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Report Contributors: Kevin Chaffin
Komi an Gbezan
Doug LaTessa
Chikara Mbah
Patrick Mclntyre
Khadija Walker
Abbreviations
AFR Agency Financial Report
C.F.R. Code of Federal Regulations
EPA U.S. Environmental Protection Agency
FY Fiscal Year
IP Grants Improper Payment Review
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 Procedures
U.S.C. United States Code
Cover Images: Left: Depiction of the EPA's IPERA compliance. (OIG image)
Right: Depiction of internal control improvements needed. (OIG image)
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U.S. Environmental Protection Agency 20-P-0167
| ^ Dffirp nf Insnprtnr ^pnpral May 13, 2020
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\ Office of Inspector General
At a Glance
Why We Did This Project
The Improper Payments
Elimination and Recovery Act
of 2010, as modified by the
Improper Payments Elimination
and Recovery Improvement Act
of 2012, requires that each
fiscal year, inspectors general
determine whether their
respective agency complied
with the law. Known as IPERA,
the Act 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 compliance with
these requirements.
This report addresses the
following:
• Compliance with the law.
This project addresses a key
EPA management challenge:
• Improve fulfillment of reporting
requirements.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBCOMMENTS@epa.gov.
List of OIG reports.
EPA Complied with Improper Payments Legislation,
but Internal Controls Need Substantial Improvement
to Ensure More Accurate Reporting
What We Found
The EPA complied with all six IPERA
requirements for fiscal year 2019. However, the
EPA needs to improve the accuracy and
completeness of improper payments reporting
for the grant payment stream.
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 FY 2019. In the FY 2019
Agency Financial Report, the EPA reported $22.49 million in estimated improper
payments. However, our review of 20 of the 225 payments that the EPA tested
identified an additional $571,469.19 in improper payments due to insufficient or a
lack of supporting documentation. We found that EPA reviewers were not
adhering to the Agency's improper-payment-review policies and that they were
not sufficiently trained in grant cost regulations and the Agency's improper
payment review process.
Improved review methods for grant funds will aid the Agency in more accurately
identifying estimated improper payments and potentially lead to better use of
funds for environmental programs.
Recommendations and Planned Agency Corrective Actions
We recommend that the chief financial officer revisit the previous
recommendation in EPA OIG Report No. 19-P-0163, EPA Complied with
Improper Payments Legislation but Stronger Internal Controls Are Needed, to
implement internal controls for training reviewers and annually verifying that
reviewers are knowledgeable and proficient in the identification and reporting of
improper payments, and verify all corrective actions are completed.
The EPA agreed with our recommendation and stated that the corrective action
that was recommended in our prior report was completed in April 2019. The
Office of the Chief Financial Officer stated that it updated the IPERA Standard
Operating Procedures to include an annual training requirement for all IPERA
grant reviewers on the Grants Improper Payment Review SOP checklist and the
Office of Mission Support Grants Specialist Module. Completion of this training
must be certified in writing to the IPERA grant review lead prior to receiving
sample recipient folders for review. However, we have not evaluated the updated
Grants Improper Payment Review SOP, nor will we be able to determine whether
reviewers are knowledgeable and proficient in the identification and reporting of
improper payments until we conduct our next IPERA audit. Therefore, we
consider the recommendation not implemented.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
May 13, 2020
MEMORANDUM
SUBJECT: EPA Complied with Improper Payments Legislation, but Internal Controls Need
Substantial Improvement to Ensure More Accurate Reporting
Report No. 20-P-0167
This is our report on the subject audit conducted by the Office of Inspector General of the
U.S. Environmental Protection Agency. The project number for this audit was OA&E-FY20-0025. This
report contains findings that describe the problems the OIG has identified and corrective actions the OIG
recommends. Final determinations on matters in this report will be made by EPA managers in accordance
with established audit resolution procedures.
The Office of the Chief Financial Officer oversees the testing of grant payments for improper payments
and is responsible for the issues discussed in this report.
Action Required
This report contains an unresolved recommendation. In accordance with EPA Manual 2750, the resolution
process begins immediately with the issuance of this report. We are requesting a meeting within 30 days
between the deputy chief financial officer and the assistant inspector general for Audit and Evaluation. If
resolution is still not reached, the deputy chief financial officer is required to complete and submit a
dispute resolution request.
FROM
Sean W. O'Donnell
TO
David Bloom, Deputy Chief Financial Officer
We will post this report to our website at www.epa.gov/oig.
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EPA Complied with Improper Payments Legislation,
but Internal Controls Need Substantial Improvement
to Ensure More Accurate Reporting
20-P-0167
Table of C
Chapters
1 Introduction 1
Purpose 1
Background 1
Responsible Offices 3
Scope and Methodology 3
Prior Audit Coverage 4
2 EPA Complied with IPERA 5
3 OCFO's Grant Review Process Needs Improvement 7
Laws, Regulations, and Agency Procedures Provide
Requirements for IPERA Grant Reviews 7
OCFO Did Not Detect, Identify, and Report Additional $571,469 in
Improper Payments in the FY 2019 AFR 8
Reviewers Did Not Follow Procedures or Were Not Adequately
Trained 8
Improper Payments Underestimated 10
Recommendation 10
Agency Response and OIG Assessment 10
Status of Recommendation and Potential Monetary Benefits 11
Appendices
A Internal Control Assessment 12
B Agency Response to Draft Report 13
C OIG's Assessment of the Agency's Response to the Draft Report 16
D Distribution 17
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Chapter 1
Introduction
Purpose
The purpose of this audit is to report on the U.S. Environmental Protection
Agency's compliance with the Improper Payments Elimination and Recovery Act
of 2010, known as 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 requires
inspectors general to determine and issue a report on whether their agencies
complied with the Act. Congress also enacted the Improper Payments Elimination
and Recovery Improvement Act of 2012, which further enhanced improper
payments requirements and gave agencies additional tools to address improper
payments. In March 2020, Congress passed the Payment Integrity Information
Act of 2019, which repealed and replaced the Improper Payments Information Act
of 2002, IPERA, and the Improper Payments and Recovery Improvement Act of
2012. Because our audit examined FY 2019 activity, this report applies the
statutory requirements in place for the duration of FY 2019 rather than
requirements of the Payment Integrity Information Act of 2019.
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 (1) $10 million of all program or
activity payments made during the fiscal year reported and 1.5 percent of program
outlays, or (2) $100 million. Defined by the Office of Management and Budget in
Circular A-l 1, Section 20, program outlays are payments to liquidate obligations
and are the measure of government spending.
The following is how IPERA defines the term "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
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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.
Appendix C to OMB Circular A-123 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."
According to IPERA and Appendix C to OMB Circular A-123, 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 activity type in its Agency
Financial Report.
In its FY 2019 AFR, the EPA reported an estimate of $22.49 million in improper
payments. The EPA stated in the payment integrity section that "[f]or the
Agency's grants payment stream, overpayments [improper payments] principally
consist of unallowable costs or lack of supporting documentation." Table 1 has a
summary of the risk level for improper payments for each of the EPA's programs
involving payments.
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
2018 Disaster Relief
X
Source: EPA FY 2019 AFR.
IPERA required Offices of Inspector General to annually determine whether
agencies are complying with the six requirements found in the Act. Furthermore,
Appendix C to OMB Circular A-123 states that inspectors general should also
evaluate the accuracy and completeness of agency reporting.
In July 2019, the Council of the Inspectors General on Integrity and Efficiency,
the oversight body for inspectors general, issued guidance recommending that in
20-P-0167
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addition to inspectors general determining compliance with the six requirements
in the Act, they should also evaluate the accuracy and completeness of agency
reporting, as well as the agency's performance in reducing and recapturing
improper payments.
Responsible Offices
The Office of the Controller 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 Office of the Chief Financial Officer 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 grant recipients,
contractors, and other vendors. The Office provides policy, reports, and oversight
essential for the financial operations of the EPA. The OCFO's Las Vegas Finance
Center performed the grant-improper-payment reviews in FY 2019.
Scope and Methodology
We conducted this performance audit from November 2019 to March 2020 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.
We assessed internal controls necessary to satisfy the audit objective. In
particular, we assessed the internal control components and underlying principles
significant to the audit objective (Appendix A). However, because our audit was
limited to these internal control components and underlying principles, it may not
have disclosed all internal control deficiencies that may have existed at the time
of this audit.
To determine whether the EPA complied with IPERA, we reviewed the EPA's
FY 2019 AFR and accompanying materials. We interviewed OCFO staff at EPA
headquarters, Research Triangle Park, and Region 6, as well as staff from the
Office of Administration and Resources Management and Office of Grants and
Debarment.
We gained an understanding of the processes, procedures, and controls used for
improper payment detection, reporting, and recovery reporting across the EPA.
For the grant's payment stream—the only program considered at the time of the
audit to be susceptible to significant improper payments—we reviewed a
20-P-0167
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judgmentally selected sample of transaction testing reports and worksheets to
identify improper payments. We also used data from the EPA's Integrated Grants
Management System and the Compass Data Warehouse. We consulted legal
counsel to determine which laws and regulations were significant with respect to
the audit objectives.
Prior Audit Coverage
During this audit, we reviewed OIG Report No. 19-P-0163. EPA Complied with
Improper Payments Legislation but Stronger Internal Controls Are Needed,
issued May 31, 2019. That report made two recommendations: (1) revise the
OCFO'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; and
(2) comply with the EPA's sampling and estimation plan annually submitted to
the OMB.
The Agency concurred with both recommendations and stated that it completed
the corrective actions for both in April 2019. The OIG considers
Recommendation 1 not implemented and Recommendation 2 completed.
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Chapter 2
EPA Complied with IPERA
The EPA's FY 2019 improper payment reporting complied with all six IPERA
requirements. However, the EPA needs to improve the accuracy and completeness
of improper payments reporting for the grants payment stream, as identified in
Chapter 3 of this report. Table 2 lists the six IPERA requirements, the actions the
EPA took for each requirement, and the OIG's determination for each
requirement during FY 2019.
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 the OMB on the Agency's
website.
Yes
The EPA published the FY 2019 AFR on the
Agency's website on November 19, 2019.
Conduct a program-specific risk
assessment for each program or
activity that conforms with 31
U.S.C. §3321 note (2019)
(if required).
Yes
The EPA conducted a qualitative risk assessment for
the Agency's 2018 Disaster Relief Funding.
The EPA conducted risk assessments in 2018 for its
other low-risk programs, commodities, contracts,
Clean Water State Revolving Fund, Drinking Water
State Revolving Fund, payroll, purchase cards, and
travel. No risk assessments were due in 2019, as
they are required every three years.
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 grants, its
only risk-susceptible program.
Publish programmatic corrective
action plans in the AFR or
Performance and Accountability
Report (if required).
Not
Required
The EPA reported in the FY 2019 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. Therefore, the corrective action plan is
not required.
Improper payment amounts and rates reported for
risk-susceptible programs were $22.49 million and
1.25 percent of program outlays for grants.
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Requirement
Comply?
Description
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 the
grants program because this program was identified
as susceptible to significant improper payments. The
EPA met the annual reduction targets for the
FY 2019 AFR:
Payment
stream
Targeted rate
(percent)
Actual rate
(percent)
Grants
1
a1.25
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
1.25 percent for grants.
Source: OIG analysis of EPA data.
a Appendix C to OMB Circular A-123 states that if a sampling plan is statistically valid and meets at least a
3 percent precision level at a 95 percent confidence interval, a reduction target should be counted as achieved
as long as the lower bound for the confidence interval is equal to or less than the reduction target. The lower
bound of the confidence interval for the Grants program was 0.73 percent.
20-P-0167
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Chapter 3
OCFO's Grant Review Process Needs Improvement
The EPA's grant process for measuring and reporting improper payments needs
improvement. IPERA, applicable regulations, Appendix C to OMB Circular
A-123, and the OCFO's Grants Improper Payment Review Standard Operating
Procedure, known as IP SOP, established the reviewing, measuring, and reporting
requirements for improper payments. We found that reviewers did not effectively
test drawdowns to verify that grant payments met cost-principle requirements, per
regulation. This occurred because reviewers who took over this responsibility
from another office in FY 2018 either did not receive adequate training and
guidance or did not follow the IP SOP. As a result, the EPA did not detect or
report all improper payments, which resulted in underestimating both the
improper payment amount and error rate in the FY 2019 AFR.
Laws, Regulations, and Agency Procedures Provide Requirements for
IPERA Grant Reviews
IPERA required agencies to publish improper payment estimates for all programs
and activities identified as susceptible to significant improper payments. IPERA
also required agencies to include those estimates in the accompanying materials to
the agency's annual financial statement required under 31 U.S.C. § 3515, or
similar provisions of law and applicable guidance of the OMB.
Subpart E of 2 C.F.R. Part 200, Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards, 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 under a federal award. Part 200 defines "disallowed costs" as charges
to a federal award that the federal awarding agency determines to be unallowable,
in accordance with the applicable federal statutes, regulations, or the terms and
conditions of the federal award. This regulation also states that an improper
payment includes:
[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.
In light of these definitions, payment for a disallowed cost constitutes an improper
payment.
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OMB guidance explains that the term "payment for an ineligible good or
service"—as used in the definition of improper payment—"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." Part 1(A)(1) of
Appendix C to OMB Circular A-123 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."
The IP SOP lists review procedures to identify improper payments. It also defines
an "improper payment" as "any payment that should not have been made or that
was made in an incorrect amount under statutory, contractual, administrative, or
other legally applicable requirements," or "when an agency's review is unable to
discern whether a payment was proper as a result of insufficient or lack of
documentation." To find improper payments, the IP SOP directs personnel to
identify questioned costs, which are costs claimed to a grant that lacks adequate
supporting documentation. These questioned costs are referred to the Office of
Grants and Debarment to make a final determination about whether they should
be disallowed.
OCFO Did Not Detect, Identify, and Report an Additional $571,469 in
Improper Payments in the FY 2019 AFR
In the FY 2019 AFR, the EPA identified grant program improper payments in the
amount of $516,913.26. However, during our analysis of 20 of 225 payments
totaling $2,770,445.36, we identified and confirmed with the Office of Grants and
Debarment and grant management officers an additional $571,469.19 in improper
payments that occurred due to insufficient or lack of supporting documentation.
Reviewers Did Not Follow Procedures or Were Not Adequately Trained
The grant reviewers either did not adhere to the IP SOP or were not adequately
trained to discover questioned costs when performing improper payment testing.
As shown in Table 3, of the 20 grants in our OIG sample, 94 percent of the
additional improper payments were found in files where reviews were not
compliant with the IP SOP.
Table 3: OIG sampled drawdown analysis results
Drawdown amount
Additional improper
OCFO grant review
Draw
Grant
selected for OIG
payments identified
complied with
number
number
review
during OIG review
IP SOP
1
RD83616901
$9,107.82
$1,865.07
No
2
GL00E01567
223,486.14
0
No
3
TR83684001
98,417.89
32,966.92
No
4
AI97848901
58,633.18
58,633.18
No
5
CB96331001
293,313.41
293,313.41
No
6
BL97813001
80,158.19
80,158.19
No
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Drawdown amount
Additional improper
OCFO grant review
Draw
Grant
selected for OIG
payments identified
complied with
number
number
review
during OIG review
IP SOP
7
CB96342701
32,241.41
26,834.92
No
8
X401F04901
30,489
13,661.75
No
9
PM00T86701
275,905
0
Yes
10
A00408215
290,000
0
Yes
11
GL00E01435
121,408.83
0
Yes
12
V00E01309
222,655.30
0
Yes
13
V00E01070
14,560.71
0
Yes
14
BG98852317
239,174.25
0
Yes
15
OS83922701
95,261.22
4,487.18
No
16
PA01J01101
35,361.35
25,910.05
No
17
BG97872917
229,848.20
0
Yes
18
C999T32101
54,398.66
0
Yes
19
BG99267204
219,795.37
33,638.52
No
20
GA00J98401
146,229.43
0
No
Total
$2,770,445.36
$571,469.19
Source: OIG analysis of EPA data.
For ten out of the 20 sampled OIG reviews, grant reviewers could not provide
sufficient evidence to support that the amounts paid met cost principles (i.e.,
allowable, allocable, reasonable, and necessary), as required by 2 C.F.R. Part 200
Subpart E.
In addition, OCFO reviewers did not receive any training on the IP SOP, aside
from what they received for the FY 2018 improper payment review. The OCFO's
supervisory accountant acknowledged:
Nobody at LVFC [the Las Vegas Finance Center] (neither primary
nor secondary reviewers) received any additional training for the
FY19 reviews beyond what they had received for the FY18
reviews, other than the two informal "lessons learned" sessions
conducted internally in March and November 2018.
In OIG's Report No. 19-P-0163, we recommended that the OCFO revise the
"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." However, we found
that the OIG's recommendation from last year's improper payment audit was not
implemented, despite the OCFO's concurrence and confirmation while last year's
audit was being conducted that corrective action was taken.
During this year's audit, we requested that the OCFO provide evidence to support
that corrective action was implemented. As of this report date, the OCFO has not
supplied that evidence. This lack of documented implementation caused a
continuation of inadequately trained reviewers, as evidenced above.
20-P-0167
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Improper Payments Underestimated
The EPA's improper error rate and estimated improper payments were
understated for FY 2019. We found additional improper payments of at least
$571,469.19. The deficiencies in the OCFO's review process prevented the Office
from calculating and reporting a correct and complete improper payment rate and
amount for the grant payment stream.
Based on the OIG's calculations, the OCFO should have reported an error rate
equal to or greater than 3.97 percent, not 1.25 percent as reported in the FY 2019
AFR. It also should have reported estimated improper payments equal to or
greater than $71.31 million, not $22.49 million as reported in the FY 2019 AFR.
This leads the OIG to question the accuracy and completeness of the improper
payments reported, which we are charged with considering.
When the EPA reports unreliable improper payment estimates in the AFR,
Agency leadership, Congress, and the public cannot be assured that the EPA has
the necessary resources, appropriate measures, and focused strategies to reduce its
improper payments. The EPA needs to improve internal controls over the grant
review process so that improper payments are accurately reported.
Recommendation
We recommend that the chief financial officer:
1. Revisit the previous recommendation in EPA OIG Report No. 19-P-0163,
EPA Complied with Improper Payments Legislation but Stronger Internal
Controls Are Needed, to implement internal controls for training reviewers
and annually verifying that reviewers are knowledgeable and proficient in
the identification and reporting of improper payments, and verify all
corrective actions are completed.
Agency Response and OIG Assessment
The EPA concurred with the OIG's recommendation and stated that the corrective
action was implemented in April 2019. The OCFO stated that it updated the IP SOP
to include an annual training requirement for all IPERA grant reviewers, which
includes training on the IP SOP checklist and the Office of Mission Support Grants
Specialist Module. Completion of this training must be certified in writing to the
IPERA grant review lead prior to receiving sample recipient folders for review.
However, we have not evaluated the updated IP SOP, nor will we be able to
determine whether reviewers are knowledgeable and proficient in the identification
and reporting of improper payments until we conduct our next IPERA audit which
we are charged in conducting. Therefore, we consider the recommendation not
implemented. As part of our 2020 IPERA audit, we will assess the implementation
of this corrective action.
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Status of Recommendation and
Potential Monetary Benefits
RECOMMENDATIONS
Potential
Planned Monetary
Rec. Page Completion Benefits
No. No. Subject Status1 Action Official Date (In $000s)
1 10 Revisit the previous recommendation in EPA OIG Report No. U Chief Financial Officer
19-P-0163, EPA Complied with Improper Payments Legislation
but Stronger Internal Controls Are Needed, to implement internal
controls for training reviewers and annually verifying that
reviewers are knowledgeable and proficient in the identification
and reporting of improper payments, and verify all corrective
actions are completed.
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
Internal Control Assessment
This table helps to obtain an understanding of which internal control is significant to the audit
objectives.
Which internal control components are
significant to the audit objective(s)?
(mark box to left)
Which internal control principles are sianificant to the audit
objective(s)? (mark box to left)
Control Environment
E.g., one or more engagement objectives
assess the structure, roles, or
responsibilities that management designs
and assigns to personnel or standards of
conduct, training, competence, or
accountability of personnel.
1. The oversight body and management should demonstrate
a commitment to integrity and ethical values.
2. The oversight body should oversee the entity's internal
control system.
3. Management should establish an organizational structure,
assign responsibilities, and delegate authority to achieve the
entity's objectives.
4. Management should demonstrate a commitment to
recruit, develop, and retain competent individuals.
5. Management should evaluate performance and hold
individuals accountable for their internal control
responsibilities.
X
Risk Assessment
E.g., one or more engagement objectives
assess the organization's definition of
objectives or identification or analysis of
risk.
6. Management should define objectives clearly to enable
the identification of risks and define risk tolerances.
X
7. Management should identify, analyze, and respond to
risks related to achieving the defined objectives.
X
8. Management should consider the potential for fraud when
identifying, analyzing, and responding to risks.
9. Management should identify, analyze, and respond to
significant changes that could impact the internal control
system.
X
Control Activities
E.g., one or more engagement objectives
assess the design or implementation of
the organization's policies, procedures,
actions, or information systems that have
been established to achieve its objectives
and respond to risk.
10. Management should design control activities to achieve
objectives and respond to risks.
X
11. Management should design the entity's information
system and related control activities to achieve objectives
and respond to risks.
12. Management should implement control activities through
policies.
Information and Communication
E.g., one or more engagement objectives
assess the organization's use of
information to communicate within the
organization or to external parties.
13. Management should use quality information to achieve
the entity's objectives.
14. Management should internally communicate the
necessary quality information to achieve the entity's
objectives.
15. Management should externally communicate the
necessary quality information to achieve the entity's
objectives.
X
Monitoring
E.g., one or more engagement objectives
assess the organization's identification of
internal control deficiencies or corrective
actions of deficiencies.
X
16. Management should establish and operate monitoring
activities to monitor the internal control system and evaluate
the results.
X
17. Management should remediate identified internal control
deficiencies on a timely basis.
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Appendix B
Agency Response to Draft Report
Wy-
PRO"^
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
UJ
5 WASHINGTON, D.C. 20460
April 9, 2020
OFFICE OF THE
CHIEF FINANCIAL OFFICER
MEMORANDUM
SUBJECT: Response to the Office of Inspector General Draft Audit Report, Proj ect No.
OA&E-FY20-0025, "EPA Complied with Improper Payments Legislation but
Needs Better Internal Controls to Improve Reporting, " dated March 27, 2020
FROM: David A. Bloom, Deputy Chief Financial Officer
Office of the Chief Financial Officer
TO: Khadija E. Walker, Director
Contract and Assistance Agreement Directorate
Thank you for the opportunity to respond to the subject draft audit report. The following is a
summary of the U.S. Environmental Protection Agency's overall position, along with its position
on the report's recommendation. We have provided a high-level corrective action and the date of
completion.
AGENCY'S OVERALL POSITION
The EPA concurs with the OIG's recommendation. The Office of the Chief Financial Officer has
provided training and continues to improve upon the training in establishing this program. As
stated during previous discussions with the OIG's staff, since October 2017, the scope of these
reviews, as described in the OCFO Review Standard Operating Procedures, is to determine if
selected grant payments were made to the right recipient, in the right amount, for the right
purpose, and within the budgetary time period as required by the Improper Payments Elimination
and Reduction Act. The determination of whether a grant payment is compliant with federal
grant regulations is a different review and outside the scope of the OCFO's IPERA audit.
The OIG stated in this report that, the "OCFO reviewers did not receive any training on the SOP,
aside from what they received for the FY 2018 improper payments review...." and that "As of
this report date, the OCFO has not supplied that evidence." However, in April 2019, as a result
of the prior recommendation cited in OIG Report No. 19-P-0163, EPA Complied with Improper
Payments Legislation but Stronger Internal Controls Are Needed, the OCFO completed the prior
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recommendation by providing an OCFO-led training to all IPERA grant reviewers in preparation
for the FY 2020 reviews. The OCFO provided the OIG information confirming training held in
April 2019. In addition to this training, the OCFO completed the following training efforts:
• The Office of the Controller staff participated in multiple training sessions. The dates
were: October 2017, November 2019 and January 2020.
• The OC's staff participated in two lessons learned sessions. The dates were: March 2018
and November 2018. The OC provided the OIG documentation to support this action.
As a result of these corrective actions, the OCFO maintains the training recommendations from
both the FY 2018 IPERA review audit and this year's audit, have been satisfied.
Finally, the OCFO would like to note clarification needed on the following OIG statement within
this Draft Report, "[W]e identified and confirmed with the Office of Grants and Debarment an
additional $571,469.19 in improper payments that occurred due to insufficient or lack of
supporting documentation." The OCFO performs a robust primary review of all payments
selected in the statistical IPERA sample. In addition, the OCFO performed a secondary quality
assurance review of the work performed on the primary sample. The OIG chose not to review
the QA files provided for the review period being audited. We will work with the OIG in future
IPERA audits to ensure they review both the primary and secondary review files. For the OCFO
IPERA reviews, the Grants Management Officers are the only individuals who hold the
responsibility of making the determination of whether a payment is improper. As a result, unless
or until the GMOs have rendered improper payment determinations, the costs identified by the
OIG during this audit process should be considered questioned costs rather than confirmed
improper payments.
AGENCY'S RESPONSE TO DRAFT AUDIT RECOMMENDATIONS
Agreements
No.
Recommendation
Assigne
d to:
High-Level Corrective
Action(s)
Estimated
Completion Date
1
Revisit the previous
recommendation in EPA OIG
Report No. 19-P-0163, EPA
Complied with Improper
Payments Legislation but
Stronger Internal Controls Are
Needed, to implement internal
controls for training reviewers
and annually verifying that
reviewers are knowledgeable
and proficient in the
identification and reporting of
improper payments and verify
all corrective actions are
completed.
OCFO
The agency has implemented
internal controls by updating
the IPERA Standard Operating
Procedures to reflect an annual
training requirement for all
IPERA grant reviewers, to
include training on the SOP
checklist and completion of the
Office of Mission Support
Grants Specialist Module, prior
to beginning their reviews.
Completion of this training
must be certified in writing to
the IPERA Grant Review Lead
Completed
1/30/2020
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prior to receiving sample
recipient folders for review.
CONTACT INFORMATION
If you have any questions regarding this response, please contact the OCFO's Audit Follow-up
Coordinator, Andrew LeBlanc, at leblanc.andrew@epa.gov or (202) 564-1761.
cc: Carol Terris
Paige Hanson
Charlie Dankert
Jeanne Conklin
Istanbul Yusuf
Aileen Atcherson
Kevin Chaffin
Annette Morant
Andrew LeBlanc
Nikki Newton
Mark T. Howard
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Appendix C
OIG's Assessment of the Agency's Response
to the Draft Report
The EPA agreed with our recommendation to revisit the previous recommendation in OIG Report
No. 19-P-0163—which stated that the OCFO should implement internal controls for training
reviewers and annually verifying that reviewers are knowledgeable and proficient in the
identification and reporting of improper payments—and to verify that all corrective actions for that
recommendation were completed. The OCFO stated that it updated the IP SOP to include an
annual training requirement for all IPERA grant reviewers that includes training on the IP SOP
checklist and the Office of Mission Support Grants Specialist Module. Completion of this training
must be certified in writing to the IPERA grant review lead prior to receiving sample recipient
folders for review. The OIG received the updated IP SOP on April 27, 2020, but we have not
evaluated the updated IP SOP, nor will we be able to determine whether reviewers are
knowledgeable and proficient in the identification and reporting of improper payments until we
conduct our next IPERA audit. Therefore, we consider the recommendation unresolved.
The EPA disagreed with our conclusion that the OIG identified an additional $571,469.19 in
improper payments that occurred due to insufficient or lack of supporting documentation.
Specifically, the EPA stated that:
For the OCFO IPERA reviews, the [grants management officers] are the only
individuals who hold the responsibility of making the determination of whether a
payment is improper. As a result, unless or until the [grants management officers]
have rendered improper payment determinations, the costs identified by the OIG
during this audit process should be considered questioned costs rather than
confirmed improper payments.
The OIG disagrees with the Agency's explanation. As discussed in this report, grant reviewers
could not provide sufficient documentation to support that amounts paid met cost principles, as
required. Additionally, although the Agency argues that the costs identified by the OIG should be
deemed questioned costs, the IP SOP directs that questioned costs not resolved by June 30 are to
be reported as improper payments. The Office of Grants and Debarment is responsible for all grant
management processes, including training grant management officers regarding grant
administrative policies, procedures, and cost principals (i.e., allowable and unallowable costs).
After the OIG identified the additional improper payments, we sought the perspective of the
Office of Grants and Debarment, which confirmed the improper payments.
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Appendix D
Distribution
The Administrator
Assistant Deputy Administrator
Associate Deputy Administrator
Chief of Staff
Deputy Chief of Staff/Operations
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Chief Financial Officer
Deputy Chief Financial Officer
Associate Chief Financial Officer
Associate Chief Financial Officer for Policy
Controller
Deputy Controller
Director, Office of Continuous Improvement, Office of the Administrator
Director, Office of Planning, Analysis and Accountability, Office of the Chief Financial Officer
Chief, Management Integrity and Accountability Branch, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Administrator
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Controller
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