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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
EPA Should Update Its Fees Rule
to Recover More Motor Vehicle
and Engine Compliance
Program Costs
Report No. 11-P-0701
September 23, 2011

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Report Contributors:
Paul Curtis
Arthur Budelier
Denise Patten
Sheree James
Mairim Agosto-Lopez
Abbreviations
CAA
Clean Air Act
EPA
U.S. Environmental Protection Agency
FY
Fiscal year
GAO
U.S. Government Accountability Office
IFMS
Integrated Financial Management System
IOAA
Independent Offices Appropriation Act
MVECP
Motor Vehicle and Engine Compliance Program
OAR
Office of Air and Radiation
OCFO
Office of the Chief Financial Officer
OFS
Office of Financial Services
OIG
Office of Inspector General
OMB
Office of Management and Budget
OTAQ
Office of Transportation and Air Quality
U.S.C.
U.S. Code
Cover photo: A vehicle at the National Vehicle and Fuel Emissions Laboratory in Ann Arbor,
Michigan, undergoing a dynamometer test to measure vehicle emissions.
(EPA photo)
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail:	OIG Hotline@epa.gov	write: EPA Inspector General Hotline
phone: 1-888-546-8740	1200 Pennsylvania Avenue NW
fax:	703-347-8330	Mailcode 8431P (Room N-4330)
online:	http://www.epa.qov/oiq/hotline.htm	Washington, DC 20460

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U.S. Environmental Protection Agency	1hp"PI0^
Office of Inspector General
|	\ nffironflncnorW^onoral	September 23, 2011
At a Glance
Why We Did This Review
We performed this review to
evaluate the U.S. Environmental
Protection Agency's (EPA's)
assessment and collection of
vehicle emissions testing fees for
its Motor Vehicle and Engine
Compliance Program (MVECP).
Our objectives were to determine
whether EPA is recovering its
costs of administering the
MVECP, and whether EPA has
effective internal controls over the
assessment and collection of the
fees.
Background
EPA's MVECP ensures that
vehicles and engines comply with
emission standards. The
Independent Offices
Appropriation Act, with guidance
from Office of Management and
Budget Circular A-25, authorizes
federal agencies to charge fees for
the services they provide. The
Clean Air Act authorizes EPA to
establish fees to recover all
reasonable costs associated with
the MVECP. EPA's final rule of
May 2004 provides specific
requirements for assessing and
collecting the fees.
For further information,
contact our Office of
Congressional, Public Affairs and
Management at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2011/
20110923-11-P-0701.pdf
Catalyst for Improving the Environment
EPA Should Update Its Fees Rule to Recover
More Motor Vehicle and Engine Compliance
Program Costs
What We Found
EPA is not recovering all reasonable costs of administering the MVECP. Our
analysis, using the Agency's cost estimate for fiscal year 2010, showed a
$6.5 million difference between estimated program costs of $24.9 million and
fee collections of $18.4 million. EPA's final rule of May 2004 establishes fees
under the authority of the Clean Air Act and the Independent Offices
Appropriation Act. The rule limits the annual fee increases to inflation
adjustments to EPA's labor costs. The rule does not allow fee increases to cover
EPA's increasing costs of additional facilities, equipment, and personnel needed
to address the growing MVECP activity. EPA has not conducted a formal cost
study since 2004 to determine its actual MVECP costs, and has not updated the
annual fee adjustment formula in the 2004 fees rule to recover more costs. By
not recovering all reasonable costs, the federal government did not collect funds
that otherwise could have been available to offset the federal budget deficit.
EPA is considering an update of the fees rule, which would provide additional
recurring annual revenue in future years.
EPA's internal controls over the assessment and collection of fees are generally
effective, except for minor exceptions related to segregation of duties, fee
refund approvals, untimely recording of collections, and correction of customer
errors. EPA corrected the exceptions when we pointed them out.
What We Recommend
We recommend that the Assistant Administrator for Air and Radiation update
the 2004 fees rule to increase the amount of MVECP costs it can recover, and
conduct biennial reviews of the MVECP fee collections and the full cost of
operating the program to determine whether EPA is recovering its costs. EPA
agreed with these recommendations but did not provide planned completion
dates. Therefore, we consider these recommendations unresolved with
resolution efforts in progress.
We recommend that the Assistant Administrator for Air and Radiation and the
Chief Financial Officer segregate certain fee collection functions to maintain a
proper segregation of duties. We recommend that the Chief Financial Officer
obtain approval of alternate payee names for fee refunds when alternate names
are needed. EPA agreed with these recommendations and has completed the
corrective actions.

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^tDsrx
• A v
IŪ i
THE INSPECTOR GENERAL
September 23, 2011
MEMORANDUM
SUBJECT:	EPA Should Update Its Fees Rule to Recover More
Motor Vehicle and Engine Compliance Program Costs
Report No. ll-P-0701
FROM:	Arthur A. Elkins, Jr.
Inspector General
TO:	Gina McCarthy
Assistant Administrator for Air and Radiation
Barbara J. Bennett
Chief Financial Officer
This is our report on the subject review conducted by the Office of Inspector General (OIG) of
the U.S. Environmental Protection Agency (EPA). This report contains findings that describe the
problems the OIG has identified and corrective actions the OIG recommends. This report
represents the opinion of the OIG and does not necessarily represent the final EPA position. EPA
managers will make the final determinations on matters in this report in accordance with
established audit resolution procedures.
The estimated direct labor and travel costs for this report are $201,746.
Action Required
The Agency agreed with recommendations 1 and 2, but did not provide planned completion
dates. We consider recommendations 1 and 2 unresolved with resolution efforts in progress.
Therefore, in accordance with EPA Manual 2750 regarding unresolved recommendations, you
are required to provide a written response to recommendations 1 and 2 within 90 calendar days.
You should include a corrective action plan for agreed-upon actions, including milestone dates.
Recommendations 3 through 6 are in a closed status for reporting purposes; therefore, you do not
need to respond further regarding these recommendations.
Your response will be posted on the OIG's public website, along with our memorandum
commenting on the response. The response should be provided as an Adobe PDF file that
complies with the accessibility requirements of Section 508 of the Rehabilitation Act of 1973, as
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460

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amended. The final response should not contain data that you do not want to be released to the
public; if your response contains such data, you should identify the data for redaction or removal.
We have no objections to the further release of this report to the public. We will post this report
to our website at http://www.epa.gov/oig.
If you or your staff have any questions regarding this report, please contact Melissa Heist at
(202) 566-0899 or heist.melissa@epa.gov. or Paul Curtis at (202) 566-2523 or
curti s. paul @ epa. gov.

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EPA Should Update Its Fees Rule to Recover More
Motor Vehicle and Engine Compliance Program Costs
11-P-0701
Table of C
Chapter
1	Introduction		1
Purpose		1
Background		1
Noteworthy Achievements		2
Scope and Methodology		2
2	EPA's Motor Vehicle and Engine Compliance Program
Is Not Recovering All Reasonable Costs		4
EPA's MVECP Fees Rule Does Not Account for Program Changes		4
EPA Needs a Formal Cost Study		6
EPA Needs a Fees Rule Update		6
Conclusion		7
Recommendations		7
Agency Comments and OIG Evaluation		8
3	EPA Has Corrected Minor Internal Control Deficiencies in the
Assessment and Collection of Fees		9
Duties for Fee Collections Were Not Segregated		9
Nonapproved Payee Names Were Used for Fee Refunds		11
Other Internal Control Matters		12
Conclusion		14
Recommendations		15
Preliminary Agency Actions		15
Agency Comments and OIG Evaluation		15
Status of Recommendations and Potential Monetary Benefits		16
Appendices
A Details on Scope and Methodology	 17
B Agency Response to Draft Report	 18
C Distribution	 26

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Chapter 1
Introduction
Purpose
We performed this review to evaluate the U.S. Environmental Protection
Agency's (EPA's) assessment and collection of fees for its Motor Vehicle and
Engine Compliance Program (MVECP). With the Administration's current focus
on reducing the federal budget deficit, we wanted to determine whether EPA was
charging sufficient fees to recover its costs. The objectives of our review were to
determine whether EPA:
•	Is recovering its cost of administering the MVECP
•	Has effective internal controls over the assessment and collection of
vehicle emissions testing fees
Background
EPA's MVECP ensures that vehicles and engines comply with emissions
standards. EPA's Office of Transportation and Air Quality (OTAQ) conducts the
vehicle emission testing and certification. Manufacturers and independent
commercial importers pay EPA a fee for the testing and other compliance
activities.
The Independent Offices Appropriation Act (10AA) of 1952 authorizes federal
agencies to charge fees for the services they provide. The 10AA requires that each
charge be fair and be based on the costs to the government, the value of the
service to the recipient, the public policy or interest served, and other relevant
facts. The 10AA states that each service provided by a federal agency should be
self-sustaining to the extent possible.
Section 217 of the Clean Air Act (CAA) of 1970 (42 U.S. Code (U.S.C.) 7552),
as amended, authorizes EPA to establish fees to recover all reasonable costs
associated with:
•	New vehicle or engine certification
•	New vehicle or engine compliance monitoring and testing
•	In-use vehicle or engine compliance monitoring and testing
Office of Management and Budget (OMB) Circular A-25, User Charges, dated
July 8, 1993, implements the 10AA. It provides for charges for government goods
and services that convey special benefits to recipients beyond those accruing to
the general public. It also establishes that user charges should be set at a level
sufficient to recover the full cost of providing the service, resource, or property. It
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requires the Agency to review the user charges for Agency programs biennially,
to include assurance that existing charges are adjusted to reflect unanticipated
changes in costs or market values.
EPA's final rule of May 11, 2004, updated the 1992 MVECP fees regulation,
under which the Agency collects fees for certain CAA compliance programs. The
2004 rule applies to light-duty vehicles, light-duty trucks, heavy-duty vehicles and
engines, nonroad engines, and motorcycles. The 2004 rule provides specific
requirements for assessing and collecting the fees, including a fee schedule by
engine category and certificate type. A formula will automatically adjust the fees
each calendar year by applying any change in the consumer price index to EPA's
labor costs and by reflecting any changes in the number of certificates issued.
However, the rule does not allow fee increases for other direct and indirect costs
and overhead. EPA's final rule of October 8, 2008, added emission standards and
compliance fees for new marine spark-ignition engines and small nonroad spark-
ignition engines.
EPA deposits MVECP fees collected into a special fund in the United States
Treasury, as authorized by the CAA, 42 U.S.C. 7552(b), Motor Vehicle
Compliance Program Fees. The receipts in the special fund, known as the
Environmental Services Special Fund, are to remain available for appropriation to
carry out the Agency's activities for which the fees were collected. However,
Congress has not appropriated the special fund receipts. Congress has been
appropriating general funds, without specifying the Environmental Services
Special Fund, to the Science and Technology funds to finance the MVECP. The
special fund balance grew to $275 million at the end of fiscal year (FY) 2010.
Although Congress has not appropriated the special fund to finance the
environmental programs that generated the receipts, the fund remains available
for appropriation and offsets the federal budget deficit.
Noteworthy Achievements
When we notified OTAQ and the Office of the Chief Financial Officer (OCFO)
about internal control weaknesses, they proactively took corrective actions.
OTAQ and OCFO reassigned personnel to properly segregate duties relating to
recording and reconciling fee collections. OCFO adjusted its fee refund
procedures to ensure that it approved all payee names prior to the refund
payments.
Scope and Methodology
We conducted this review in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the review
to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our review objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
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based on our review objectives. We conducted our review from January through
July 2011. Appendix A contains details on our scope and methodology.
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Chapter 2
EPA's Motor Vehicle and Engine Compliance
Program Is Not Recovering All Reasonable Costs
EPA is not recovering all reasonable costs of administering the MVECP. Our
analysis, using the Agency's cost estimate for FY 2010, showed a $6.5-million
difference between estimated program costs of $24.9 million and fee collections
of $18.4 million. The CAA (42 U.S.C. 7552) authorizes the EPA Administrator to
establish fees to recover all reasonable costs associated with the program. EPA
established its fee schedule for this program in a 2004 final rule. The rule limits
the annual fee increases to inflation adjustments to EPA's labor costs. The rule
does not allow fee increases to cover EPA's increasing costs of additional
facilities, equipment, and personnel needed to address the growth in testing and
compliance program activity. EPA has not conducted a formal cost study since
2004 to determine its actual MVECP costs, and has not updated the annual fee
adjustment formula in the 2004 fees rule. By not recovering all reasonable costs,
the federal government did not collect funds that otherwise could have been
available to offset the federal budget deficit. EPA is considering an update of the
fees rule, and accomplishing that initiative would provide additional recurring
annual revenue in future years.
EPA's MVECP Fees Rule Does Not Account for Program Changes
Although EPA is recovering the MVECP costs as identified in the 2004 final
rule, which EPA developed through a process of public notice and comment, it is
not recovering all reasonable costs of administering the program. The 2004 rule's
adopted methodology for calculating future fees recognized tradeoffs between
cost recovery, stability for regulated industry, and uncertainty about future
program activity and direction. Program changes that EPA could not have
anticipated in 2004 have resulted in a shortfall between the FY 2010 MVECP
costs and the amount that EPA can recover through fees.
The FY 2010 costs recoverable under the 2004 rule methodology were
$20.8 million. At our request, OTAQ developed an estimate of its actual costs
based on actual FY 2010 spending and labor use, plus amortized costs for
multiyear investments. OTAQ's estimate of its actual costs was $24.9 million,
indicating that actual MVECP costs exceeded recoverable costs under the 2004
rule by $4.1 million. EPA's FY 2010 fee collections were $18.4 million.
Therefore, OTAQ did not recover $6.5 million of the $24.9 million estimated
operating costs, nor did it recover the full $20.8 million it should have recovered
under the 2004 final rule, as illustrated in table 1.
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Table 1: FY 2010 MVECP costs not recovered ($ in millions)

Total
costs
Costs
recoverable
under the rule
Additional
costs not
recoverable
under the rule
Program costs
$24.9
$20.8
$4.1
Fee collections
18.4
18.4
0.0
Unrecovered program costs
6.5
2.4
4.1
Source: Office of Inspector General analysis of EPA data.
In FY 2010, EPA collected $2.4 million less than costs recoverable under the
2004 rule. In any given year, EPA may collect more or less than its recoverable
costs, based on the number of unique test groups/engine families that
manufacturers certify. The fees formula adjusts for annual fluctuations in the
number of certificates issued. The formula divides the recoverable costs by the
average number of certificates issued 2 years and 3 years prior to the calendar
year for the applicable fees. When the average number of certificates issued
decreases, the formula increases the fee rates. Conversely, when the average
number of certificates increases, the formula decreases the fee rates. Therefore,
the formula adjusts the annual fee rates to help equalize the yearly differences
between fee collections and recoverable costs.
Another factor that reduces fee collections below the recoverable amount is the
rule's policy to allow reduced fees for small-volume manufacturers. The fees
formula does not compensate for reduced fees, causing collections to be less than
the recoverable target.
EPA issued 32 percent more certificates of conformity in 2010 than it did in 2004
when it established the rule. The increasing MVECP activity suggests a
corresponding increase in the amount of unrecovered costs. EPA expects the new
workload created by the implementation of several recent regulatory actions to
require a significant investment in testing and certification ability to ensure
compliance with the new standards. The recent regulatory actions include:
The Renewable Fuel Standards enacted under the Energy Independence
and Security Act
The Mobile Source Air Toxics Standard
Light-Duty Greenhouse Gas Standards recently enacted under CAA
authorities
• Nonroad Emission Standards (gasoline and diesel)
Heavy-Duty Greenhouse Gas Standards currently being developed
The President's Budget Message for FY 2012 states that reducing the long-term
federal deficit must be a priority. The federal government is looking for ways to
save money and cut unnecessary costs. We believe that EPA could help the
federal government in this endeavor by collecting more MVECP fees to recover
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more of its costs. EPA needs a formal cost study and a fees rule update to
accomplish the cost savings sought by the President.
EPA Needs a Formal Cost Study
OMB Circular A-2 5 requires the Agency to review the user charges for Agency
programs biennially, to include assurance that existing charges are adjusted to
reflect unanticipated changes in costs or market values. OTAQ has not conducted
a formal cost study using a fees cost accounting method to determine its annual
MVECP costs since 2004. OTAQ stated that it monitors program costs, tracks
budget expenditures, and reviews compliance program resource use on an annual
basis to align expenditures with resource availability and Agency priorities.
However, these activities do not identify the universe of MVECP allocable costs.
According to OTAQ, the cost study that EPA conducted as part of the 2004
rulemaking effort was a major undertaking that involved significant staff time.
EPA staff reviewed the entire OTAQ program to determine which activities were
recoverable, and examined budget and payroll expenditures to determine the
recoverable fraction of overall costs, including full Agency overhead applicable
to direct and indirect program costs. The cost study assigned the recoverable
costs to the specific industry sector receiving the benefit.
OTAQ stated that a cost study update would require a significant level of effort
and allocation of resources. EPA lacks a cost accounting system with the ability
to determine the recoverable program costs. EPA's budget categories do not
distinguish between the recoverable and nonrecoverable activity costs. Therefore,
EPA would have to conduct a manual cost study to determine the allocable
program costs.
A systematic approach to reviewing the MVECP costs would help EPA conduct
biennial cost studies. Without performing the biennial cost studies prescribed by
OMB guidance, EPA does not have the cost data necessary to determine whether
it should update the fees rule.
EPA Needs a Fees Rule Update
The CAA (42 U.S.C. 7552) authorizes EPA to establish fees to recover all
reasonable costs associated with the MVECP. The 2004 fees rule provides a
specific fee schedule and formula for annual fee increases. The rule does not
provide for fee increases to cover the costs of additional facilities, equipment, and
personnel needed to address the growth in testing and compliance program
activity. Therefore, when program activity and costs increase, EPA needs to
update the fees rule to recover all reasonable costs.
The 2004 fees rule limited the annual recoverable cost adjustments to inflation
adjustments to EPA's labor costs. The rule does not allow fee increases for other
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direct and indirect costs and overhead. Therefore, fee increases do not cover the
costs of program expansion, information technology system costs, new laboratory
modification, facility and equipment upgrades, contract cost inflation, and payroll
increases.
EPA limited the cost adjustments in the 2004 fees rule instead of providing for
more comprehensive cost increases because:
•	The rule provides cost stability for the manufacturers in the regulated
industries.
•	To avoid uncertainty of indefinite future costs, EPA promulgated a
straightforward and certain methodology to update the annual fee costs.
•	The methodology enables EPA to calculate new fee rates in a timely
manner and inform the industry of the updated rates through annual
guidance well in advance of any certification request to which new fees
would apply.
EPA has not updated the annual fee adjustment formula in the fees rule since
2004. OTAQ stated that it conducted several scoping exercises during the last
4 years to consider a new fees rulemaking and determined that the timing for a
fees rule update was not optimal. However, OTAQ is currently considering an
update of the fees rule.
Conclusion
EPA is not recovering all reasonable costs of administering the MVECP. Because
the 2004 fees rule limits the amount of recoverable program costs, EPA should
conduct a cost study and update the 2004 fees rule. By not recovering all
reasonable costs, the federal government did not collect funds that otherwise
could have been available to offset the federal budget deficit. A fees rule update
would help EPA address the President's budget priority of reducing the federal
government deficit. Additional fees would offset the amounts appropriated to
EPA for the costs incurred. OTAQ is considering an update of the fees rule, and
accomplishing that initiative would provide additional recurring annual revenue in
future years. This update could result in potential additional revenue of up to
$6.5 million per year, based on FY 2010 estimated program costs.
Recommendations
We recommend that the Assistant Administrator for Air and Radiation:
1. Update the 2004 fees rule to increase the amount of MVECP costs it
can recover.
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2. Conduct biennial reviews of the MVECP fee collections and the full
cost of operating the program to determine whether EPA is recovering
its costs.
Agency Comments and OIG Evaluation
EPA agreed with our recommendations. The Office of Air and Radiation (OAR)
provided Agency comments. We reviewed OAR's comments, met with OAR
officials to discuss the comments, and made changes to the report where
appropriate. Appendix B provides the full text of the Agency's comments.
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Chapter 3
EPA Has Corrected Minor
Internal Control Deficiencies in the
Assessment and Collection of Fees
We found EPA's internal controls over the assessment and collection of fees to be
generally effective. However, we identified some minor internal control issues
related to a lack of segregation of duties, approval of payee names for fee refunds,
untimely recording of collections, and the correction of customer errors. OMB
and the U.S. Government Accountability Office (GAO) require federal agencies
to establish and maintain internal controls. Internal controls are an integral
component of an organization's management that provide reasonable assurance
that the organization achieves effectiveness and efficiency of operations,
reliability of financial reporting, and compliance with applicable laws and
regulations. Although EPA's internal controls were generally effective, the minor
internal control issues we found compromise EPA's ability to ensure that
management's directives are followed and assets are safeguarded.
Duties for Fee Collections Were Not Segregated
We found a lack of segregation of duties for fee collections in OTAQ and in
OCFO's Office of Financial Services (OFS). GAO's Standards for Internal
Control in the Federal Government, dated November 1, 1999, states:
Key duties and responsibilities need to be divided or segregated
among different people to reduce the risk of error or fraud. This
should include separating the responsibilities for authorizing
transactions, processing and recording them, reviewing the
transactions, and handling any related assets.
OMB Circular A-123, Management's Responsibility for Internal Control, dated
December 21, 2004, describes a proper segregation of duties as separating
personnel with authority to authorize, process, and review the transaction. An
improper segregation of duties may increase the risk of error or fraud by
providing an individual the opportunity to commit an irregularity and conceal it.
OTAQ Segregation of Duties
OTAQ did not have a proper segregation of duties for fees collections in two
separate situations. In one situation, during a short transitional period, an
employee recorded fees collections and also reconciled them to the accounting
system. In the second situation, an OTAQ certification representative uploaded
fees collection files to an information systems database and also worked closely
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with manufacturers who paid fees. GAO and OMB require a division of key
duties among different people to reduce the risk of error or fraud. Without a
proper segregation of duties, OTAQ increased the risk of error or fraud.
In the first situation, an employee who gathered the fees collection data and
entered it into a fees database also reconciled the database collection amounts to
EPA's accounting system. For a proper segregation of duties, a separate person
who does not gather and record fees collections should perform the reconciliation.
Prior to January 2011, a contractor gathered and entered collection data into the
fees database, and EPA reconciled the data. When the contract expired on
December 31, 2010, EPA brought the entire fees process in-house in January
2011. With only a few people on the fees team, OTAQ did not properly segregate
the fees duties and allowed an employee to gather, record, and reconcile the fees
data. The improper segregation of duties occurred within a short time frame, and
OTAQ management corrected the situation when we brought it to its attention on
January 14, 2011.
In a second situation, an OTAQ certification representative uploaded the fees
collection amounts to the Information Management System database. Since the
certification representatives have a close working relationship with the
manufacturers who pay the fees, they should not be put in a position in which they
could alter the collection amounts. Although the certification representative who
uploaded the fees worked with manufacturers in an industry sector other than the
sectors managed in the Information Management System database, we believe a
person independent of any certification representative duties should perform the
upload. OTAQ allowed a certification representative to upload the fees collection
data because he reviewed the data prior to uploading and was familiar with the
database. OTAQ management corrected the situation when we brought it to its
attention on January 14, 2011.
OFS Segregation of Duties
OFS did not properly segregate the duties of recording and reconciling fees
collections. We found a situation where an employee had responsibility for
recording fees collections in the Integrated Financial Management System
(IFMS), EPA's accounting system, as well as reconciling the daily and monthly
collections to IFMS. GAO and OMB require a division of key duties among
different people to reduce the risk of error or fraud. OFS did not properly
segregate the duties because it had a limited number of people working in
collections, and it relied on EPA's SF-224 fund balance with Treasury
reconciliation to detect any errors in recorded collections. Without a proper
segregation of duties, OFS increases the risk that errors or irregularities may not
be detected and corrected in a timely manner.
Allowing one person to be responsible for recording data and reconciling his/her
own work creates a conflict where errors could be overlooked or not found and
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corrected. For a proper segregation of duties, a separate person who does not
record the fees collections should perform the reconciliation. We notified OFS on
March 29, 2011, of the improper segregation of duties. OFS quickly took
corrective action and reassigned personnel to correct the segregation of duties.
Nonapproved Payee Names Were Used for Fee Refunds
OFS did not consistently use approved payee names for making fee refunds. OFS
sometimes used other payee names instead of those approved by OTAQ and OFS.
According to internal control guidance, an organization should ensure that
controls are in place to protect against the misappropriation of assets by
disbursements of false refunds. OFS did not require its staff to make refund
payments to the approved payee names. The lack of approved payee names on fee
refunds increases the risk of errors or irregularities.
Managing the Business Risk of Fraud: A Practical Guide, a publication sponsored
by the Institute of Internal Auditors, American Institute of Certified Public
Accountants, and the Association of Certified Fraud Examiners, states that an
organization's assets can be misappropriated by employees, customers, or
vendors. Common schemes include misappropriation by employees through the
creation of, and payments to, fictitious vendors. One type of fraud that an
organization might encounter is the misappropriation of assets by disbursements
of false refunds. The organization should ensure that controls are in place to
protect such assets.
OFS did not consistently use the payee names approved by OTAQ or OFS for
making fee refunds. OTAQ submitted to OFS an approved refund request form
with the manufacturer's name. OFS checked the manufacturer's application,
prepared a refund payment request form with the payee name designated by the
manufacturer, and approved the request form for payment. OFS did not always
use the name on the approved OFS refund payment request form and sometimes
made refund payments to a name other than the approved name on the OFS or the
OTAQ form. In the 42 refund samples tested, we found 6 refunds with a different
payee name than the name on the approved OFS refund payment request form,
and 10 refunds with a different payee name than the name on the approved OTAQ
refund request form. When OFS needed to use an alternate name on a fee refund,
it did not require the personnel processing the refund to obtain approval for the
alternate name. OFS did not update the approved refund request form to approve
the alternate payee name. Therefore, OFS did not have an effective internal
control to ensure it paid fee refunds to the appropriate parties.
OFS did not use the approved refund request forms as a control to ensure that it
paid fee refunds to approved payee names. OFS provided several reasons why it
sometimes used alternate names instead of the approved payee names on fee
refunds:
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•	OFS records credit card collections under the account holder name and
refunds the collections via Pay.gov to the original card holder account.
OFS cannot refund credit card transactions that are over 1 year old via
Pay.gov. Therefore, OFS pays these refunds by hard-copy check payable
to the name on the refund request form, which may differ from the account
holder name.
•	In some cases, OFS records the original payment under the name of the
remitter who submitted the payment on behalf of the manufacturer. In
those cases, OFS processes the refund to the manufacturer in care of the
remitter.
•	OFS records wire payments with the wire remitter name that best
represents the manufacturer name and processes the related refunds to the
payee name on the manufacturer's program request form.
Although OFS provided reasons for using alternate names, it did not have a
process to ensure the alternate names were valid and approved. The lack of
approved payee names on fee refunds increases the risk of errors or irregularities.
During our review, OCFO updated its fee refund procedures to require the
documentation and approval of alternate names for fee refunds. Payee name
changes must be approved in the form of an e-mail or memorandum from the
division director of the originating program office or his delegate. OCFO's
procedure update addressed our concerns and corrected the internal control
weakness.
Other Internal Control Matters
We found that OFS could improve its financial management by recording fees
collections more timely, and that reviewing manufacturers' reduced fee refund
requests in more detail would help OTAQ provide better customer service by
identifying and correcting customer errors. We did not make any
recommendations for these minor internal control matters.
Untimely Recording of Collections
OFS did not consistently record engine certification fees collections timely. OFS
recorded 36 collections affecting 46 of 226 collection samples in our review
(20 percent) more than 3 work days after receiving notice that Treasury received
the collection. OFS recorded the collections, totaling $4.5 million, 4-20 days after
receiving notice of the collection.
EPA's Resources Management Directive System 2540-03, Cash Management
Collections and Deposits, requires the Agency to record collections in the
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financial system within 3 work days of receipt. GAO's Standards for Internal
Controls in the Federal Government states:
Transactions should be promptly recorded to maintain their
relevance and value to management in controlling operations and
making decisions. This applies to the entire process or life cycle of
a transaction or event from the initiation and authorization through
its final classification in summary records.
OFS stated that it experienced a significant increase in collections volume during
FY 2010 from the newly implemented Lead-Safe Certification Program. During
FYs 2008 and 2009, OFS processed an annual average of 2,845 lead fees
collections. However, in FY 2010, OFS processed over 56,000 lead fees
collections. Due to the increased volume of fees in FY 2010, OFS did not record
the engine certification fees within the required time frame. Recording fees
collections untimely increases the risk of inaccurate information in the Agency's
accounting system and impacts the quality of data available to manage EPA's
resources.
Since OFS has procedures to record collections timely, we are not making a
recommendation. We believe OFS could improve timeliness by assigning more
resources during periods of high collections volume.
Correction of Customer Errors
OTAQ did not help a manufacturer correct the errors in its reduced fees refund
requests. Table 2 provides details of the errors in the three reduced fee refund
requests. For one refund, the manufacturer's supporting documents did not agree
with the sales amount that the manufacturer recorded on the MVECP Fee Refund
Request Form. The error understated the refund by $300. In another reduced fee
request, the manufacturer incorrectly used $750 (the minimum initial payment
required by the final rule) as the fee required instead of 1 percent of the aggregate
retail sales price of the vehicle engines sold. The error understated the refund by
$276. In a third reduced fee request, the manufacturer had no sales and was
therefore entitled to a full refund. However, the manufacturer requested the full
refund amount less $750 (the minimum initial payment required by the final rule).
The error understated the refund by $750.
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Table 2: Reduced fees refund request errors
IFMS
transaction
number
Amount
refunded
Correct
refund
Refund
under-
payment
Explanation of error
9910DVC1011
Line 001
$16,159.62
$16,459.62
$300.00
Sales amount per refund
request form did not agree
with supporting documents.
9910DVC1011
Line 003
30,935.00
31,211.41
276.41
Manufacturer overlooked a
refund provision based on
1 percent of the retail sales
price.
9910DVC1011
Line 005
30,935.00
31,685.00
750.00
Manufacturer with no sales
was entitled to a full refund
but incorrectly requested a
full refund less the $750
minimum initial payment.
Source: Office of Inspector General analysis of EPA data.
EPA's 2004 final rule, updating 40 Code of Federal Regulations Parts 85 and 86,
states, "A manufacturer may request a refund if the final fee is less than the initial
payment." The rule further states, "The Agency will also fully refund any fees if
the manufacturer overpaid based on their own projections."1 The rule allows
manufacturers to pay a reduced fee based on 1 percent of the aggregate retail sales
price of all vehicles or engines covered by a certificate. A manufacturer must pay
a fully refundable initial payment of $750 or 1 percent of the aggregate retail price
of the vehicles or engines, whichever is greater, with the request for a reduced fee.
OTAQ stated that when it finds an error, its policy is to contact the manufacturer
to discuss a correction. However, it did not notice these errors. OTAQ did not
believe it was reasonable to dedicate the resources that would be necessary to
scrutinize every refund request to the level of detail needed to identify the types
of errors disclosed in table 2.
Because OTAQ did not identify the errors and help the manufacturer correct
them, it refunded amounts that were slightly less than what the final rule of 2004
provided. We believe that OTAQ's annual refund volume is low; we found
50 refunds for FY 2010. OTAQ could reasonably perform a more detailed review
of reduced fee refund requests to identify errors. OTAQ would improve its
customer service by helping manufacturers receive a refund equal to what the
final rule provides.
Conclusion
EPA has generally effective internal controls over the assessment and collection
of fees. When we found minor exceptions and recommended improvements, EPA
1 See Motor Vehicle and Engine Compliance Program Fees for: Light-Duty Vehicles; Light-Duty Trucks; Heavy-
Duty Vehicles and Engines; Nonroad Engines; and Motorcycles; Final Rule, 69 Fed. Reg. 26226 and 26228,
May 11,2004.
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demonstrated a commitment to maintaining effective internal controls by
implementing corrective actions. We identified other internal control matters
regarding untimely recording of collections and correction of customer refund
errors. We make no recommendations for these other matters and report them
only for EPA's consideration.
Recommendations
We recommend that the Assistant Administrator for Air and Radiation:
3.	Segregate the OTAQ functions of recording fee collections and
reconciling them to the accounting system.
4.	Segregate the OTAQ functions of serving as a certification representative
to the manufacturers and uploading fee collection data to an information
system database.
We recommend that the Chief Financial Officer:
5.	Segregate the OFS functions of recording and reconciling fee collections.
6.	Implement a procedure to obtain and document the approval of alternate
payee names for fee refunds when it is necessary to use an alternate payee
name instead of the originally approved payee name.
Preliminary Agency Actions
During our audit field work, OTAQ reassigned personnel to properly segregate
the functions of (1) recording fee collections and reconciling them to the
accounting system, and (2) serving as a certification representative to the
manufacturers and uploading fee collection data to an information system
database. OFS reassigned personnel to properly segregate the functions of
recording and reconciling fee collections. OFS also adjusted its fee refund
procedures to ensure that it approved all payee names prior to the refund
payments. EPA's corrective actions have satisfied recommendations 3 through 6.
Agency Comments and OIG Evaluation
EPA agreed with our recommendations and completed corrective actions.
Appendix B provides the full text of the Agency's comments.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
7 Update the 2004 fees rule to increase the amount
of MVECP costs it can recover.
Planned
Completion
Date
Claimed
Amount
Agreed To
Amount
Assistant Administrator for
Air and Radiation
$13,0002
Conduct biennial reviews of the MVECP fee
collections and the full cost of operating the
program to determine whether EPA is recovering
its costs.
Assistant Administrator for
Air and Radiation
15 Segregate the OTAQ functions of recording fee
collections and reconciling them to the accounting
system.
15 Segregate the OTAQ functions of serving as a
certification representative to the manufacturers
and uploading fee collection data to an information
system database.
15 Segregate the OFS functions of recording and
reconciling fee collections.
15 Implement a procedure to obtain and document the
approval of alternate payee names for fee refunds
when it is necessary to use an alternate payee
name instead of the originally approved payee
name.
Assistant Administrator for 02/16/11
Air and Radiation
Assistant Administrator for 02/16/11
Air and Radiation
Chief Financial Officer 05/05/11
Chief Financial Officer 06/06/11
1	O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is unresolved with resolution efforts in progress
2	The potential monetary benefit represents the recurring annual cost savings of $6.5 million, based on FY 2010 unrecovered program costs, calculated
for 2 years.
3	The Agency did not agree with the potential monetary benefits amount because it was an estimate. The actual monetary benefits amount will not be
determined until the Agency updates the fees rule.
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Appendix A
Details on Scope and Methodology
We reviewed EPA's processes for the assessment and collection of vehicle emission testing fees.
To gain an understanding of the processes, we:
•	Reviewed the applicable laws, regulations, fees rules, and program information
•	Observed the laboratory facilities in Ann Arbor, Michigan, and reviewed operating
procedures
•	Interviewed OTAQ personnel in Ann Arbor and Washington, DC, and OCFO personnel
in Washington, DC
•	Examined the applicable fees databases
We tested fee transactions to determine whether EPA assessed the proper fee amount, collected
the fee before issuing a certificate of conformity, and recorded the collection timely. We
determined whether EPA approved and paid the proper refund amounts. We selected collection
fee transactions from the period October 1, 2009, to January 11, 2011, and refund transactions
from the period October 1, 2009, to December 31, 2010. We used the monetary unit method of
statistical sampling to test 226 fee collections totaling $6,351,820, and 22 refund transactions
representing 42 individual engine refunds totaling $311,944. The fee collections universe
included 5,296 transactions totaling $23,057,492, and the refunds universe included 27 refund
transactions totaling $517,068. We used random sampling to test 45 certificates out of 5,038
certificates issued in the 15-month period from October 1, 2009, to December 31, 2010, to search
for certificates issued with no corresponding fee collection.
We obtained fee collections and program operating costs for FY 2010 and determined whether
the collections were sufficient to recover all the reasonable program operating costs.
We assessed the internal controls related to assessing, collecting, and refunding fees. We gained
an understanding of the internal controls through interviews with OTAQ and OCFO personnel,
and examination of fees database information and the related supporting documents. We
reviewed EPA's OAR FY 2010 management integrity assurance letter for reported internal
control weaknesses.
We did not assess the reliability of data in OTAQ's information systems because their use did
not materially affect our findings, conclusions, or recommendations. We verified fee collection,
refund, and certificate of conformity data by examining supporting documentation and accessing
financial information in IFMS. We did not review the internal controls over IFMS from which
we obtained financial data, but relied on the review conducted during the audit of EPA's
FY 2010 financial statements.
We found no prior Office of Inspector General or GAO reports with findings or
recommendations related to EPA's vehicle emission testing fees.
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Appendix B
Agency Response to Draft Report
(Received September 15, 2011)
MEMORANDUM
SUBJECT: EPA Response to OIG Draft Report EPA Should Update Its Fees Rule to Recover
More Motor Vehicle and Engine Compliance Program Costs Project No. OA-
FY11-0040
FROM: Gina McCarthy
Assistant Administrator
TO:	Melissa M. Heist
Assistant Inspector General for Audit
Office of Inspector General
Thank you for the opportunity to comment on the Office of Inspector General (OIG) draft report,
EPA Should Update Its Fees Rule to Recover More Motor Vehicle and Engine Compliance
Program Costs Project No. OA-FY11-0040, dated August 10, 2011. The report focuses on
EPA's administration of Motor Vehicle and Engine Compliance Program (MVECP) user fees,
which the Agency collects under the Independent Offices Appropriations Act and the Clean Air
Act, as amended. The recommendations in the draft report offer useful guidance for EPA's
Office of Air and Radiation (OAR) and Office of the Chief Financial Officer (OCFO) as we
work to continuously improve management of the fees program. The comments we offer in this
response have been coordinated and reflect the input of both OAR and OCFO.
We are pleased that the OIG review confirmed OAR's effective fiduciary oversight of the fees
program. The OIG audit team's intense scrutiny of more than 200 transactions totaling $6.7
million identified only $1,326 that might be questioned, and that amount resulted from
manufacturer rather than Agency error. We also appreciate OIG's interest in ensuring that the
Agency's MVECP fee collections are sufficient to recover the program's operating costs. OIG's
finding that EPA is not recovering all its costs is consistent with OAR's expectation based on a
rough cost analysis of current operations.
A summary of our response to OIG's findings and recommendations is provided below. The
attachment provides a more detailed response that addresses factual accuracy of statements in the
draft report and suggests alternative language to improve clarity or provide context.
1. Finding: EPA is not recovering all reasonable costs of administering the MVECP.
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EPA Response: EPA agrees that the current fees program is not recovering all costs
associated with administering the MVECP. Some shortfall is expected given that the fee
rate structure promulgated under the 2004 fees rule does not fully account for cost
increases due to inflation; does not consider costs associated with operating fuels
compliance programs or new engine and vehicle compliance programs initiated since
2004; and allows reduced fees for small volume manufacturers. However, EPA cautions
against attaching a specific dollar number to the shortfall without conducting a
comprehensive cost analysis and notice-and-comment rulemaking. The $6.5 million
shortfall cited in OIG's finding conveys a false sense of precision and is unlikely to be
correct. Suggested alternative language is provided in the attachment.
2.	Finding: EPA's internal controls over the assessment and collection of fees are generally
effective, except for minor exceptions.
EPA Response: EPA agrees with OIG's conclusion that effective internal controls are in
place and questions the draft report's lengthy discussion of "minor exceptions" that OIG
correctly states have been resolved. EPA is concerned that the prominence conferred by
this treatment of minor internal control issues that have already been resolved
disproportionally elevates their significance relative to the overall integrity of the
program. Suggested alternative language is provided in the attachment.
3.	Recommendation: EPA should update the 2004 fees rule to increase the amount of
MVECP costs it can recover.
EPA Response: EPA concurs with this recommendation but is unable at this time to
commit to a timeframe for updating the rule. The statutory authority for the MVECP
allows the Administrator to exercise discretion in promulgating regulations for fees
recovery. Thus, timing for reopening the fees rule will depend on the Administrator's
discretion to consider various factors, including how best to deploy extremely constrained
program staff resources in light of many pressing Agency priorities.
4.	Recommendation: EPA should conduct biennial reviews of the MVECP fee collections
and full cost of operating the program.
EPA Response: EPA concurs with this recommendation. EPA intends to conduct
streamlined MVECP cost assessments as an extension of ongoing cost monitoring
activity.
5.	Recommendation: OAR and OCFO should maintain segregation of duties and OCFO
should obtain approval of alternate payee names for fee refunds when alternate names are
needed.
EPA Response: The draft report notes that the conditions of concern have been
corrected; EPA concurs. EPA also notes that the OAR activity of concern to OIG
occurred in a transition period during which some functions normally performed by
contractors were temporarily being conducted in house due to delays in award of the new
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contract. The transition period lasted for less than a month. EPA believes the draft report
overemphasizes the significance and context of the situation OIG observed.
Please see the attachment for a more thorough discussion of the above points. Please contact me
if you have any questions or your staff may contact Janet Cohen at 734-214-4511.
Attachment
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Attachment
EPA Response to OIG Draft Report OA-FY11-0040, "EPA Should Update Its Fees Rule to
Recover More Motor Vehicle and Engine Compliance Program Costs"
EPA offers the following comments for OIG's consideration in preparing a final report on the
MVECP fees program.
Corrections
Page/Paragra
ph
Correction
Explanation
1/1
Change first sentence, "collection of
vehicle emissions testing fees" to
"... collection of fees.."
MVECP fees recover costs associated
with a broad range of compliance
activities beyond vehicle testing.
1/2
Change second sentence, "EPA's
National Vehicle and Fuel Emissions
Laboratory in Ann Arbor, Michigan .."
to "EPA's Office of Transportation
and Air Quality . ."
MVECP compliance activity for which
fees are assessed is performed in
Washington as well as Ann Arbor.
1/2
Change language to indicate that fees
recover costs of testing and other
compliance activities
See above
4/1
Change sentence in middle of
introduction paragraph to say, "EPA
has not conducted a formal cost
study... .and has not updated the 2004
fees rule" to " .. .has not update the
annual fee adjustment formula in the
2004 fees rule."
EPA updated the fees regulations as
part of the 2008 Nonroad Spark-
Ignition Engines and Equipment Rule.
General Comments
At a Glance
Please see comments on chapter text, below. The 'At a Glance' section is a summary of what
follows in the draft report; thus our comments on the report are also relevant to the summary.
Chapter 1: Introduction
Noteworthy Achievements, page 2
We believe OIG's failure to find any significant problems in EPA's overall management of a
program that has recovered some $260 million to date in fees charged to regulated industry,
without complaint from industry fee payers, merits mention as a noteworthy achievement.
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In its initial communication with EPA, OIG stated that a primary purpose of the investigation
was to determine whether EPA ensures that the proper fee is collected before issuing a certificate
of conformity. We consider it highly noteworthy that OIG found no evidence of certificates
being issued improperly or fees being improperly assessed.
We suggest that language noting the exemplary overall management of the MVECP fees
program be added to the noteworthy achievements section.
Chapter 2: EPA's Motor Vehicle and Engine Compliance Program Is Not Recovering All
Reasonable Costs
Introduction, page 4
OIG's primary finding that EPA is not recovering all reasonable costs of administering the
MVECP is based on a comparison of actual fees revenues for 2010 and a rough estimate of 2010
costs. We agree that a more comprehensive cost study would likely confirm some shortfall
between recoverable revenues under the current fees regulations and the costs EPA incurs to
operate the MVECP. However, it is likely that the size of the gap will be different from the $6.5
million stated in the draft report. This is because in providing the rough estimate, we did not
have time to thoroughly reassess all cost inputs. For example, we did not update the methods or
assumptions used in 2004 to distinguish between fees-recoverable and non-recoverable expenses,
and we did not re-examine overhead ratios that may have changed since 2004. EPA furthermore
did not consider costs associated with administering its fuels compliance programs, which are
not included in the 2004 rule.
EPA suggests the following substitute language:
"EPA is not recovering all reasonable costs of administering the MVECP. For example, a rough
analysis for FY2010, EPA did not recover showed a $6.5 million of its costs, based on
Usdifference between estimated program costs of $24.9 million andfee collections of $18.4
million
EPA's MVECP Fees Rule Does Not Account for Program Changes, page 4-5
We cannot overstate concerns about assessing fees-recoverable costs with any degree of
confidence without conducting a comprehensive cost study and notice-and-comment rulemaking.
We therefore reiterate that the $24.9 million FY2010 MVECP cost estimate represents an
estimate that could change. We strongly caution against attaching too much significance to this
dollar figure.
We also caution against comparing the cost estimate to the actual fees collections for a given
year. The draft report correctly states that EPA collected $18.4 million in fees for FY2010,
compared to a $20.8 million target for FY2010 in the fees rule. However, it is misleading to
imply that this represents an under-collection of fees. The fees rule methodology anticipates and
accounts for annual fluctuations in actual collections. In any given year, we may collect more or
less than the fees rule target for that year, based on the number of unique test groups/engine
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families manufacturers certify. For example, in 2007 EPA collected $20.3M in fees compared
with a $20.0M recovery target, and in 2008 EPA recovered $20.5M compared to a $20.2M
target. In 2010 fees revenues happened to be less than the recovery target. The 2004 fees rule
formula EPA uses to set fees each year is designed to adjust for annual fluctuations in the
number of certified test groups/engine families in a given sector. Although EPA collected less
than EPA's 2010 costs as projected by the fees rule, the rule methodology increases the fee rate
per test group the following year such that the collected amount should return to the 2011
recovery goal.
EPA Needs a Fees Rule Update, page 6-7
The draft report states that EPA has not updated the fees rule since 2004. This is inaccurate. The
Agency updated the fees program as part of the 2008 Control of Emissions from Nonroad Spark-
Ignition Engines and Equipment Final Rule. The 2008 rulemaking changed the 2004 fees
regulations to include fees for equipment and fuel system components associated with nonroad
and stationary spark-ignition engines. EPA also took the opportunity offered by this rulemaking
to streamline certain administrative requirements and to improve fees collection and processing
procedures. EPA has collected a total of about $90,000 in new fees revenues since fee
requirements for sectors covered by the 2008 rulemaking took effect.
Conclusion, page 7
Please see previous comments regarding false precision in the estimate of potential additional
revenue that might be recovered under an updated fees rule.
Chapter 3: EPA Has Corrected Minor Internal Control Deficiencies in the Assessment and
Collection of Fees
Introduction, page 9
The draft report states, "We found EPA's internal controls over the assessment and collection of
fees to be generally effective." Given the insignificant nature of the problems OIG identified, we
believe it would be more accurate to state that the internal controls are highly effective.
Similarly, the introductory paragraph concludes, "Although EPA's internal controls were
generally effective, the minor internal control issues we found compromise EPA's ability to
ensure that management's directives are followed and assets are safeguarded." EPA does not
believe the facts support this conclusion and we disagree. None of the internal control issues OIG
identified compromise the integrity of EPA's fiscal oversight. The OIG audit did not identify a
single instance of mismanagement in its scrutiny of 45 certificates, 226 transactions, and almost
$6.4 million in net receipts. The draft report also neglects to acknowledge the findings of two
internal audits of the fees program that EPA shared with OIG. The results of these reviews,
which examined thousands of certificates and fees transactions, were similar to the OIG's
findings, confirming the program's integrity and providing reassurance that existing management
and fiduciary controls are effective.
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EPA suggests the following substitute language for the end of the introductory paragraph:
"Alth&ugh-Overall, OIG found EPA 's internal controls were-gemmUyto be highly effective.-/.
The minor internal control issues we found did not compromise EPA 's ability to ensure that
management's directives are followed and assets are safeguarded. "
Duties for Fee Collections Were Not Segregated
OTAQ Segregation of Duties, page 9-10
The draft report cites two instances of improper segregation of duties. EPA does not believe that
these situations would have compromised assurance in fiscal oversight, even if they were not
temporary. In the first instance, the draft report accurately explains that this was a temporary
situation that lasted for two weeks during a contract transition period. Ironically, if OTAQ had
not designed extra verification steps into the fees application and data entry processes, this issue
wouldn't have met the threshold of raising the segregation issue in the first place.
In the second situation, the draft report states that a certification representative with "close
working relationship with manufacturers who pay the fees" was involved in uploading fees
collection amounts to a certification database. We disagree with OIG's interpretation of the
situation. First, the data upload function is essentially a file transfer that involves copying a data
file from the fees database into a certification database so OTAQ can confirm that the proper fee
has been paid before a certificate can be issued. The baseline fees information continues to reside
in the fees database such that an alteration of copied information would be noticed. Second, as
the draft report states, the employee did not work with the industry sector for which data were
being transferred. Third, the employee's role is administrative in nature. The employee normally
has no contact with fee-paying manufacturers, and certainly does not have a close working
relationship with them. We believe that the OIG's characterization of this situation in the draft
report misrepresents actual conditions and recommend that it not be cited as a segregation of
duties concern in the final report.
Other Internal Control Matters
Correction of Customer Errors, page 13-14
The draft report cites three cases OIG identified in its sample in which manufacturers requested
smaller refunds than they could have claimed under the 2004 fees rule. In all three cases OTAQ
processed refunds for the amount the manufacturer requested. OIG states that OTAQ could
improve customer service by performing a more detailed review of reduced fee refund requests
to identify and help manufacturers correct such errors.
We do not believe that increased OTAQ scrutiny of manufacturer reduced fee refund requests is
sensible or realistic, given constrained resources and other priorities. First, it is not always the
case that a refund request for less than the allowable maximum necessarily represents an error.
Manufacturers sometimes intentionally request a smaller refund than they are entitled to under
the law because they intend to apply the overpayment to a future fee obligation. Second, OTAQ
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strongly believes that the staff resources that would be necessary to thoroughly evaluate every
refund request are better deployed tracking other aspects of the fees program. In recent years
OTAQ has processed an average 60 refund requests annually. These represent about 1% of
quantifiable fees related actions. In calendar year 2010 for example, 66 of the 7,190 quantifiable
fees actions EPA processed were refunds. EPA has instituted controls to ensure that these actions
are accurately reviewed and recorded but intense scrutiny of every individual action is simply not
possible, given OTAQ's resources. It is worth noting that the potential $1,326 under-refund in
the three cases cited by OIG would reflect an error rate of 0.02% relative to the $6.7 million in
transactions that OIG audited.
Conclusion, Recommendations, Preliminary Agency Actions, page 15
The 'Conclusion' and 'Preliminary Agency Actions' sections indicate that OTAQ took action to
segregate certain staff functions because of OIG's investigation. In actuality the conditions OIG
observed were unavoidable and known by OTAQ to be temporary, occurring during a contract
transition period in January, 2011 that lasted less than a month. We suggest the following
substitute language for these sections to more accurately reflect the condition that existed during
the OIG audit:
EPA has generally effective internal controls over the assessment and collection of fees. The
minor exceptions we observed were temporary in nature, occurring daring a contract transition
period that happened to coincide with the OIG site visit. The situation was caused by delays
beyond OAR's control in award of a new contract, and lasted for only a few weeks. EPA
demonstrated a commitment to maintaining effective internal controls by implementing
corrective actions.
The recommendations for the Assistant Administrator for Air and Radiation and the Chief
Financial Officer appear to be moot, given that these actions have already been taken.
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Appendix C
Distribution
Office of the Administrator
Agency Followup Official (the CFO)
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Assistant Administrator for Air and Radiation
Director, Office of Financial Management, Office of the Chief Financial Officer
Director, Office of Financial Services, Office of the Chief Financial Officer
Audit Followup Coordinator, Office of Air and Radiation
Audit Followup Coordinator, Office of the Chief Financial Officer
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