£
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Report Contributors: Kevin Chaffin
Amir Eskarous
Doug LaTessa
Chikara Mbah
Patrick Mclntyre
Michael Petscavage
Lynda Taylor
Abbreviations
AFR
Agency Financial Report
CFR
Code of Federal Regulations
EPA
U.S. Environmental Protection Agency
FY
Fiscal Year
GAO
U.S. Government Accountability Office
IPERA
Improper Payments Elimination and Recovery Act of 2010
OCFO
Office of the Chief Financial Officer
OIG
Office of Inspector General
OMB
Office of Management and Budget
SOP
Standard Operating Procedure
UNEP
United Nations Environmental Programme
U.S.C.
United States Code
Cover Images: Left: Depiction of the EPA's IPERA compliance.
Right: Depiction of internal control improvements needed. (OIG images)
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Learn more about our OIG Hotline.
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U.S. Environmental Protection Agency 19-P-0163
f AA \ Office of Inspector General May 31 2019
12221
At a Glance
Why We Did This Project
The Improper Payments
Elimination and Recovery Act
of 2010 (IPERA) and the
Improper Payments Elimination
and Recovery Improvement Act
of 2012 require that each fiscal
year the Inspector General of
each agency determine
whether the agency is in
compliance with the law.
IPERA requires agencies to
annually estimate and report
improper payments for
programs and activities that are
deemed susceptible to
significant improper payments.
In addition, Office of
Management and Budget
Circular A-123, Appendix C,
states that the Office of
Inspector General should
evaluate the accuracy and
completeness of agency
reporting. Our audit focused on
the U.S. Environmental
Protection Agency's (EPA's)
compliance with these
requirements.
This report addresses the
following:
• Compliance with the law.
EPA Complied with Improper Payments Legislation
but Stronger Internal Controls Are Needed
What We Found
The EPA complied with IPERA in that it reported
all required information on improper payments,
but the EPA can improve the accuracy and
completeness of the information.
Improvement to processes
for preventing and detecting
improper payments will
result in better use of funds
for environmental and
supporting programs.
The EPA's estimated improper payments and
the improper payment error rate were
understated for fiscal year (FY) 2018. In the FY 2017 Agency Financial Report,
the EPA reported $12.37 million in estimated improper payments for grants. For
FY 2018, the EPA reported only $310,000 in estimated improper payments—
a decrease of nearly $12 million. We believe the improper payment amount
reported for FY 2018 is understated because our review of 25 payments, totaling
$4,418,774, identified an additional $1,912,275 in payments as improper due to
insufficient, or lack of documentation (see Appendix A for further details).
EPA staff did not effectively test drawdowns to verify whether costs were
allowable, allocable, reasonable and necessary; and did not use standard
operating procedures to substantiate the procedures performed.
Improvement to the testing of drawdowns and the statistical sample for grant
payments will aid in the better use of funds for environmental and supporting
programs.
Recommendations and Agency Corrective Actions
We recommend that the EPA revise the Office of the Chief Financial Officer's
grant improper payments review process to include internal controls for training
reviewers and annually verifying that reviewers are knowledgeable and proficient
in the identification and reporting of improper payments. We also recommend
that the Office of the Chief Financial Officer comply with the EPA's sampling and
estimation plan annually submitted to the Office of Management and Budget. The
agency agreed with our recommendations and indicated that corrective actions
were implemented in April 2019. We consider the recommendation resolved until
we confirm completion during next year's audit.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBCOMMENTS@epa.oiq.
List of OIG reports.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
May 31, 2019
MEMORANDUM
SUBJECT: EPA Complied with Improper Payments Legislation
but Stronger Internal Controls Are Needed
Report No. 19-P-0163
FROM: Charles J. Sheehan, Deputy Inspector General
TO:
Holly Greaves, Chief Financial Officer
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency (EPA). The project number for this assignment was
OA&E-FY19-0037. 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. Final determinations on matters in this report will be made
by EPA managers in accordance with established audit resolution procedures.
In accordance with EPA Manual 2750, your office provided acceptable corrective actions in response to
the report's two recommendations. The two recommendations are resolved and no final response to this
report is required. However, if you submit a response, it will be posted on the OIG's website, along with
our memorandum commenting on your response. Your 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 amended. Any 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 along
with corresponding justification.
We will post this report to our website at www.epa.gov/oig.
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EPA Complied with Improper Payments
Legislation but Stronger Internal Controls
Are Needed
19-P-0163
Table of C
Chapters
1 Introduction 1
Purpose 1
Background 1
Responsible Offices 2
Scope and Methodology 3
Prior Audit Coverage 3
2 EPA Complied with IPERA 4
3 OCFO's Grant Review Process Needs Improvement 6
Laws, Regulations and Agency Procedures Provide
Requirements for IPERA Grant Reviews 6
Improvements Needed for the Grant Review Process 7
Reviewers Were Not Adequately Trained 9
Improper Payments Underestimated 10
Recommendation 11
Agency Response and OIG Evaluation 11
4 EPA Did Not Test All Grant Payments for Improper Payments 12
EPA's Sampling Methodology Required 225 Samples to Be Tested 12
EPA Did Not Test All Payments for Improper Payments 13
EPA Determined UNEP Grants Did Not Fall Within Scope of IPERA 13
Grants Improper Payments Rate Understated 14
Recommendation 14
Agency Response and OIG Evaluation 14
Status of Recommendations and Potential Monetary Benefits 15
Appendices
A Sample of Grant Drawdowns Audited 16
B Agency Response 17
C Distribution 19
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Chapter 1
Introduction
Purpose
The purpose of this audit was to report on the U.S. Environmental Protection
Agency's (EPA's) compliance with the Improper Payments Elimination and
Recovery Act of 2010 (IPERA) and to evaluate the accuracy and completeness
of agency reporting.
Background
The Improper Payments Information Act of 2002 requires executive branch
agencies to estimate the amounts of improper payments made each year. In
July 2010, Congress enacted IPERA, which amended the Improper Payments
Information Act of 2002 by redefining the definition of "significant improper
payments" and strengthening agencies' reporting requirements. IPERA also
requires Inspectors General to determine whether their agencies complied with
IPERA and issue a report on that determination. Congress also enacted the
Improper Payments and Recovery Improvement Act of 2012, which further
enhanced improper payments requirements and gave agencies additional tools to
address improper payments.
Inspectors General must annually determine whether agencies are in compliance
with the six requirements identified in IPERA. Also, Office of Management and
Budget (OMB) Circular A-123, Appendix C,1 states that Inspectors General
should evaluate the accuracy and completeness of agency reporting.
IPERA requires agencies to conduct risk assessments of their programs or
activities to determine whether they are susceptible to significant improper
payments. IPERA defines significant improper payments as improper payments
in the preceding year that may have exceeded the statutory threshold of both
$10 million of all program or activity payments made during the fiscal year
reported and 1.5 percent of program outlays, or $100 million. IPERA states that
an improper payment:
"(A) means any payment that should not have been made or that
was made in an incorrect amount (including overpayments and
underpayments) under statutory, contractual, administrative, or
other legally applicable requirements; and
1 OMB Memorandum M-18-20, dated June 26, 2018, modified Appendix C to OMB Circular A-123, Requirements
for Payment Integrity Improvement, and was effective starting in fiscal year (FY) 2018.
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"(B) includes any payment to an ineligible recipient, any payment
for an ineligible good or service, any duplicate payment, any
payment for a good or service not received (except for such
payments where authorized by law), and any payment that does
not account for credit for applicable discounts." 2
According to IPERA and OMB Circular A-123, Appendix C, agencies are
required to annually estimate and report improper payments for programs and
activities that are deemed susceptible to significant improper payments. The EPA
annually collects and reports improper payments by type of activity in its Annual
Financial Report (AFR).
In its FY 2018 AFR, the EPA reported an estimate of $310,000 in improper
payments. Table 1 summarizes the risk level for improper payments for each of
the EPA's programs.
Table 1: Program risk level
Program
Not susceptible to
significant improper
payments
Susceptible to
significant improper
payments
High
priority
Commodities
X
Contracts
X
Clean Water State
Revolving Fund
X
Drinking Water State
Revolving Fund
X
Grants
X
Hurricane Sandy
X
Payroll
X
Purchase Cards
X
Travel
X
Source: EPA FY 2018 AFR.
Responsible Offices
The Office of the Controller within the Office of the Chief Financial Officer
(OCFO) develops, manages and supports the agency's federal financial
management program by interpreting fiscal legislation, maintaining fiscal
operations and implementing governmentwide external reporting reforms. The
OCFO formulates the EPA's annual budget and performance plan, coordinates the
EPA's strategic planning efforts, develops the EPA's annual Performance and
Accountability Report, and implements the Government Performance and Results
Act. The OCFO also provides financial services for the EPA and makes payments
to EPA grant recipients, contractors and other vendors. The office provides
policy, reports and oversight essential for the financial operations of the EPA. For
2 31 U.S.C. § 3321 note.
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FY 2018, the OCFO's Las Vegas Finance Center led the grant improper payment
reviews.
Scope and Methodology
We conducted this performance audit from November 2018 to April 2019 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit
objectives.
To determine whether the EPA complied with IPERA during FY 2018, we
reviewed the EPA's FY 2018 AFR and accompanying materials. We interviewed
agency staff at EPA headquarters for the OCFO, Region 2 and the Office of
Mission Support. We also interviewed OCFO staff from the Las Vegas Finance
Center.
We gained an understanding of the processes, procedures and controls used for
improper payment and recovery reporting across the EPA—including for grants
and addressing the aftermath of Hurricane Sandy—and selected judgmental
samples from each activity. We took steps to confirm the accuracy of the Las
Vegas Finance Center's improper payment schedules with EPA system-generated
support data for the grants payment stream. For EPA activities considered at the
time of the audit to be susceptible to significant improper payments, we reviewed
a sample of transaction testing reports and worksheets to identify improper
payments. We also used data from EPA data systems—the Integrated Grants
Management System and the Compass Data Warehouse.
Prior Audit Coverage
During this audit, we reviewed our prior IPERA report—EPA Office of Inspector
General (OIG) Report No. 18-P-0153. EPA Complied With Improper Payments
Elimination and Recovery Act Requirements, issued April 16, 2018. That report
did not contain any recommendations and, thus, no follow-up was required.
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Chapter 2
EPA Complied with IPERA
The EPA's FY 2018 improper payment reporting complied with IPERA. IPERA
established six requirements that agencies must meet to be compliant, and the
EPA complied with all six requirements. However, the EPA needs to improve the
accuracy of improper payments reporting for the grants payment stream as
identified in Chapters 3 and 4 of this report. Table 2 shows the six IPERA
requirements and what the EPA did regarding each requirement during FY 2018.
Table 2: EPA met the six requirements of IPERA
Requirement
Comply?
Description
Publish an AFR or Performance
and Accountability Report for the
most recent fiscal year and post
that report and any
accompanying materials required
by OMB on the agency website.
Yes
The EPA published the FY 2018 AFR on the agency
website on November 15, 2018.3
Conduct a program-specific risk
assessment for each program or
activity that conforms with 31
U.S.C. § 3321 note (if required).
Yes
As required, the EPA conducted risk assessments
for the following programs: Commodities, Contracts,
Clean Water State Revolving Fund, Drinking Water
State Revolving Fund, Payroll, Purchase Cards, and
Travel.
Publish improper payment
estimates for all programs and
activities identified as susceptible
to significant improper payments
under its risk assessment
(if required).
Yes
The EPA performed program statistical sampling and
published improper payment estimates for each of its
two risk-susceptible programs, as follows:
• Grants
• Hurricane Sandy
The grants program is susceptible to significant
improper payments due to exceeding IPERA
thresholds for improper payments for the risk
assessment conducted in FY 2016.
The Disaster Relief Appropriations Act of 2013 states
that all funds received under that act are
automatically deemed susceptible to significant
improper payments. Since this act provides
Hurricane Sandy aid, this program is deemed
susceptible to significant improper payments. As a
result, the EPA designed and implemented a
statistical sampling plan for testing Hurricane Sandy
expenditures.
3 While the EPA did publish the AFR, the audit found issues with the agency's grant reviews, which impact the
improper payments reported.
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Requirement
Comply?
Description
Publish programmatic corrective
action plans in the AFR or
Performance and Accountability
Report (if required).
Not
Required
The EPA reported in the AFR that it did not exceed
the statutory threshold identified in IPERA of
$10 million and 1.5 percent of program outlays, or
$100 million, and therefore the corrective action plan
is not required. Improper payment amounts and rates
reported for risk-susceptible programs were the
following for each program:4
• Hurricane Sandy - $0.00, 0.00%
• Grants - $310,000, 0.01%
Publish, and meet, annual
reduction targets for each
program assessed to be at risk
and estimated for improper
payments (if required and
applicable).
Yes
The EPA published annual reduction targets for each
of the two programs identified as susceptible to
significant improper payments. The EPA met the
annual reduction targets for FY 2018 AFR reporting
for each program, as shown below:
Payment
Stream
Targeted rate
(percent)
Actual rate
(percent)
Hurricane Sandy
1.50
0.00
Grants
2.95
0.01
Report a gross improper payment
rate of less than 10 percent for
each program and activity for
which an improper payment
estimate was obtained and
published in the AFR or
Performance and Accountability
Report.
Yes
The EPA reported gross improper payment rates of
less than 10 percent for each program, as follows:
• Hurricane Sandy: 0.00 percent
• Grants: 0.01 percent
Source: OIG analysis of EPA data.
4 We were unable to confirm whether or not the EPA exceeded the threshold for the grants program based on
identified exceptions noted during our review of the OCFO transaction testing. However, the OCFO estimates that
the improper payment error rate and estimated improper payments reported in the FY 2018 AFR are understated by
at least 0.29 percent and $7 million, respectively. (See Chapter 4.)
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Chapter 3
OCFO's Grant Review Process Needs Improvement
The EPA's grant review process needs improvement because we found that grant
reviewers did not follow established procedures or effectively test payments to
verify whether the costs were allowable, allocable and reasonable as required.
IPERA, 2 CFR Part 200, Appendix C of OMB Circular A-123, and the agency's
Standard Operation Procedure for Grant Improper Payment Review establish
requirements and direction for the review of grant improper payments. The issues
noted occurred because the EPA transferred responsibility for improper payments
testing of grants from the Office of Grants and Debarment to the Las Vegas
Finance Center staff without providing adequate training and guidance. As a result,
the EPA did not detect or report all improper payments, underestimating both the
estimated improper payments error rate and estimated payments in the AFR.
Our review of 25 payments, totaling $4,418,774, identified an additional
$1,912,275 in payments as improper due to insufficient, or lack of, documentation.
Laws, Regulations and Agency Procedures Provide Requirements for
IPERA Grant Reviews
IPERA requires agencies to publish improper payments estimates for all programs
and activities identified as susceptible to significant improper payments. IPERA
also requires agencies to include those estimates in the accompanying materials to
the annual financial statement of the agency required under 31 U.S.C. § 3515, or
similar provisions of law and applicable guidance of the OMB. The definition of
improper payments as provided by IPERA5 is in Chapter 1 of this report.
OMB guidance explains that a " 'payment for an ineligible good or service'
includes a payment for any good or service that is not permitted under any
provision of a contract, grant, cooperative agreement, lease or other funding
mechanism."6 OMB guidance also states that "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 should also be considered an improper payment."7
Further, 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles,
and Audit Requirements for Federal Awards, Subpart E—Cost Principles,
establishes principles for determining the allowable costs incurred by nonfederal
entities under federal awards. These principles must be used in determining the
allowable costs of work performed by the nonfederal entity. Under these
principles, costs must be necessary and reasonable for the performance of the
5 31 U.S.C. § 3321 note.
6 OMB Circular A-123, Appendix C, Part 1(A)(2).
7 OMB Circular A-123, Appendix C, Part 1(A)(1).
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federal award, and they must be allocable to the award to be allowable.8
"Disallowed costs" are defined as those "charges to a federal award that the
federal awarding agency or pass-through entity determines to be unallowable, in
accordance with applicable Federal statutes, regulations, or terms and conditions
of the Federal award."9 These principles define improper payments as follows:
[A]ny payment to an ineligible party, any payment for an ineligible
good or service, any duplicate payment, any payment for a good or
service not received (except for such payments where authorized
by law), any payment that does not account for credit for
applicable discounts, and any payment where insufficient or lack
of documentation prevents a reviewer from discerning whether a
payment was proper.10
The OCFO's Standard Operating Procedure Grants Improper Payment Review
identifies 18 review procedures to determine whether costs are allowable or
unallowable (i.e., proper or improper). This standard operating procedure (SOP)
defines "disallowed costs" as "costs/expenses charged to an assistance agreement
that the Federal awarding agency determines to be unallowable, in accordance
with the applicable Federal statutes, regulations, or the terms and conditions of the
award."
Improvements Needed for the Grant Review Process
The Las Vegas Finance Center's grant reviewers did not effectively test
drawdowns to verify whether costs were allowable, allocable, reasonable and
necessary, as required by the SOP and OMB Circular A-123, Appendix C. The
grant reviewers performed improper payment testing without applying the
18 review methods defined in the OCFO's SOP and did not complete the SOP's
"Exhibit 4: IPERA Review Checklist" to substantiate the procedures performed.
In addition, the grant reviewers did not effectively test drawdowns to verify
whether all the reviewed transactions were allowable, allocable, reasonable and
necessary under the grant's terms and conditions per 2 CFR Part 200, Subpart E.
The grant reviewers we interviewed were unfamiliar with the improper payments
review process and informed the OIG auditors that they did not test for cost
principle compliance (i.e., allowable, allocable, reasonable and necessary) as
defined in 2 CFR Part 200, Subpart E. The reviewers indicated they were
instructed to confirm only that the payments were issued to the correct recipient,
at the correct amount, and were timely.
In the FY 2018 AFR, the EPA reported improper payments in the amount of
$310,000. However, during our review of 25 payments totaling $4,418,774, we
8 2 CFR § 200.403(a).
9 2 CFR § 200.31.
10 2 CFR § 200.53(b).
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identified an additional $1,912,275 in payments as improper due to insufficient, or
lack of documentation (see Appendix A for further details).
The grant reviewers could not provide sufficient and appropriate evidence to
allow OIG auditors to determine whether costs were allowable, allocable,
reasonable and necessary as to the terms and conditions of the award.
Specifically, drawdown documentation provided did not include support that
allowed the OIG auditors to tie invoiced costs for payroll, travel and indirect costs
to the sampled grant draw amount identified in the EPA award document.
The following subsections provide examples of specific drawdowns for which the
EPA could not provide sufficient and appropriate evidence to the OIG auditors
during our fieldwork visit to the Las Vegas Finance Center.
Grantee A
For Grantee A grant number PM98577308, draw #1, this drawdown included
incurred costs of $63,936 that were not allocable to this EPA award. Two
payments—for $22,678 and $2,708—were allocable to grant number
BG98543214, also issued to the Grantee A. Two additional payments— for
$34,438 and $4,112—were allocable to a different award.
Grantee B
For Grantee B grant number RD83555401, draws #1-3 included three payments
totaling $100,461 that the OIG auditors determined to be improper payments
because they were not allocable to this grant (see Table 3).
Table 3: Grantee B payments identified as improper payments
Drawdown
Amount
Draw
Voucher
Grant
amount selected
deemed
#
date
number
for OIG review
improper
1
9/19/16
RD83555401, draw #1
$4,524
$4,524
2
9/05/17
RD83555401, draw #2
44,268
38,160
3
7/05/17
RD83555401, draw #3
61,212
57,777
Totals
$110,004
$100,461
Source: OIG analysis of EPA data.
For draw #1, the grantee provided invoice number 90264814, in the amount of
$4,524, as supporting documentation. However, there is no evidence on the
invoice to associate this cost with EPA grant number RD83555401.
For draw #2, the grantee provided one summary sheet and six invoices to support
the draw in the amount of $44,268. However, only invoice #3479, for $6,108,
clearly indicates the incurred costs are associated with EPA grant number
RD83555401.
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For draw #3, the grantee provided one summary sheet and 10 invoices to support
the draw amount of $61,212. However, only the following supporting invoices
could be determined as allocable to EPA grant RD83555401: invoice #2916 for
$2,652 and #3316 for $784 (calculation difference with total amount in Table 3
due to rounding).
Grantee C
For Grantee C grant number BG99182905, the documentation that the EPA
provided included $183,303 for payroll costs that were charged to the EPA award.
However, the payroll documentation did not include the actual hours worked;
therefore, the grant reviewer could not compare the actual hours worked and the
pay rate to verify that the amount requested for reimbursement was accurate, as
required in the SOP. The documentation provided was insufficient for the OIG
auditor to determine whether the costs were allocable, allowable and reasonable.
The EPA should have identified the $183,303 as an improper payment due to
insufficient, or lack of documentation.
Grantee D
For Grantee D grant number PA00J91201, the drawdown was for $555,839.
However, we could only identify one invoice, #14956, for $7,982, that was
associated with the grant. The grant reviewer did not check the documentation
provided for allowability, allocability and reasonableness, as that individual did
not have an understanding of 2 CFR 200. The documentation provided was
insufficient for the OIG auditor to determine whether the costs were allocable,
allowable and reasonable. Therefore, $547,857 ($555,839 minus $7,982) should
have been reported as an improper payment due to insufficient, or lack of
documentation.
Grantee E
For Grantee E grant number C900178011, with a drawdown request for $117,442,
the grantee provided a summary spreadsheet that identified that the costs were
associated with grant number C900178011. However, we could not find any
invoices in the documentation in the grantee package that tied to the draw.
Therefore, the $117,442 should be reported as an improper payment due to
insufficient documentation.
Reviewers Were Not Adequately Trained
In FY 2018, the EPA transitioned the Advanced Administrative Monitoring
reviews program (i.e., transaction testing for improper payments) responsibilities
from the Office of Grants and Debarment (within what is now the Office of
Mission Support) to the OCFO. In conjunction with this realignment, the OCFO
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created and implemented the Standard Operating Procedure Grants Improper
Payment Review that describes how each office will implement and monitor
internal control activities within the payment stream to prevent, identify and
recover improper payments; and report the results of improper payment activities
to the President and Congress annually through the AFR.
While OCFO grant reviewers interviewed indicated they did receive training, they
did not believe the training adequately prepared them to review grants to test for
improper payments as required by IPERA. The grant reviewers interviewed
informed the OIG auditors that they either could not recall the SOP or did not use
the SOP for guidance. The grant reviewers did not complete the "Exhibit 4,
IPERA Review Checklist," and indicated that they were instead provided an
abbreviated checklist. Moreover, the Las Vegas Finance Center's Director
confirmed that both the SOP and Exhibit 4 checklist were not finalized until after
the grant reviews were concluded and an abbreviated checklist was used for the
reviews.
Additionally, the grant reviewers interviewed told the OIG auditors that they did
not receive sufficient comprehensive training regarding cost principles and audit
requirements outlined in 2 CFR Part 200 to verify payments in compliance with
IPERA. The grant reviewers stated that the instructions from OCFO trainers were
to just start reviewing the grant drawdowns and ask questions as needed. One of
the reviewers commented that the reviewers did not know what they were looking
for or doing so they did not know what to ask. We also noted during the audit that
the OCFO developed different iterations of the SOP, which hindered training. The
other SOPs were:
• Interim Standard Operating Procedure Grants Improper Payment Review,
issued in November 2017, which identifies 24 specific areas of review.
• Standard Operating Procedure Grants Improper Payment Review, issued
in February 2018.
In our opinion, due to the OCFO's vague and undeveloped training, both OCFO
management and staff appear to be confused as to what SOP, Exhibit 4 and
abbreviated checklist grant reviewers should use during the grant review process.
Therefore, the OCFO's grant reviewers did not adequately perform the procedures
to determine whether the payments under review were compliant with IPERA, nor
could they provide sufficient and appropriate evidence to allow the OIG auditors
to determine/verify whether costs were compliant with IPERA.
Improper Payments Underestimated
The EPA's improper error rate and estimated improper payments were
understated for FY 2018. In the FY 2017 AFR, the EPA reported $12.37 million
in estimated improper payments for the grant's payment stream. The FY 2017
AFR also stated that the improper payment rate for grants could increase
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substantially in FY 2018 due to the EPA reviewing five times as many recipients,
resulting in more improper payments. In FY 2018, the EPA transferred the
responsibility for leading the grant improper payment reviews from the Office of
Grants and Debarment to the Office of the Controller. EPA personnel said that
added emphasis would be placed on the detection of recipient overdraws, likely
resulting in more errors identified. However, for FY 2018, inadequate grant
reviews resulted in the EPA reporting only $310,000 in estimated improper
payments—a decrease of nearly $12 million from previous estimates of improper
payments during FY 2017. We conclude that, due to the lack of training and
guidance, improper payments were not identified and/or reported, leading to
understating both the improper error rate and estimated improper payments in the
EPA'sFY 2018 AFR.
Recommendation
We recommend that the Chief Financial Officer:
1. Revise the Office of the Chief Financial Officer's grant improper
payments review process to include internal controls for training reviewers
and annually verifying that reviewers are knowledgeable and proficient in
the identification and reporting of improper payments.
Agency Response and OIG Evaluation
The agency concurred with Recommendation 1 and stated that it completed
corrective action in April 2019. The Chief Financial Officer indicated that OCFO
will confirm and document all reviewers' knowledge of the IPERA grants review
process. In addition, for FY 2019, the SOP was revised in February 2019 to
streamline the IPERA training. In April 2019, the OCFO provided additional training
to reviewers to ensure proficiency in identifying and reporting questioned costs.
The corrective action meets the intent of the recommendation and the
recommendation is considered resolved. We will follow up on the corrective action
during the FY 2019 IPERA audit.
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Chapter 4
EPA Did Not Test All Grant Payments for
Improper Payments
The EPA did not sufficiently test for improper payments. Per OMB
Circular A-123, Appendix C, Part 1(D)(1), if an agency determines a program is
susceptible to significant improper payments, it must design and implement an
appropriate statistical sampling and estimation method to produce statistically
valid improper payment estimates and submit this methodology to the OMB. The
EPA's sampling methodology required a minimum sample size of 225 cash draws
spread across 75 recipients. However, the EPA did not test three of 225
statistically selected grant payments, totaling $207,991, to determine whether the
payments were improper, as stipulated in IPERA. This occurred because three
grants were with the United Nations Environmental Programme (UNEP), which
declined to submit the requested supporting evidence. However, OMB Circular
A-123, Appendix C, states that "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 should also be considered an improper payment." 11 Therefore, the
OCFO should have reported $207,991 as improper payments.
EPA's Sampling Methodology Required 225 Samples to Be Tested
IPERA requires federal agencies to assess all programs or activities for their risk
for improper payments. In FY 2016, the EPA determined that the grants program
was susceptible to significant improper payments. Based on OMB Circular A-123,
Appendix C, Part 1(D)(1), if an agency determines a program is susceptible, it must
design and implement an appropriate statistical sampling and estimation method to
produce statistically valid improper payment estimates and submit the
methodology to the OMB.
The EPA has identified grants as a program susceptible to significant improper
payments under IPERA. The EPA's methodology for the grants requires a
minimum sample size of 225 cash draws spread across 75 recipients to be
reviewed for improper payments. EPA foreign grant recipients, including Public
International Organizations like UNEP, fall within the grant program. The EPA
identified to the OMB that foreign grant recipients would be tested as part of its
statistical sampling methodology.
11 OMB Circular A-123, Appendix C, Part 1(A)(1).
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EPA Did Not Test All Payments for Improper Payments
The EPA did not test three of the 225 statistically selected grant payments to
determine whether they were proper as required under IPERA. Nevertheless, the
EPA determined that these payments to UNEP were proper without receiving any
supporting documentation from the recipient to validate that the costs incurred
were allowable, allocable, necessary and reasonable as stipulated under 2 CFR
Part 200, Subpart E—the uniform cost principles for federal awards. The three
payments, totaling $207,991 (see Table 4), were not included in the improper
payments estimates in the accompanying materials to the agency's FY 2018
annual financial statement as required under 31 U.S.C. §3515.
Table 4: UNEP payments not reviewed and identified as proper payments
Document date
Grant number
Payment
9/19/16
X4-83616001
$18,000
4/18/16
X4-83616001
60,000
9/19/16
X4-83616001
129,991
Total
$207,991
Source: OIG analysis of EPA data.
OMB Circular A-123, Appendix C, Part 1(A)(1), states that "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 should also be considered an
improper payment." This situation occurs when there is not supporting
documentation to verify the accuracy of a payment identified in the improper
payments testing sample. The EPA was unable to obtain documentation
concerning the three payments made to UNEP under the cooperative agreement
and should have reported these as improper payments and identified the root
cause as "insufficient documentation." 12
EPA Determined UNEP Grants Did Not Fall Within Scope of IPERA
In response to the OCFO's request for documents, UNEP declined to submit the
requested supporting evidence (documents), claiming that it was exempt from
supplying supporting documentation to the EPA. The OCFO sought guidance from
the EPA's Office of General Counsel and considered input from the grant review
team. The Office of General Counsel issued an opinion stating that Public
International Organizations such as UNEP would not fall within the scope of
IPERA review because the grants or cooperative agreements awarded to such
12 A lack of a substantive response from an entity for IPERA purposes potentially could be a separate root cause in
future reporting. In the U.S. Government Accountability Office (GAO) report Improper Payments: Actions and
Guidance Could Help Address Issues and Inconsistencies in Estimation Processes (GAO-18-377), issued May 2018,
the GAO noted that the OMB guidance was unclear on how agencies should treat nonresponse cases for improper
payment estimation purposes (i.e., when contacting outside entities for information for improper payment testing but
ultimately not receiving a response). As a result of the GAO's recommendation an OMB Senior Policy Advisor is
noted as stating that the OMB plans to update its guidance to direct agencies to treat nonresponse cases as improper
payments and to include a new category for tracking such cases.
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organizations do not rise to IPERA's definition of a program that may be
susceptible to significant improper payments. This opinion appears to misinterpret
OMB guidance and the EPA's own IPERA methodology submitted to the OMB.
However, the OCFO followed the opinion and decided to consider the payments as
proper payments.
Grants Improper Payments Rate Understated
We disagree with the Office of General Counsel's opinion. Without sufficient
documentation to determine whether UNEP payments are allowable, allocable,
reasonable and necessary, the OCFO should have reported these payments as
improper, and identified the root cause as insufficient documentation. Failing to
recognize and report $207,991 in improper payments resulted in understating both
the improper payments error rate and estimated improper payments in the
FY 2018 AFR. In addition, excluding UNEP from the improper payments review
creates uncertainties as to the statistical validity of the OCFO's statistical sample
methodology for the grant payment stream.
Recommendation
We recommend that the Chief Financial Officer:
2. Comply with the EPA's sampling and estimation plan annually submitted
to the Office of Management and Budget.
Agency Response and OIG Evaluation
The agency concurred with Recommendation 2 and stated that corrective action
was completed in April 2019. The agency agreed with the OIG's overall conclusion
that the EPA must comply with the EPA's sampling and estimation plan annually
submitted to the OMB. In addition, the agency indicated that, moving forward, if a
selected sample is deemed exempt from IPERA, it will replace that sample with a
statistically valid sample and revise the population criteria for future tests.
The corrective action meets the intent of the recommendation and the
recommendation is considered resolved. We will follow up on the corrective action
during the FY 2019 IPERA audit.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Potential
Planned
Monetary
Rec.
Page
Completion
Benefits
No.
No.
Subject
Status1
Action Official
Date
(in $000s)
1 11 Revise the Office of the Chief Financial Officer's grant improper R Chief Financial Officer 4/30/19 $1,912
payments review process to include internal controls for training
reviewers and annually verifying that reviewers are
knowledgeable and proficient in the identification and reporting of
improper payments.
2 14 Comply with the EPA's sampling and estimation plan annually R Chief Financial Officer 4/30/19
submitted to the Office of Management and Budget.
1 C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
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Appendix A
Sample of Grant Drawdowns Audited
Drawdown
Amount
Grantees as
Voucher
Grant
amount selected
deemed
cited in
date
number
for OIG review
improper
report
4/05/16
GA98204409
$56,824.00
-
9/05/17
RD83555401, draw #2
44,268.36
$38,160.42
Grantee B
8/11/17
EM99T37601
600,866.94
600,866.94
3/13/17
BG97872917
301,367.98
-
7/17/17
V01J12201
1,067,594.89
-
7/05/17
RD83555401, draw #3
61,211.83
57,776.58
Grantee B
9/19/16
RD83555401, draw #1
4,524.00
4,524.00
Grantee B
6/02/17
BF00D47516
276,335.70
-
5/17/17
BG99182905
183,303.00
183,303.00
Grantee C
3/06/17
BG97811216
43,923.00
929.95
1/27/17
GL00E01436
68,846.19
-
12/19/16
RD83542102
18,888.31
-
12/15/16
PA00J91201
555,839.00
547,856.65
Grantee D
12/15/16
XP96664701
73,392.56
73,392.56
4/20/17
GA00J59701
30,000.00
-
11/03/16
XP00E01473
109,690.06
-
10/21/16
PM98577308
214,222.00
63,935.92
Grantee A
9/12/16
RD83587101
231,448.77
-
8/04/16
PB98492413
16,095.49
16,095.49
7/20/16
TX97883902
104,497.24
-
7/13/16
GA00J61201
30,202.11
-
6/23/16
C900178011
117,442.00
117,442.00
Grantee E
9/19/16
X4-83616001
18,000.00
18,000.00
UNEP
4/18/16
X4-83616001
60,000.00
60,000.00
UNEP
9/19/16
X4-83616001
129,991.00
129,991.00
UNEP
Totals
$4,418,774.43
$1,912,274.51
Source: OIG analysis of EPA data.
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Appendix B
Agency Response
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON
mav * ^ at
-HE
'R
MEMORANDUM
SUBJECT: Response to the May 3. 2019. Office of Inspector General's Draft Report. "EPA
Complied with Improper Payments Legislation but Stronger Internal Controls Are
Needed." Projeet No. C )A&1*;-FY 1lMH!37
Thank you for the opportunity, to respond to the issues and recommendations presented in this Office of
Inspector General Draft Report. Project No. OA&H-FY !'M)037.
RESPONSE TO RECOMMENDATIONS:
RECOMMENDATION 1: Revise the Office of the ("hief Financial (Jfffkvr *v grants improper
payments review process to include internal controls for training reviewers ami annually verifying, that
reviewers are knowledgeable and proficient in the identification and reporting of improper payments.
• The agency concurs. I'he Office of the Controller will confirm and document all reviewers"
knowledge of the Improper Payments F.Iimination and Recovery Act grants review process. In
addition for FY 2019, the standard operating procedure was revised in February 2019 to
streamline the IPHRA training. In April, the OCFO provided additional training to reviewers to
ensure proficiency in identifying and reporting questioned costs. The corrective action lor this
recommendation was completed on April 30. 201').
RECOMMENDATION 2: ('amply with Kl'A's sampling and estimation plan annually submitted to
the Office of Management and Budget.
• The agency concurs. We are in compliance with the grants sampling methodology which
employs a complex sampling design that maximizes efficiency of limited agenc} resources,
optimizes the accuracy of the agency's statistical estimate, and complies with the OMR's
Memorandum M-18-20. fhe agency's sampling methodology is statistically valid and sound.
Prior to sample selection, the agency vets the population criteria to ensure that all applicable
draws are captured for possible selection and testing. However, moving forward if a selected
sample is deemed exempt from the 1PFRA. we will replace that sample with a statistically valid
sample and revise our population criteria for future tests. The correct he action for this
recommendation was completed on April 30, 2011?.
FROM; 1 lolly V. Greaves, Chief Financial Oftlcei
Office of the Chief Financial Officer
TO:
Charles J. Sheehan. Acting Inspector General
()ff tee of Inspector (. ieneral
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CONTACT INFORMATION
11" you have any questions regarding this response, please contact Anette Morant, Agency Audit Follow
I'p Coordinator, on (202) 566-3671, or via email morant.annette' jiepa.gov.
ec; David Bloom
Carol Terris
Jeanne Conklin
Richard Gray
Ed Shields
Michael J. Petscavuge 111
OCFO Senior Managers
Kevin Chatlln
Doug l.aTessa
Patrick Mclntyre
Aileen Atcherson
Sherri' 1.. Anthony
Annette Morant
Renita Deane
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Appendix C
Distribution
The Administrator
Deputy Administrator
Chief of Staff
Chief of Operations
Deputy Chief of Operations
Chief Financial Officer
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Deputy Chief Financial Officer
Associate Chief Financial Officer
Controller, Office of the Controller, Office of the Chief Financial Officer
Deputy Controller, Office of the Controller, Office of the Chief Financial Officer
Director, Policy, Analysis and Accountability Division, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Administrator
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
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