective actions that will help address concerns associated with this management challenge.
The Agency is working internally to develop a process to train Contract Officer Representatives on their
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responsibilities for monitoring the contractors to ensure they meet specified information security
responsibilities. This includes:
Monitoring contractors that operate information systems on behalf of the EPA to ensure they
perform the mandated information security assessments.
Ensuring that contractors with significant information security responsibilities complete role-based
training.
The EPA's Office of Environmental Information, in coordination with the Office of Administration and
Resources Management and the Office of General Council, developed standard contract clauses to help
ensure contractors implement and follow the EPA and federal information security directives. The clauses,
known as IPN 17-01, are located on the Office of Transportation and Air Quality intranet site
fhttp://otaqintranetepa.gov/resources-procurement-contracts-grants/otaq-fitara-review-proceduresI
During the Federal Information Technology Acquisition Reform Act review, staff in the Office of
Information Security and Privacy check for the inclusion of the IPN 17-01 clauses in the appropriate
documents.
Additional efforts the Agency has taken to address this management challenge include the following:
Requires Senior Information Officials to annually submit a written certification of the status of
security training for all contractors with significant security responsibility in the SIOs areas of
responsibility. The certifications are tracked and maintained by staff that report to the Chief
Information Security Officer.
Developed and is following an Information Security Strategic Plan to improve the Agency's security
posture. To facilitate plan implementation, the EPA is working closely with the Department of
Homeland Security and the General Services Administration to leverage to the greatest extent
possible all Continuous Diagnostics and Mitigation phases.
Chartered an information security task force to identify how best to implement CISO improvement
recommendations. The Agency implemented ISTF implementation recommendations for
centralizing and consolidating cyber security functions.
Developed and published procedures covering all agency information and information systems to
include information and information systems used, managed, or operated by contractors, other
agencies, or other organizations on behalf of the EPA.
Responsible Agency Official: Robert McKinney, Acting Director, Office of Information Security and Privacy
Challenge #4 - EPA Needs to Improve on Fulfilling Mandated Reporting Requirements
Agency Response: The OIG identified instances across five programs where the EPA has failed to meet legal
reporting requirements to Congress between 2010 and 2018. The EPA is committed to making a
comprehensive effort to address this issue across the Agency by reducing the missing reports, identifying
the causes of not issuing reports, with targeted plans to address the causes, and implementing corrective
actions to address these issues.
The EPA recognizes the importance of tracking and submitting Congressionally-mandated reports to
ensure legislative requirements are achieved. Working internally, the Agency has determined that the
Action Development Process (ADP) Tracker is a viable system to capture and store the comprehensive
reporting as provided in environmental statutes. EPA's ADP is an internal agency system. Because
regulation or rule development is one of EPA's principal activities, EPA has developed the ADP in order
to achieve the timeliest, most efficient, and most effective method for rule development. The process
was designed for agency professionals to develop rules based on sound scientific, economic, legal, and
policy analyses. The ADP serves as a framework to ensure issues are addressed during appropriate rule
development stages. ADP Tracker helps EPA to manage and track Agency actions, including
regulations, guidance documents, and other actions. It is managed by the Office of Regulatory Policy
and Management and provides improved capability to track milestones, manage workgroups, and track
workflow, as well as better security and access.
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Currently, the Agency is exploring how the system can be expanded to include the universe of reports that
are identified in the EPA's annual appropriations process. To date, the Agency has:
Met with stakeholders to identify the Agency systems with functionality to capture and report on
the required tracking
Reminded all agency decision makers that all new legislative reporting requirements need to be
included in the ADP Tracker.
Working with internal stakeholders to determine and better define the universe of information that
needs to be included in the system.
Responsible Agency Official: Robin Richardson, Principal Deputy Associate Administrator,
Office of Congressional and Intergovernmental Relations
Challenge #5 - EPA Needs to Improve Data Quality for Program Performance and Decision-Making
Agency Response: Under the Clinger Cohen Act (1996), EPA Chief Information Officer/Assistant
Administrator for the Office of Environmental Information has delegated authority for information quality
including oversight responsibility for the EPA's mandatory Quality Program. OEI issues the Agency's
Quality Policy and Procedure for Environmental Programs that mandate implementation of a Quality
Management System for all EPA programs involved with environmental data operations and organizations
funded by the EPA submitting data and information for the EPA's use in programmatic decisions. The
Agency's quality program is decentralized and implemented by the National Program Offices and regions
with specific responsibilities for assuring the quality of data produced and used are appropriate for their
programmatic decisions.
OEI routinely assesses implementation for conformance to the Agency's Quality Policy and effectiveness of
the QA practices and management controls implemented by the individual organization. These Quality
System Assessments identify best practices, opportunities for improvement and vulnerabilities that may
potentially impact the Agency-wide quality program. OEI develops tools and processes to guide consistent
implementation of quality across the Agency. One such tool is the Quality Assurance Project Plan that
defines a systematic approach for planning, collecting, assessing and documenting quality assurance
requirements at the project level. The organization determines the quality and utility of the results of the
data and information based on program needs. Organizations report annually to OEI on their QA
accomplishments. Cross-cutting issues are reported to the Chief Information Officer routinely.
OEI does not view the data quality issue raised by the OIG as a management challenge. It is critical that the
data supporting enforcement, regulatory and other program decisions be based on sound data.
Programmatic reviews of the data and metadata collected and used by the regions and program offices to
support decisions or actions could help elucidate these issues and inform any corrective actions at the
programmatic level. OEI plans to revise the Agency's Quality Assurance policy to include a requirement for
Assistant Administrators and Regional Administrators to certify annually that their offices are
implementing the policy/procedures and that the quality of data produced and utilized by their offices is
appropriate for the data's intended uses and for programmatic decisions that are based on the data.
To ensure continuous improvement and standardization in assuring the quality of data, OEI is developing
an Agency-wide Quality Assurance Enterprise Management System to track and report accomplishments
and evaluate established QA metrics. These metrics were determined from a Lean Kaizen review of the
annual reporting process accomplished in FY 2016. QAPP requirements and processes will be further
examined in FY 2019.
Responsible Agency Official: Vincia Holloman, Director, Enterprise Quality Management Division
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PROGRESS IN ADDRESSING FY 2018 WEAKNESSES
In FY 2018, the agency did not identify any new material weaknesses. EPA continued to address its four
previously identified material weaknesses, completing corrective actions for three. The agency expects to
complete corrective actions for the remaining material weakness in FY 2019.
Material Weaknesses
EPA Failed to Capitalize Software Costs
In FY 2014, the agency found it had undercapitalized software, which resulted in a material misstatement
of financial statements and led to the restatement of the FY 2013 financial statements. The OIG declared the
material misstatement of the financial statements contributed to the assessment that the agency's
accounting for software is a material weakness, related to the recording of transactions and capitalization
of software costs.
To address this weakness, EPA developed a corrective action plan to resolve the issues identified in the FY
2014 audit The plan included using LEAN techniques to improve the accuracy of recording IT transactions
in the fixed asset system and correcting data entries related to depreciation of IT software assets. The
agency validated $304.5 million of in-development costs for 95 projects and $296.1 million of production
costs (excluding projects that are fully depreciated). A key part of the agency's remediation efforts has been
improving procedures for validating expenditures that require capitalization and improving
communication between agency program offices and the Office of the Controller. The agency has completed
and implemented all corrective actions for this material weakness.
EPA Cannot Adequately Support FIFRA Costs
During the FY 2014 financial statement audit for the Pesticides Reregistration and Expedited Processing
Fund, OIG indicated that EPA could not adequately support payroll costs in the amounts of $34 million.
To address this material weakness, the agency has developed an approach to account for employee time on
FIFRA costs within the EPA pay administration system. The agency developed and implemented new codes,
trained necessary employees on the use of the codes, and established requirements for employees and
supervisors to ensure proper coding as part of the agency's official timekeeping process. This process
improvement gives the agency the ability to capture direct and indirect costs of the FIFRA program. The
agency will continue to tract and monitor the use of the time accounting codes to make sure that coding is
consistent, concerns are addressed, and ensure continued compliance. The agency has completed and
implemented all corrective actions for this material weakness.
EPA Cannot Adequately Support PRIA Costs
During the FY 2014 financial statement audit for the Pesticides Registration Fund, OIG indicated that EPA
could not adequately support payroll costs in the amounts of $28 million.
To address this material weakness, the agency has developed an approach to account for employee time on
FIFRA costs within the EPA pay administration system. The agency developed and implemented new codes,
trained necessary employees on the use of the codes, and established requirements for employees and
supervisors to ensure proper coding as part of the agency's official timekeeping process. This process
improvement gives the agency the ability to capture direct and indirect costs of the PRIA program. The
agency will continue to tract and monitor the use of the time accounting codes to make sure that coding is
consistent, concerns are addressed, and ensure continued compliance. The agency has completed and
implemented all corrective actions for this material weakness.
EPA's Accounting for Unearned Revenue
During the FY 2016 financial statement audit, OIG identified material weakness related to the recording
and reconciliation of unearned revenue for Superfund special accounts.
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To address this material weakness, the agency engaged in deliberations with OMB and the Department of
Treasury to develop a new process for managing and accounting for Special Account collections and
receivables. In January 2017, OMB provided final approval on the revised process, including updated
posting models for recording special account transactions. EPA approved the business case for making
changes to the accounting system. The agency updated accounting posting models and anticipates having
the new posting models implemented in the accounting system by January 31, 2019. Concurrently, the
agency will convert prior accounting data into the approved process. Once the changes in the accounting
system and posting models have been made, EPA will reconcile the general ledger to the special accounts
collected from past costs. The projected closure date for this material weakness is FY 2019.
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Summary of Financial Statement Audit
Audit Opinion
Unmodified
Restatement
No

Beginning



Ending
Material Weaknesses
Balance
New
Resolved
Consolidated
Balance
Software cost
1
0
1
0
0
Unearned Revenue
1
0
0
0
1
Total Material Weaknesses
2
0
1
0
1
Summary of Management Assurances
Effectiveness of Internal Control Over Financial Reporting (FMFIA § 2)
Statement of Assurance
Modified

Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
FIFRA Fund Costs
1
0
1
0
0
0
PRIA Fund Costs
1
0
1
0
0
0
Total Material Weaknesses
2
0
2
0
0
0

Effectiveness of Internal Control Over Operations (FMFIA § 2)
Statement of Assurance
Unmodified

Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Total Material Weaknesses
0
0
0
0
0
0

Conformance With Financial Management System Requirements (FMFIA § 4)
Statement of Assurance
Systems Conform to Financial Management System Requirements

Non-Conformances
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Total Non-Conformances
0
0
0
0
0
0
Compliance With FFMIA

Agency
Auditor
1. System Requirement
No lack of compliance
noted.
No lack of compliance noted.
2. Accounting Standards
No lack of compliance
noted.
No lack of compliance noted.
3. USSGL at Transaction Level
No lack of compliance
noted.
No lack of compliance noted.
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REDUCE THE FOOTPRINT
Consistent with Section 3 of the OMB Memorandum-12-12, Promoting Efficient Spending to Support Agency
Operations and OMB Management Procedures Memorandum 2013-02, the "Reduce the Footprint" (RTF)
policy implementing guidance, all CFO Act departments and agencies shall not increase the total square
footage of their domestic office and warehouse inventory compared to the FY 2015 baseline.
Reduce the Footprint Baseline Comparison

FY 2015 Baseline
FY 2017
Change
Square Footage ("SF")
5,364,495
5,099,681
[264,814]
EPA's baseline, derived from the agency's FY 2015 Federal Real Property Profile (FRPP) submission and FY
2015 General Services Administration (GSA) Occupancy Agreement, is 5,364,495 square feet (SF). The
Reduce the Footprint offset square footage is composed of office and warehouse assets reported as excess
to GSA. EPA's RTF total in FY 2017 was 5,099,681 SF, a reduction of 264,814 SF from the baseline.
Reporting of Operation & Maintenance Costs-Owned and Direct Lease Buildings

FY 2015 Reported Cost
FY 2017
Change
Operations & Maintenance Costs
$1,106,924.21
$1,951,694.47
$1,001,425.71
EPA remains committed to reducing its environmental footprint through efficient management of its real
property portfolio. The agency will continue to take steps to monitor and assess space utilization at each of
its facilities and will take the appropriate steps to reduce underutilized space. Additionally, the agency will
continue to implement sustainable design, construction, and operations/maintenance projects. In the
coming years, EPA will continue to explore options for teleworking office sharing and hoteling as
alternative work strategies once associated costs and impacts are identified.
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PAYMENT INTEGRITY
The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments Elimination
and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act
of 2012 (IPERIA), requires executive branch agencies to review all programs and activities annually, identify
those that may be susceptible to significant improper payments and report the results of their improper
payment activities to the President and Congress through their annual Agency Financial Report or
Performance and Accountability Report.
EPA is dedicated to reducing fraud, waste, and abuse and presents the following improper payment
information in accordance with IPIA, as amended; OMB implementing guidance in Circular A-123, Appendix
C, Requirements for Payment Integrity Improvement; and IPIA reporting requirements contained in OMB
Circular A-136, Financial Reporting Requirements.
OMB implementing guidance directs federal agencies to take the following steps:
1)	Review all programs and activities to identify those that are susceptible to significant improper
payments, defined as gross annual improper payments exceeding (1) both 1.5 percent of program
outlays and $10 million of estimated improper payments or (2] $100 million of estimated improper
payments (regardless of the rate).
2)	Obtain a statistically valid estimate of the annual amount of improper payments in programs identified
as susceptible to significant improper payments.
3)	Implement a plan to reduce improper payments in these programs.
4)	Report annually an estimate of the annual amount and rate of improper payments.
An improper payment is defined as any payment that should not have been made or that was made in an
incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.
Incorrect amounts are overpayments or underpayments that are made to eligible recipients (including
inappropriate denials of payment or service, any payment that does not account for credit for applicable
discounts1, payments that are for the incorrect amount, and duplicate payments). An improper payment also
includes any payment that was made to an ineligible recipient for an ineligible good or service, or payments
for goods or services not received (except for such payments authorized by law). In addition, when an
agency's review is unable to discern whether a payment was proper as a result of insufficient or lack of
documentation, this payment must also be considered an improper payment.
The term "payment" means any payment or transfer of federal funds (including a commitment for future
payment, such as cash, securities, loans, loan guarantees, and insurance subsidies) to any non-federal
person, non-federal entity, or federal employee, that is made by a federal agency, a federal contractor, a
federal grantee, or a governmental or other organization administering a federal program or activity. The
term "payment" includes federal awards subject to the Single Audit Act Amendments of 1996 thatare
expended by both recipients and sub-recipients.
OMB Circular A-12 3, Appendix C, requires that agencies conduct risk assessments of their programs or
activities at least once every three years to determine whether they are susceptible to significant improper
payments. In FY 2018, EPA updated its improper payment risk assessments using a systematic approach to
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determine whether each program or payment stream is susceptible to significant improper payments. The
risk assessments required an evaluation of risk factors that could contribute to potential for significant
improper payments. In completing the risk assessments, each office addressed risks known at the time of
completion.
EPA has two programs that are currently identified as susceptible to significant improper payments, which
are the grants payment stream and Hurricane Sandy funding. The grants payment stream was identified as
susceptible to significant improper payments during the Agency's risk assessment process conducted in FY
2016, and Hurricane Sandy is automatically considered susceptible to significant improper payments by the
Disaster Relief Appropriations Act, 2013.
It should be noted that the Clean Water State Revolving Fund and the Drinking Water SRF were granted
relief from annual reporting in FY 2018, as they are no longer considered susceptible to significant improper
payments. None of the agency's programs were identified as high priority, defined as exceeding $2 billion of
annual estimated improper payments. Table 1 summarizes the risk level for each of the agency's payment
streams.
Table 1: Risk Level
Payment Stream
Not Susceptible
to Significant IPs
Susceptible to
Significant IPs
High Priority
Commodities
X


Contracts
X


CWSRF
X


DWSRF
X


Grants

X

Hurricane Sandy

X

Payroll
X


Purchase Cards
X


Travel
X


I. Payment Reporting
The following tables provide information about EPA's reportable programs. The website
https: //paymentaccuracv.gov/ contains more detailed information on improper payments and also includes
all of the information reported in prior year AFRs that is not included in the FY 2018 AFR.
Table 2.1: Improper Payment Reduction Outlook
f$ in millions]
Program
FY17
FY17
FY17
FY18
FY18
FY18
FY18
FY18
FY19

$ Outlays
$IP
IP%
$ Outlays
$ Proper
$IP
IP%
Proper %
IP Target
CWSRF (1)
1,431.39
2.62
0.18%
n/a
n/a
n/a
n/a
n/a
n/a
DWSRF (1)
1,183.94
0.76
0.06%
n/a
n/a
n/a
n/a
n/a
n/a
Grants
1,726.94
12.37
0.72%
2,659.54
2,659.23
0.31
0.01%
99.99%
1.00% (2)
Hurricane Sandy
14.32
0.04
0.28%
23.15
23.15
0.00
0.00%
100%
1.00% (2)
Total
4,356.59
15.79
0.36%
2,682.69
2,682.38
0.31
0.01%
99.99%
n/a
(1)	In FY 2018, CWSRF and DWSRF were granted relief from the annual requirement to measure and report improper payments, as they are
no longer susceptible to significant improper payments.
(2)	Grants and Hurricane Sandy funding experienced very low improper payment rates in FY18. For FY19 reporting, a target rate of 1% in
each program is aggressive and achievable. For grants, compared to the FY18 target of 2.95%, a reduction target of 1% represents a
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substantial decrease of 66%. For Hurricane Sandy funding, compared to the FY18 target of 1.5%, a target of 1% also represents a
substantial decrease of 50%. In FY 2019, EPA plans to request relief from annual reporting for Hurricane Sandy funding.
Table 2.2: Improper Payment Reduction Outlook (Continued)
f$ in millions]
Program
FY18
$ Overpay
FY18
$ Underpay
% of Sample
Overpaid
% of Sample
Underpaid
Start Date for
Sampled Data
End Date for
Sampled Data
CWSRF
n/a
n/a
n/a
n/a
n/a
n/a
DWSRF
n/a
n/a
n/a
n/a
n/a
n/a
Grants
0.31
0.00
100%
0%
4/01/16
9/30/17
Hurricane Sandy
0.00
0.00
0%
0%
10/01/16
9/30/17
Total
0.31
0.00
n/a
n/a
n/a
n/a
Table 3 provides information on the estimated amount of improper payments made directly by the federal
government and the amount of improper payments made by recipients of federal money.
Table 3: Improper Payment Classification
f$ in millions]
Program
Actual Monetary Loss
Estimated Total

to the Government
Monetary Loss to the

Identified in the
Government

Sample

Grants
0.001
0.31
Hurricane
0.00
0.00
Sandy


Total	0.001	0.31
Table 4 identifies the root causes of error in each program.
Table 4: Improper Payment Root Cause Category Matrix
($ in millions]


Grants
Hurricane Sandy
Reason lor improper payment
Overpayments
Underpayments
Overpayments
Underpayments
Program Design or Structural Issue




Inability to
Authenticate
Eligibility:
Inability to Access Data




Data Needed Does Not Exist




Death Data




Financial Data




manure to
Excluded Party Data





Prisoner Data




Other Eligibility Data




Administrative
Federal Agency




or Process
State or Local Agency




Error Made by:
Other Party
0.31
0.00


Medical Necessity




Insufficient Documentation to Determine




Other Reason




Total
0.31
0.00
0.00
0.00
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I. Recapture of Improper Payments Reporting
IPERA requires agencies to conduct payment recapture audit reviews in any program expending more than
$1 million annually. Past experience has demonstrated that the low dollar value of improper payments
recovered by an external payment recapture auditor resulted in an effort that was not cost-effective for the
agency or the contractor. Therefore, EPA no longer uses a payment recapture audit firm to conduct formal
payment recapture audits.
Nevertheless, the agency performs payment recapture activities internally, leveraging the work of agency
employees and agency resources. As part of this process, each payment stream is routinely monitored to
assure the effectiveness of internal controls and identify issues that could give rise to overpayments. The
agency's payment recapture activities are part of its overall program of internal control over disbursements,
which includes establishing and assessing internal controls to prevent improper payments, reviewing
disbursements, assessing root causes of error, developing corrective action plans where appropriate, and
tracking the recovery of overpayments.
The information provided below describes the actions and methods used by the agency to recoup
overpayments, a justification of any overpayments determined not to be collectible, and any conditions
giving rise to improper payments and how those conditions are being resolved.
A) Commodities and Contracts
Given the historically low percentage of improper payments in commodities and contracts, the agency relies
on its internal review process to detect and recover overpayments. The agency produces monthly reports
for each payment stream and uses these reports as its primary tool for tracking and resolving improper
payments. These reports identify the number and dollar amount of improper payments, the source and
reason for the improper payment, the number of preventive reviews conducted, and the value of recoveries.
The commercial payments are subject to financial review, invoice approval, and payment certification. Since
all commercial payments are subject to rigorous internal controls, the agency relies upon its system of
internal controls to minimize errors. The following is a brief summary of the internal controls in place over
the agency's commercial invoice payment process.
The payment processing cycle requires that all invoices be subjected to rigorous review and approval by
separate entities. Steps taken to ensure payment accuracy and validity, which serve to prevent improper
payments, include 1) the Research Triangle Park (RTP) Finance Center's review for adequate funding and
proper invoice acceptance; 2) comprehensive system edits to guard against duplicate payments, exceeding
ceiling cost and fees, billing against incorrect period of performance dates, and payment to wrong vendor; 3)
electronic submission of the invoice to Project Officers and Approving Officials for validation of proper
receipt of goods and services, period of performance dates, labor rates, and appropriateness of payment,
citing disallowances or disapprovals of costs if appropriate; and 4) review by the RTP Finance Center of
suspensions and disallowances, if taken, prior to the final payment certification for Treasury processing.
Additional preventive reviews are performed by the RTP Finance Center on all credit and re-submitted
invoices. Additionally, EPA Contracting Officers perform annual reviews of invoices on each contract they
administer, and Defense Contract Audit Agency (DCAA) audits are performed on cost-reimbursable
contracts at the request of the agency.
Vendors doing business with federal agencies occasionally offer discounts when invoices are paid in full and
within the specified discount period (e.g., within 10 days of billing). EPA makes its best effort to take all
discounts, as they represent a form of savings to the agency. However, there are valid reasons for which it is
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not feasible to take every discount that is offered, including: 1) an insufficient discount period to process a
discount offer, such as a discount offer in which the required processing time for payment exceeds the
number of days of the offer; and 2) a situation in which it is not economically advantageous to take the
discount Specifically, if the discount rate exceeds the Treasury's current value of funds rate, taking the
discount saves the government money, so the discount is accepted by paying the invoice early. However, if
the discount rate is less than the current value of funds rate, taking the discount is not cost-effective for the
government, so the discount is rejected, and the invoice is paid as close to the payment due date as possible.
Improper payments stemming from lost discounts totaled $66K in FY 2018 for commodities and contracts
combined, and they are tracked in the monthly improper payment reports.
Improper payments can result from typographical errors, payments to incorrect vendors, duplicate
payments, or lost discounts. Numerous training sessions have been conducted, and standard operating
procedures have been reviewed and updated to ensure the most current processes are properly
documented. Any significant changes in policy or procedures are communicated in a timely manner. Despite
the agency's best efforts to collect all overpayments, some overpayments are not recoverable. For example,
lost discounts can result when the agency is unable to pay an invoice within the time period specified by the
vendor. While reported as improper payments, lost discounts are not recoverable and are excluded from the
recovery percentage for both contracts and commodities.
B)	Clean and Drinking Water State Revolving Funds
Beginning in FY 2018, the SRFs are no longer susceptible to significant improper payments. For the SRFs,
the agency both identifies and recovers improper payments during the state review process. EPA Regions
are required to conduct annual reviews of state SRF programs using checklists developed by Headquarters.
Included in the checklist are questions about potential improper payments which the Regions discuss with
the state SRF staff during the reviews. Errors in the SRFs most often arise from duplicate payments, funds
drawn from the wrong account, incorrect proportionality used for drawing federal funds, ineligible
expenses, transcription errors, or inadequate cost documentation. Many of the payment errors are
immediately corrected by the state or are resolved by adjusting a subsequent cash draw. For issues
requiring more detailed analysis, the state provides the agency with a plan for resolving the improper
payments and reaches an agreement on the planned course of action. The agreement is described in EPA's
Program Evaluation Report, and the agency follows up with the state to ensure compliance.
C)	Grants
For the agency's grants payment stream, overpayments principally consist of ineligible expenses or lack of
supporting documentation. When overpayments arise, EPA seeks to recover them either by establishing a
receivable and collecting money from the recipient or by offsetting future payment requests. The agency
follows established debt collection procedures to recapture overpayments.
EPA identifies overpayments in grants both through statistical sampling and through non-statistical means.
The statistical sampling process is described further in Section IV, "Sampling and Estimation." As part of its
non-statistical activity, the agency conducts transaction testing of active grant recipients through Advanced
Administrative Monitoring reviews. Recipients selected for non-statistical reviews are chosen based on the
results of risk assessments performed by grants management officers. Using a standard protocol, an onsite
or desk review is performed, and each recipient's administrative and financial management controls are
examined. The reviews include an analysis of the recipient's administrative policies and procedures and the
testing of a judgmental sample of three non-consecutive draws.
In addition, the agency responds to single audits and audits conducted by the Office of the Inspector General
and uses them as a means of identifying and recovering improper payments. The agency follows established
processes for evaluating questioned costs, validating or disallowing costs where appropriate, and seeking
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the recovery of any sustained overpayments. EPA also identifies improper payments originating from
enforcement actions, grant adjustments, and recipient overdraws. Grant adjustments arise when a recipient
must return any unexpended drawn amounts prior to close-out of the grant. Recipient overdraws occur
when funds are erroneously drawn in advance of immediate cash needs, and the recipient is directed to
repay the funds while also being reminded of the immediate cash needs rule. Depending on the type of
error, improper payment information is tracked by the Office of the Controller and the Office of Grants and
Debarment (OGD), and the records of each are reconciled to ensure complete and accurate reporting. For
currentyear reporting, two overpayments totaling $161K were determined to be not recoverable and were
written off due to the debtor's inability to pay.
EPA also seeks to prevent improper payments. Prior to the issuance of a grant award, Grants Management
Officers (GMO) conduct pre-award certification of non-profit recipients that receive awards in excess of
$200K to ensure their written policies and procedures specify acceptable internal controls for safeguarding
federal funds. Re-certifications are conducted every four years. In addition, GMOs are required to ensure
that recipients are not listed in the Excluded Parties List System within the System for Award Management.
EPA conducts annual baseline monitoring reviews of all recipients to ensure overall compliance with
assistance agreement terms and conditions, as well as all applicable federal regulations. If deemed
necessary, recipients can be placed on a reimbursement payment plan which requires submission of cost
documentation (receipts, invoices, etc.) for review and approval prior to receiving reimbursement
D)	Hurricane Sandy
Hurricane Sandy funding is comprised of expenditures related to its various component streams, which for
FY 2018 reporting included contract, grant, and payroll dollars. All transactions in the universe were
reviewed for improper payments, and no improper payments were identified.
E)	Payroll
The agency's payroll is not susceptible to significant improper payments. Payroll is a largely automated
process driven by the submission of employee time and attendance records and personnel actions. When
employee debt arises, the employee is notified of the debt, given the right to dispute the debt, provided
payment options, and an accounts receivable is recorded. For out-of-service debt, EPA establishes the debt
and tracks recovery status. Out-of-service debt can arise when an employee leaves the Agency and owes
funds back to EPA following separation. A small portion of EPA's out-of-service debt was uncollectible as a
result of the separating employee retiring on disability. In-service debt is monitored by the Interior Business
Center (IBC), which EPA utilizes as a shared service provider. IBC provides personnel and payroll support to
multiple federal agencies. In-service debt can arise for a variety of reasons during the period of employment
For both in-service and out-of-service debt, recoveries are actively pursued by establishing receivables and
following existing debt collection procedures.
The following internal controls are related to the prevention, identification, and recovery of improper
payments in payroll. On a bi-weekly basis, employees, timekeepers, and managers are required to attest,
review, or approve employee time in the Agency's time and attendance system, PeoplePlus, prior to the time
entry and approval deadlines. Automated reminder notifications are sent as needed. When corrections are
made to an employee's timesheet, PeoplePlus overwrites the original timesheet with the corrected version
to prevent duplicate payments. The original timecards, as well as all corrected entries, are maintained in the
EPA Audit Summary Page and the Payable Time Detail. OCFO's Office of Technology Solutions (OTS)
performs quarterly reviews of all PeoplePlus access roles to identify separated employees who no longer
need functional user access. As an additional control, the recertification of roles assigned in PeoplePlus
ensures that the authority to approve employee time is only granted to the appropriate front line managers
and supervisors assigned to review employee time. The review of certifications ensures that authorized
managers have certified the hours reported on automatically approved timecards are accurate.
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F) Purchase Cards
The purchase card program is not susceptible to significant improper payments, and no improper payments
were identified in FY 2018. On August 20, 2018, EPA's OIG released the report, "EPA's Purchase Card and
Convenience Check Program Controls Are Not Effective for Preventing Improper Purchases." The report's
principal finding is that EPA's internal purchase card controls were not effective, indicating that
cardholders, approving officials, the purchase card team, and EPA program offices were not providing
sufficient oversight needed to achieve consistent compliance with internal controls. Although transactions
reviewed by the OIG were not in complete compliance with EPA internal control requirements, no
fraudulent or illegal transactions were identified, and none of the cited transactions resulted in monetary
loss to the agency or the federal government
EPA undertook a review of the transactions questioned by the OIG, which totaled $57K. The agency
determined that while the transactions did not comply with certain internal controls consistent with EPA's
written purchase guide and procedure requirements, all transactions represented valid requirements and
are not considered improper payments by the agency, since there were no incorrect, unauthorized, or
fraudulent purchases. In all cases, the correct amounts were paid for the items purchased, they did not
involve overpayments or underpayments, the payments were made to eligible recipients for eligible
services, and no duplicate payments were involved. The agency is continuing its detailed review of
transactions questioned by the OIG and increased oversight of new transactions.
The OIG's audit of purchase cards has helped the agency strengthen its purchase card internal control
procedures. The OIG made a total of 11 recommendations in the final audit report. Six of the 11 corrective
actions were completed as of October 5, 2018 in whole or in part, and the remaining five are expected to be
completed by December 31, 2018. All corrective actions will be completed in their entirety by December 31,
2018.
G) Travel
Travel is not susceptible to significant improper payments. For travel, improper payments can include
ineligible expenses and insufficient or missing supporting documentation. When an overpayment is
identified for travel, the agency establishes a receivable, and existing procedures are followed to ensure
prompt recovery.
The following tables quantify the agency's efforts to identify and recapture improper payments across all
payment streams.
Table 5: Overpayments Recaptured Outside of
Payment Recapture Audits (1)
($ in millionsj
Program
Amount
Identified
In FY 2018
Amount
Recovered
in FY 2018
Commodities (2)
0.17
0.12
Contracts (2)
1.37
1.25
CWSRF
0.52
2.75
DWSRF
1.35
1.35
Grants
7.45
7.00
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Hurricane Sandy
0.00
0.00
Payroll
1.51
1.14
Purchase Cards
0.00
0.00
Travel
0.015
0.014
Other (3)
0.10
0.02
Total
12.49
13.64
Recapture Rate -109%
(1)	EPA does not conduct a formal payment recapture audit, as a formal audit is not cost-effective.
Amounts displayed in this table were identified and recovered using a variety of means available
to the agency.
(2)	Amounts for contracts and commodities do not include lost discounts, which are uncollectible.
(3)	"Other" consists of improper payments identified by OIG or GAO audits plus confirmed fraud.
II. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative
Enactment of the Improper Payments Elimination and Recovery Improvement Act of 2012 codified
requirements for federal agencies to implement the Do Not Pay (DNP) initiative, which is a government-
wide solution designed to prevent payment errors and detect waste, fraud, and abuse in programs
administered by the federal government.
Since March 2013, EPA's payments have been screened by Treasury's DNP working system to detect
improper payments. Treasury analyzes each agency's payments and provides a monthly report itemizing
any payments that were made to potentially ineligible recipients. These potential matches are identified
when the name of an agency's payee matches the name of an individual or entity listed in federal data
sources contained in Treasury's DNP working system.
In FY 2018, Treasury screened EPA payments against the following DNP data sources on a post-payment
basis: the Social Security Administration's Death Master File and the General Services Administration's
System for Award Management Exclusion List Through September 30, 2018, approximately $1.6 billion of
EPA payments were screened. No payments were flagged for review, and no improper payments were
identified. In addition, 60,000 EPA payments totaling $3.9 billion were made via the Automated Standard
Application for Payments (ASAP), and ASAP's grantee listing is monitored by Treasury. Finally, agency
payments are routinely monitored by the Treasury Offset Program, which offsets federal payments to
recipients with delinquent federal nontax debt These different tools provide a valuable external check of
the agency's payment integrity.
Sampling and Estimation
A) Grants
The sampling methodology for grants is statistically valid and robust, providing a sample size sufficient to
estimate the proportion of erroneous payments within a margin of error of plus or minus 2.5 percent and a
95 percent confidence level. The sample size consists of seventy-five recipients with active grant awards in
which drawdowns occurred during the eighteen-month sampling timeframe from April 1, 2016 to
September 30, 2017. EPA used a two-stage random sampling approach to draw the sample. Stage 1 stratified
the recipients by recipient type and resulted in the selection of seventy-five recipients using probability
proportionate to size. Stage 2 used simple random sampling to select three draws per recipient for a total of
225 draws.
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B) Hurricane Sandy
On January 29, 2013, the President signed into law the Disaster Relief Appropriations Act, which provided a
total of $50.5 billion in aid for Hurricane Sandy disaster victims and their communities. EPA was
appropriated over $600 million of funds under the Act for Hurricane Sandy recovery and other disaster-
related activities. The funding included $500 million for CWSRF, $100 million for DWSRF, and $7 million for
non-SRF grants. Sequestration reduced these amounts by 5 percent for a total of $577 million.
Pursuantto OMB Memorandum M-13-07, Accountability for Funds Provided by the Disaster Relief
Appropriations Act, programs and activities receiving funds under the Act were automatically deemed
susceptible to significant improper payments and were required to calculate and report an improper
payment estimate. As a result, EPA designed a statistically valid and robust sampling plan to test Hurricane
Sandy expenditures. The sampling timeframe corresponds to the preceding fiscal year, which for FY 2018
reporting is the twelve months from October 1, 2016 to September 30, 2017. However, it should be noted
that for FY 2018 reporting, rather than drawing a statistical sample, EPA reviewed the entire Hurricane
Sandy population for improper payments. No improper payments were identified.
C) Other Disaster Relief Funding
On February 9, 2018, the President signed into law the Bipartisan Budget Act of 2018 (Public Law 115 123),
which provided federal agencies $84.4 billion in emergency supplemental appropriations in response to
recent hurricanes, wildfires, and other disasters. The Act amended existing federal statutes to specify that
Disaster Relief funding is deemed susceptible to significant improper payments. During the FY 2019
improper payments reporting cycle, EPA will address the improper payment reporting requirements
identified in OMB Memorandum M-18-14, Implementation of Internal Controls and Grant Expenditures for
the Disaster-Related Appropriations.
IV. Risk Assessments
Agencies are required to conduct risk assessments of their programs or activities to determine whether they
are susceptible to significant improper payments. OMB guidance allows a three-year risk assessment cycle
for programs that are not susceptible to significant improper payments. For programs that are susceptible
to significant improper payments, which consist of the grants payment stream and Hurricane Sandy funding,
the quantitative method used for statistical sampling fulfills the risk assessment requirement A quantitative
risk assessment can consist of a true statistical sample or a non-statistical assessment where a subset of the
population is sampled non-randomly, for which the ratio of improper payments is projected to the annual
outlays. A qualitative risk assessment is an evaluation of risk factors that could contribute to the occurrence
of significant improper payments EPA utilizes both qualitative and quantitative methods to assess the risk of
improper payments in its payment streams. The following risk factors are addressed in the agency's
qualitative risk assessments:
•	The age of the payment stream;
•	The complexity of the payment stream with respect to determining correct payment amounts;
•	Whether the number of payments increased substantially since the previous risk assessment was
conducted;
•	Whether annual outlays increased substantially since the previous risk assessment was conducted;
•	The percentage of payment eligibility decisions made outside the Agency;
•	Recent major changes in program funding, authorities, practices, or procedures;
•	The level, experience, and quality of training for personnel responsible for making program
eligibility determinations or certifying that payments are accurate;
•	Significant deficiencies in the audit reports of the agency including, but not limited to, 01G or
Government Accountability Office audit report findings, or other relevant management findings that
might hinder accurate payment certification;
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•	The impact of any significant changes in technology used to support the payment process;
•	Whether the agency uses effective systems, techniques, and technologies to prevent or identify
illegal, improper, or erroneous purchases;
•	Whether control activities are monitored and tested to determine their effectiveness in mitigating
fraud risk;
•	The inherent risks of improper payments due to the nature of the payment stream or its operations;
•	The level of risk associated with prior year improper payment work.
•	Whether the agency has adequately addressed the risk factors identified in the Government Charge
Card Abuse Prevention Act of 2012;
The qualitative risk assessments consist of a questionnaire designed to evaluate these risk factors in
consideration of existing internal controls. Directions for completion are provided to the program managers
of each payment stream, and they assign a score to each risk factor. The assigned scores are supported by a
brief narrative that provides further analysis. Upon completion, the Office of the Chief Financial Officer
(OCFO) tabulates a scorecard providing an overall risk rating for each payment stream on a scale of 1 to 100.
If the final score is 33 or below, the payment stream is not susceptible to significant improper payments; if
the score is between 33 and 66, the payment stream is susceptible to significant improper payments; and if
the score is 66 or above, the payment stream is at high risk of significant improper payments.
In FY 2018, improper payment risk assessments were performed in commodities, contracts, CWSRF,
DWSRF, payroll, purchase cards, and travel, all of which were identified as not susceptible to significant
improper payments.
V. Conclusion
EPA maintains a robust payment integrity program, which has demonstrated continued success at reducing
improper payments. Highlights from FY 2018 include the following:
•	Risk assessments were completed, and most of the agency's payment streams were determined to
be not susceptible to significant improper payments;
•	Only two EPA programs still require annual reporting, and statistical sampling in these programs
resulted in improper payment rates well below the IPERA threshold;
•	CWSRF and DWSRF were granted relief from annual reporting; and
•	No improper payments were identified through ongoing usage of the Do Not Pay program.
In FY 2019, the agency plans to pursue the following activities:
•	Request relief from annual reporting for Hurricane Sandy funding;
•	Complete a third year of statistical sampling in the grants payment stream;
•	Continue tracking Do Not Pay results monthly; and
•	Incorporate Disaster Relief funding into the agency's statistical sampling process.
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FRAUD REDUCTION REPORT
Fraud Reduction and Data Analytics Act of 2015
	u.	
The Fraud Reduction and Data Analytics Act of 2015 requires agencies to improve financial and
administrative controls to identify and assess fraud risks. In accordance with 0MB Circular A-123,
"Management's Responsibility for Enterprise Risk Management and Internal Control/' EPA incorporated
leading practices identified in the "GAO Framework for Managing Fraud Risks in Federal Programs/' and the
agency will continue to use a risk-based approach to design and implement controls to mitigate identified
fraud risks.
To increase fraud awareness and create an organizational culture that is committed to combating fraud, the
agency continued to build on progress made in FY 2017 to incorporate the consideration of fraud risk when
determining the overall effectiveness of internal controls. In the agency's FY 2018 Guidance for Enterprise
Risk-Based Decision Making at EPA: Strategic Reviews and Management Integrity Internal Controls, which
integrates strategic review and internal control processes, national program managers and regional offices
were encouraged required to consider fraud when identifying, assessing, and responding to risks. The Office
of the Chief Financial Officer conducted agency-wide technical training that included a discussion on fraud
and the key elements of the fraud risk assessment process highlighted in the GAO Framework.
The agency conducted internal control reviews and utilized the GAO standards and principles as the basis
for determining whether controls are designed, implemented, and operating effectively. Senior managers
complied with principle 8 of the Standards for Internal Control in the Federal Government and documented
controls in place to address fraud risks associated with the strategic objectives as well as for administrative
and financial processes.
Additionally, EPA identified and assessed risks, including fraud risks, related specifically to payment
streams such as payroll, grants, contracts, travel and purchase cards. These are programs susceptible to high
levels of risk and are evaluated on an annual basis as part of the Improper Payment Elimination and
Recovery Improvement Act risk assessment The assessment determined that the likelihood of risk for these
payment streams were low and that the controls were operating effectively.
As outlined in the Statement on Auditing Standards Number 122, Consideration of Fraud in a
Financial Statement Audit, AU-C Section 240, the Chief Financial Officer engaged in a
conversation with the Inspector General on the processes for identifying, responding to and
monitoring the risk of fraud in the agency.
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CIVIL MONETARY PENALTY ADJUSTMENT
FOR INFLATION
Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 ("2015 Act"), EPA
and other federal agencies are required, starting in January 2017, to annually adjust their statutory civil penalties
amounts by January 15 each year to account for inflation. In accordance with this requirement, EPA promulgated
the 2018 Civil Monetary Penalty Inflation Adjustment Rule (2018 Rule) on January 10, 2018, which became
effective on January 15, 2018. For details on the 2018 Rule, see 83 Fed. Reg. 1190-1194 (January 10, 2017),
codified in Table 2 of 40 CFR § 19.4. EPA will amend 40 CFR § 19.4 in January 2019 to adjust penalty levels to
reflect changes in inflation since the last adjustment.
Current Statutory Maximum/Minimum Civil Penalties
under EPA's 2018 Civil Monetary Penalty Inflation Adjustment Rule
U.S. Code Citation
Environmental statute
Year statutory
penalty
authority was
enacted
Latest year of
adjustment
(via statute or
regulation)
Statutory civil
penalties for
violations that
occurred after
November 2,2015 and
assessed on or after
January 15,2018
7 U.S.C. 136/.(a)(l)
FEDERAL INSECTICIDE,
FUNGICIDE, AND
RODENTICIDE ACT (FIFRA)
1972
2018
$19,446
7 U.S.C. 136/.(a)(2)
FIFRA
1972
2018
$2,795
7 U.S.C. 136/.(a)(2)
FIFRA
1978
2018
$2,852/$l,838
15 U.S.C.
2615(a)(1)
TOXIC SUBSTANCES
CONTROL ACT (TSCA)
2016
2018
$38,892
15 U.S.C. 2647(a)
TSCA
1986
2018
$11,181
15 U.S.C. 2647(g)
TSCA
1990
2018
$9,239
31 U.S.C.
3802(a)(1)
PROGRAM FRAUD CIVIL
REMEDIES ACT (PFCRA)
1986
2018
$11,181
31 U.S.C.
3802(a)(2)
PFCRA
1986
2018
$11,181
33 U.S.C. 1319(d)
CLEAN WATER ACT (CWA)
1987
2018
$53,484
33 U.S.C.
1319(g)(2)(A)
CWA
1987
2018
$21,393/$53,484
33 U.S.C.
1319(g)(2)(B)
CWA
1987
2018
$21,393/$267,415
33 U.S.C.
1321(b)(6)(B)(i)
CWA
1990
2018
$18,477/$46,192
33 U.S.C.
1321(b)(6)(B)(ii)
CWA
1990
2018
$18,477/$230,958
33 U.S.C.
1321(b)(7)(A)
CWA
1990
2018
$46,192/$1,848
33 U.S.C.
1321(b)(7)(B)
CWA
1990
2018
$46,192
180

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U.S. Code Citation
Environmental statute
Year statutory
penalty
authority was
enacted
Latest year of
adjustment
(via statute or
regulation)
Statutory civil
penalties for
violations that
occurred after
November 2,2015 and
assessed on or after
January 15,2018
33 U.S.C.
1321(b)(7)(C)
CWA
1990
2018
$46,192
33 U.S.C.
1321(b)(7)(D)
CWA
1990
2018
$184,767/$5,543
33 U.S.C.
1414b(d)(l)
MARINE PROTECTION,
RESEARCH, AND
SANCTUARIES ACT (MPRSA)
1988
2018
$1,231
33 U.S.C. 1415(a)
MPRSA
1972
2018
$194,457/$256,513
33 U.S.C. 1901
note (see
1409(a)(2)(A))
CERTAIN ALASKAN CRUISE
SHIP OPERATIONS (CACSO)
2000
2018
$14,177/$35,440
33 U.S.C. 1901
note (see
1409(a)(2)(B))
CACSO
2000
2018
$14,177/$177,200
33 U.S.C. 1901
note (see
1409(b)(1))
CACSO
2000
2018
$35,440
33 U.S.C.
1908(b)(1)
ACT TO PREVENT POLLUTION
FROM SHIPS (APPS)
1980
2018
$72,718
33 U.S.C.
1908(b)(2)
APPS
1980
2018
$14,543
42 U.S.C. 300g-
3(b)
SAFE DRINKING WATER ACT
(SDWA)
1986
2018
$55,907
42 U.S.C. 300g-
3(g)(3)(A)
SDWA
1986
2018
$55,907
42 U.S.C. 300g-
3(g)(3)(B)
SDWA
1986/1996
2018
$ll,181/$38,954
42 U.S.C. 300g-
3(g)(3)(C)
SDWA
1996
2018
$38,954
42 U.S.C. 300h-
2(b)(1)
SDWA
1986
2018
$55,907
42 U.S.C. 300h-
2(c)(1)
SDWA
1986
2018
$22,363/$279,536
42 U.S.C. 300h-
2(c)(2)
SDWA
1986
2018
$ll,181/$279,536
42 U.S.C. 300h-
3(c)
SDWA
1974
2018
$19,446/$41,484
42 U.S.C. 300i(b)
SDWA
1996
2018
$23,374
42 U.S.C. 300i-l(c)
SDWA
2002
2018
$136,052/$ 1,360,525
42 U.S.C.
300j(e)(2)
SDWA
1974
2018
$9,722
42 U.S.C. 300j-4(c)
SDWA
1986
2018
$55,907
42 U.S.C. 300j-
6(b)(2)
SDWA
1996
2018
$38,954
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U.S. Code Citation
Environmental statute
Year statutory
penalty
authority was
enacted
Latest year of
adjustment
(via statute or
regulation)
Statutory civil
penalties for
violations that
occurred after
November 2,2015 and
assessed on or after
January 15,2018
42 U.S.C. 300j-
23(d)
SDWA
1988
2018
$10,260/$ 102,606
42 U.S.C.
4852d(b)(5)
RESIDENTIAL LEAD-BASED
PAINT HAZARD REDUCTION
ACT OF 1992
1992
2018
$17,395
42 U.S.C.
4910(a)(2)
NOISE CONTROL ACT OF 1972
1978
2018
$36,760
42 U.S.C.
6928(a)(3)
RESOURCE CONSERVATION
AND RECOVERY ACT (RCRA)
1976
2018
$97,229
42 U.S.C. 6928(c)
RCRA
1984
2018
$58,562
42 U.S.C. 6928(g)
RCRA
1980
2018
$72,718
42 U.S.C.
6928(h)(2)
RCRA
1984
2018
$58,562
42 U.S.C. 6934(e)
RCRA
1980
2018
$14,543
42 U.S.C. 6973(b)
RCRA
1980
2018
$14,543
42 U.S.C.
6991e(a)(3)
RCRA
1984
2018
$58,562
42 U.S.C.
6991e(d)(l)
RCRA
1984
2018
$23,426
42 U.S.C.
6991e(d)(2)
RCRA
1984
2018
$23,426
42 U.S.C. 7413(b)
CLEAN AIR ACT (CAA)
1977
2018
$97,229
42 U.S.C.
7413(d)(1)
CAA
1990
2018
$46,192/$369,532
42 U.S.C.
7413(d)(3)
CAA
1990
2018
$9,239
42 U.S.C. 7524(a)
CAA
1990
2018
$46,192/$4,619
42 U.S.C.
7524(c)(1)
CAA
1990
2018
$369,532
42 U.S.C.
7545(d)(1)
CAA
1990
2018
$46,192
42 U.S.C.
9604(e)(5)(B)
COMPREHENSIVE
ENVIRONMENTAL RESPONSE,
COMPENSATION, AND
LIABILITY ACT (CERCLA)
1986
2018
$55,907
42 U.S.C.
9606(b)(1)
CERCLA
1986
2018
$55,907
42 U.S.C.
9609(a)(1)
CERCLA
1986
2018
$55,907
42 U.S.C. 9609(b)
CERCLA
1986
2018
$55,907/$167,722
42 U.S.C. 9609(c)
CERCLA
1986
2018
$55,907/$167,722
42 U.S.C. 11045(a)
EMERGENCY PLANNING AND
COMMUNITY RIGHT-TO-
KNOW ACT (EPCRA)
1986
2018
$55,907
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Statutory civil




penalties for
violations that


Year statutory
Latest year of
occurred after


penalty
adjustment
November 2,2015 andl


authority was
(via statute or
assessed on or after
U.S. Code Citation
Environmental statute
enacted
regulation)
January 15,2018
42 U.S.C.
EPCRA
1986
2018
$55,907
11045(b)(1)(A)




42 U.S.C.
EPCRA
1986
2018
$55,907/$167,722
11045(b)(2)




42 U.S.C.
EPCRA
1986
2018
$55,907/$167,722
11045(b)(3)




42 U.S.C.
EPCRA
1986
2018
$55,907
11045(c)(1)




42 U.S.C.
EPCRA
1986
2018
$22,363
11045(c)(2)




42 U.S.C.
EPCRA
1986
2018
$55,907
11045(d)(1)




42 U.S.C.
MERCURY-CONTAINING AND
1996
2018
$15,583
14304(a)(1)
RECHARGEABLE BATTERY
MANAGEMENT ACT
(BATTERY ACT)



42 U.S.C. 14304(g)
BATTERY ACT
1996
2018
$15,583
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GRANTS OVERSIGHT & NEW EFFICIENCY (GONE)
ACT REQUIREMENTS
EPA has tracked assistance agreement closeout performance since its first five-year Grants Management
Plan was issued in 2002. EPA reports to the Office of Management and Budget in its Annual Financial
Report on two grants closeout performance measures: 90% of recently expired grants and 99% of grants
that expired in earlier years. The agency has consistently exceeded or met these targets or, in limited
instances, missed them by a few percentage points. Below is a summary table showing the total number of
federal grant and cooperative agreement awards and balances for which closeout has not yet occurred, but
for which the period of performance has elapsed by more than two years.
CATEGORY
2-3 Years
FY15-16
>3 5 Years
FY13-15
>5 Years
Before FY13
Number of



Grants/Cooperative
Agreements with Zero
Dollar Balances
29
11
3
Number of



Grants/Cooperative
Agreements with
Undisbursed Balances
12
3
0
Total Amount of



Undisbursed Balances
$7,762,717
$1,640,660
0
The timely closeout of grants can be delayed for a variety of reasons, but generally these include open
audits with unresolved findings and where recipient appeal rights have not yet been exhausted; or lack of
required documentation from the recipient EPA monitors unliquidated obligations (ULOs) on expired
assistance agreements as well, requiring an annual review of ULOs to determine if funds are no longer
needed and can be deobligated and the assistance agreement closed out
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BIENNIAL REVIEW OF USER FEES
In accordance with OMB Circular A-25, User Charges, and the Chief Financial Officer's Act of 1990, EPA
conducted reviews of its programs to assess the Agency's activities that convey special benefits to
recipients beyond those accruing to the general public. The purpose of this review was to:
a)	Ensure that each service, sale, or use of Government goods or resources provided by the EPA to
specific recipients be self-sustaining;
b)	Promote efficient allocation of the Nation's resources by establishing charges for special benefits
provided to the recipient that are at least as great as costs to the Government of providing the
special benefits; and
c)	Allow the private sector to compete with the Government without disadvantage in supplying
comparable services, resources, or goods where appropriate.
EPA's FY 2018 user fee review included an assessment of six existing user fee programs to evaluate the cost
activities of the fee programs and if necessary, make recommendations to adjust fees to reflect unanticipated
changes in costs or market values. EPA's FY 2018 review confirmed that the Agency's existing user fee
programs are in compliance with statutory requirements to recover the cost of their activities. No
recommendations were made to adjust the levels of existing fee collections. In FY 2018 these six programs
collected $61 million, while the Agency expended $194M to implement those six programs. EPA currently
implements the following 6 existing user fee programs, in accordance with each program's underlying
statute:
Fiscal Year 2018 Biennial User Fee Programs Reviewed
Clean Air Part 71
Motor Vehicles and Engine Compliance Program
Federal Insecticide, Fungicide, and Rodenticide Act
fFIFRA")
Pesticide Registration Improvement Extension Act
fPRIA")
Lead-Based Paint Program
Pre-Manufacture Notice fPMN")
Along with reviewing EPA's existing user fee programs, the Agency is conducting an agencywide initial
assessment to determine whether fees should be assessed for those programs that provide special
benefits to recipients beyond those that accrue to the general public. EPA will be working with OMB in FY
2019 to determine whether or not exceptions are justified for each program, since the cost of collecting
fees can often represent and unduly large part of the fee activity, or other conditions may exist that would
cause the implementation of a fee to be inappropriate.
In accordance with OMB Circular A-25 Revised, User Charges,
EPA is also exploring options and opportunities for programs where collecting fees may be appropriate,
for which EPA is not recommending an exception to OMB. For instance, in the FY 2019 President's Budget,
EPA outlined the following legislative proposals to authorize EPA to collect (or adjust existing) fees:
1.	The FY 2019 Budget included a proposal to authorize the EPA to establish user fees for entities
that participate in the ENERGY STAR program. By administering the ENERGY STAR program
through the collection of user fees, the EPA would continue to provide a trusted resource for
consumers and businesses who want to purchase products that save them money and help protect
the environment.
2.	The FY 2019 Budget included a proposal to expand the range of activities that EPA can fund with
existing pesticide registrations service fees and maintenance fees.
3.	The FY 2019 Budget requests authorization for the EPA Administrator to collect and obligate fees
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to provide compliance assistance services for owners or operators of a non-transportation related
onshore or offshore facility located landward of the coastline required to prepare and submit Spill
Prevention Control and Countermeasure Plans or Facility Response Plans under section 311 (j) of
the Federal Water Pollution Control Act Allowing these facilities to voluntarily request and pay for
a service whereby EPA conducts an on-site, walk-through of the facility will help expand
awareness and understanding of accident prevention processes, improve the safety of industrial
operations, and reduce inadvertent regulatory compliance violations.
4. The FY 2019 Budget requests authorization for the Administrator to collect and obligate fees to
provide compliance assistance services for owners or operators of a stationary source required to
prepare and submit a Risk Management Plan under Section 112(r)(7) of the Clean Air Act
Allowing these facilities to voluntarily request and pay for a service whereby EPA conducts an on-
site, walk-through of the facility will help expand awareness and understanding of accident
prevention processes, improve the safety of industrial operations, and reduce inadvertent
regulatory compliance violations.
In FY 2018, EPA also evaluated the new methodology implemented in FY 2015 to track project costs using
a unique identifier code in the agency's financial system, issuing updated biennial user fee guidance,
conducting webinars to train personnel on the review process, and increasing oversight of the biennial
user fee review process.
To increase efficiency when capturing program activity and estimating costs, the agency implemented the
following:
•	Improved communication between OC and user fee program staff to ensure their understanding of
the coding structure and the necessity of timely code entry.
•	Performed monthly reviews and created standardized reports for user fee program stakeholders,
to ensure accurate and timely entry of user fee data entry.
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APPENDIX A
PUBLIC ACCESS
188

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EPA invites the public to access its website at www.epa.gov to obtain the latest environmental news,
browse agency topics, learn about environmental conditions in their communities, obtain information on
interest groups, research laws and regulations, search specific program areas, or access EPA's historical
database.
EPA newsroom: www.epa.gov/newsroom
News releases: www.epa.gov/newsroom/news-releases
Regional newsrooms: https://www.epa.g0v/newsroom/browse-news-releases#regions
Laws, regulations, guidance and dockets: https: //www.epa.gov/laws-regulations
Major environmental laws: https: //www.epa.gov/laws-regulations/laws-and-executive-
orders
EPA's Federal Register website: www.epa.gov/fedrgstr
Where you live: https: //www.epa.gov/children/where-you-live
Community Information: https: //www.epa.gov/nutrientpollution/what-you-can-do-your-community
EPA regional offices: https: //www.epa.gov/aboutepa/visiting-
regional-office
Information sources: https://www.epa.gov/quality/epa-information-quality-guidelines
Hotlines and clearinghouses: https: //www.epa.gov/home/epa-hotlines
Publications: https://nepis.epa.gov/EPA/html/pubindex.html
Education resources: www.epa.gov/students/
Office of Environmental Education: www.epa.gov/education
About EPA: www.epa.gov/aboutepa
EPA organizational structure: www.epa.gov/aboutepa/epa-organizational-structure
EPA programs with a geographic focus: https://www.epa.gov/environmental-topics/environmental-
information-location
EPA for business and nonprofits: https://www.epa.gov/grants/guidance-non-profit-
organizations-purchasing-supplies-equipment-and-services-under-epa-grants
Small Business Gateway: www.epa.gov/osbp/
Grants, fellowships, and environmental financing: https: //www.epa.gov/grants
Budget and performance: www.epa.gov/planandbudget
Careers: www.epa.gov/careers/
EPA en Espanol: espanol.epa.gov
EPA tieng Viet: https://www.epa.gov/lep/vietnamese
EPA	: www.epa.gov/korean
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APPENDIX B
ACRONYMS AND ABBREVIATIONS
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ACE	Affordable Clean Energy
ADA	Anti-deficiency Act
ADP	Action Development Process
AFR	Agency Financial Report
AICPA	American Institute of
Certified Public Accountants
APPS	Act to Prevent Pollution from
Ships
APR	Annual Performance Report
ASAP	Automated Standard
Application for Payments
B&F	building and facilities
BFS	Bureau of Fiscal Services
CAA	Clean Air Act
CACSO	Certain Alaskan Cruise Ship
Operations
CERCLA	Comprehensive
Environmental Response
Compensation and Liability
Act
CFO	Chief Financial Officer
CO CSRS contracting officer
Civil Service Retirement
System
CWA	Clean Water Act
CWSRF	Clean Water State Revolving
Fund
DATA	Data Accountability and
T ransparency Act
DCAA	Defense Contract Audit
Agency
FIFRA	Federal Insecticide, Fungicide and
Rodenticide Act
FISMA	Federal Information Security
Management Act
Federal Managers'
FMFIA	Financial Integrity Act of
1982
FRPP	Federal Real Property Profile
FTEFY	Full-time Equivalent fiscal year
GAAP	generally accepted accounting
principles
GAO	Government
Accountability Office
GMO	Grants Management Officer
G-PP&E	General -Plant, Property and
Equipment
GPRAMA Government Performance and
Results Act Modernization Act of
2010
GSA	u.S. General Services
Administration
HVAC	heating, ventilation, and air
conditioning
IBC	Interior Business Center
IPERA	Improper Payments Elimination
and Recovery Act
IPERIA	Improper Payments Elimination
and Recovery Improvement Act
IPIA	Improper Payments Information
Act
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DEAR	DATA Act Evaluation and
Approval Repository
DM&R	Deferred Maintenance and
Repairs
DNP	Do Not Pay
DWSRF	Drinking Water State
Revolving Fund
ELMS	EPA Lean Management
Systems
EPA	U.S. Environmental Protection
Agency
EPCRA	Emergency Planning and
Community Right-to-know
Act
EPM ERM Environmental Programs and
Management
Enterprise Risk Management
FAS	Fixed Assets Subsystem
FASAB	Federal Accounting Standards
Advisory Board
FBWT	Fund Balance with Treasury
FCO	Funds Control Officer
FECA	Federal Employees
Compensation Act
FERS	Federal Employees
Retirement System
FFMIA	Federal Financial
Management
Improvement Act of 1996
LMS
LUST
MPRSA
NASA
NPL
NRDA
OCFO OIG
OMB
OPA
Lean Management Systems
leaking underground storage tank
Marine, Protection, Research, and
Sanctuaries Act
National Aeronautics and Space
Administration
National Priorities List
Natural Resource Damages
Assessment
Office of the Chief Financial
Officer
Office of Inspector General
OMB Office of Management and
Budget
OPA Oil Pollution Act
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OPM	Office of Personnel Management
ORD	Office of Research and
Development
PCA	Payroll Cost Allocation
PFCRA	Program Fraud Civil Liberties Act
PP&E	Plant, Property and Equipment
PRASA	Puerto Rico Aqueduct and Sewer
Authority
PRFA	Pollution Removal Funding
Agreements
PRIA	Pesticides Registration
Improvement Act
PROMESA Puerto Rico Oversight,
Management, and Economic
Stability Act
PRP	Potential Responsible Party
RCRA	Resource Conservation and
Recovery Act
R&I	repair and improvement
RTF	Reduce the Footprint
RTP	Research Triangle Park
SARA	Superfund Amendments &
Reauthorization Act
SDWA	Safe Drinking Water Act
SFFAS	Statement of Federal Financial
Accounting Standards
SPA	state program approval
SRAF	Service Receipts Account Fund
SRF	State Revolving Fund
SSC	Superfund State Contracts
S&T	Science & Technology
STAG	State and Tribal Assistance Grants
TSCA	Toxic Substances Control Act
ULO	unliquidated obligations
USDA	U.S. Department of Agriculture
USSGL	U.S. Standard General Ledger
UST	U nderground Storage T ank
WCF	Working Capital Fund
WIFIA	Water Infrastructure Finance and
Innovation Act
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WE WELCOME YOUR COMMENTS!
Thank you for your interest in the U.S. Environmental Protection Agency's Fiscal Year 2018 Agency
Financial Report. We welcome your comments on how we can make this report a more informative
document for our readers. Please send your comments to:
Office of the Chief Financial Officer
Office of Financial Management
Environmental Protection Agency
1200 Pennsylvania Ave., NW
Washington, D.C. 20460
ocfoinfo@epa.gov
This report is available at
http://www.epa.gov/planandbudget
Printed copies of this report are available from EPA's National Service Center for Environmental
Publications at 1-800-490-9198 or by email at nscep@bps-lmit.com.

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U.S. Environmental Protection Agency
Fiscal Year 2018 Agency Financial Report
EPA-190-R-l 8-004
November 15,2018
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