$ < 3J I &hi c pRQl^ A-0 U.S. ENVIRONMENTAL PROTECTION AGENCY OFFICE OF INSPECTOR GENERAL Catalyst for Improving the Environment Quick Reaction Report Agreed-Upon Procedures on EPA's Fiscal Year 2009 Third Quarter Financial Statements Report No. 09-2-0247 September 24, 2009 ------- Report Contributors: Paul Curtis Meg Hiatt Javier Negron Demetrios Papakonstantinou Lynda Taylor Abbreviations EPA U.S. Environmental Protection Agency FY Fiscal Year GL General Ledger OCFO Office of the Chief Financial Officer OIG Office of Inspector General OMB Office of Management and Budget RGLTS Report of General Ledger Balance by Treasury Symbol SFFAS Statement of Federal Financial Accounting Standards USSGL United States Standard General Ledger ------- < ^tDsr% \^lU-i V j? PRO^^ U.S. Environmental Protection Agency Office of Inspector General At a Glance 09-2-0247 September 24, 2009 Catalyst for Improving the Environment Why We Performed These Agreed-Upon Procedures We performed agreed-upon procedures on the U.S. Environmental Protection Agency (EPA) Fiscal Year (FY) 2009 Third Quarter Financial Statements. We did so to assist EPA in evaluating whether its quarterly Financial Statements were compiled consistent with the Treasury United States Standard General Ledger Crosswalk, and to identify significant fluctuations in financial line item balances from the previous year. Background Agencies submit unaudited interim Financial Statements to the Office of Management and Budget 21 days after the end of each of the first three quarters of the fiscal year. Agencies should include management's explanation of significant variances in types or amounts of assets, liabilities, costs, revenues, obligations, and outlays, along with the submitted statements. Agreed-Upon Procedures on EPA's Fiscal Year 2009 Third Quarter Financial Statements What We Found We performed certain agreed-upon procedures on the Agency's FY 2009 Third Quarter Financial Statements. We compared the statements with EPA's Crosswalk, recomputed them for mathematical accuracy, and compared them with balances separately generated by us, and concluded that the amounts agreed. During the first and second quarters of the Agreed-Upon Procedures, we identified a difference between the FY 2009 Report of General Ledger Balance by Treasury Symbol beginning balances and FY 2008 ending balances in general ledger account 4201, Total Actual Resources. The net difference of $43,627 was the result of account 4165, Allocation of Authority - Anticipated, incorrectly closing to account 4201 instead of to account 4450, Authority Available for Apportionment. The Agency made an adjustment in the third quarter to correct the error. The agreed-upon procedures do not constitute an audit of the quarterly Financial Statements or any part thereof, the objective of which would be the expression of an opinion on the quarterly Financial Statements or any part thereof. For further information, contact our Office of Congressional, Public Affairs and Management at (202) 566-2391. To view the full report, click on the following link: www.epa.aov/oia/reports/2009/ 20090924-09-2-0247.pdf ------- ^tos% * II \ I® I V PR^ OFFICE OF INSPECTOR GENERAL September 24, 2009 MEMORANDUM SUBJECT: Agreed-Upon Procedures on EPA's Fiscal Year 2009 Third Quarter Financial Statements Report No. 09-2-0247 FROM: Paul C. Curtis Director, Financial Statement Audits TO: Maryann Froehlich Acting Chief Financial Officer The Office of Inspector General (OIG) of the U.S. Environmental Protection Agency (EPA) conducted these Agreed-Upon Procedures on EPA's Fiscal Year 2009 Third Quarter Financial Statements. This report is provided to you solely to assist you in evaluating whether the Fiscal Year 2009 Third Quarter Financial Statements were compiled consistent with the Treasury United States Standard General Ledger Crosswalk, and to identify significant fluctuations in financial line balances from the previous year. Our report is intended solely for your information and use and should not be used by those who have not agreed to the procedures or taken responsibility for the sufficiency of the procedures for their purposes. No written response to this report is required. If you have any questions, please do not hesitate to contact me at 202-566-2523 or curtis.paul@epa.gov. or Meg Hiatt at 513-487-2366 or hiatt.mar garet@epa.gov. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. 20460 ------- Agreed-Upon Procedures on EPA's Fiscal Year 2009 Third Quarter Financial Statements 09-2-0247 Table of C Purpose 1 Background 1 Scope and Methodology 1 Results of Agreed-Upon Procedures 2 Status of Recommendations and Potential Monetary Benefits 7 Appendices A OIG-ldentified Significant Fluctuations between 06/30/09 and 06/30/08 8 B Distribution 11 ------- 09-2-0247 Purpose We performed these agreed-upon procedures at the request of the Office of the Chief Financial Officer (OCFO). We did so to assist the U.S. Environmental Protection Agency (EPA) in evaluating whether its Fiscal Year (FY) 2009 Third Quarter Financial Statements were compiled consistently with the Treasury United States Standard General Ledger (USSGL) Crosswalk, and to identify significant fluctuations in financial line item balances from the previous year. Background According to Office of Management and Budget (OMB) Circular A-13 6, interim unaudited Financial Statements, without notes, are required on a quarterly basis. Agencies submit unaudited interim Financial Statements to OMB 21 days after the end of each of the first three quarters of the fiscal year. Agencies should include management's explanation of significant variances in types or amounts of assets, liabilities, costs, revenues, obligations, and outlays, along with the submitted statements. Scope and Methodology We performed certain agreed-upon procedures, enumerated below, on EPA's unaudited consolidated FY 2009 Third Quarter Financial Statements, to assist the OCFO in evaluating whether the quarterly Financial Statements were compiled consistently with Treasury's USSGL Crosswalk and to identify significant fluctuations in financial line item balances from the previous year. The adequacy of these procedures is the OCFO's responsibility. Consequently, we make no representation regarding the sufficiency of the procedures. The agreed-upon procedures do not constitute an audit of the quarterly Financial Statements or any part thereof, the objective of which would be the expression of an opinion on the quarterly Financial Statements or any part thereof. Accordingly, we do not express such an opinion. Were we to perform additional procedures, other matters might come to our attention that we would report to assist the OCFO. This agreed-upon procedures engagement was conducted using applicable generally accepted government auditing standards, which incorporate attestation standards issued by the American Institute of Certified Public Accountants. These standards provide guidance for performing and reporting the results of agreed-upon procedures. We performed the agreed-upon procedures from July 21, 2009 to September 15, 2009. We based our procedures on EPA's FY 2009 Third Quarter Financial Statements and supporting schedules, general ledger (GL) balances, and manual on-top adjustments. 1 ------- 09-2-0247 Results of Agreed-Upon Procedures Procedure 1 Obtain EPA's FY 2009 Third Quarter Financial Statements, adjusted trial balance, on-top entries, and support for the statements (including Earmarked Funds). Import the Report of General Ledger Balance by Treasury Symbol (RGLTS) and enter the Agency's on-top entries into ProSystem and generate an adjusted trial balance, Consolidated Balance Sheet, Statement of Net Cost, and Statement of Changes in Net Position. Results of Procedure 1 We obtained the Agency's FY 2009 Third Quarter Financial Statements, adjusted trial balance, on-top entries, and support for the statements (including Earmarked Funds and Child Agency Trial Balances). We imported the RGLTS for the accounting period 0909, and entered the Agency's on-top adjusting entries to beginning balances into ProSystem to generate an adjusted trial balance, Consolidated Balance Sheet, Statement of Net Cost, and Statement of Changes in Net Position. Procedure 1.a Compare the ProSystem-generated adjusted trial balance based on the Agency's support to the Agency's adjusted trial balance in order to verify the Agency's Financial Statement Crosswalk and note any differences. Results of Procedure 1.a We compared the ProSystem adjusted trial balance to the Agency's adjusted trial balance and the amounts agreed. We verified that the statements complied with and are in accordance with EPA's Crosswalk. Procedure 1.b Compare the ProSystem-generated Financial Statements to EPA's Financial Statements and note any differences. Results of Procedure 1.b We compared the ProSystem-generated financial statements to EPA's Financial Statements (Consolidated Balance Sheet, and Consolidated Statements of Net Cost and Changes in Net Position). We found that the amounts agreed. 2 ------- 09-2-0247 Procedure 1.c Enter the FY 2009 and FY 2008 GL balances and on-top entries into Excel spreadsheets. Prepare the Combined Statement of Budgetary Resources and Statement of Custodial Activity and compare to the Agency's statements and note any differences. Results of Procedure 1.c We entered the FY 2009 and FY 2008 GL balances and on-top adjustment entries into Excel spreadsheets and compared the OIG-prepared Combined Statement of Budgetary Resources and Statement of Custodial Activity to the Agency's statements. Statement of Custodial Activity: The Agency's balances for the FY 2009 third quarter agreed with our amounts for this statement. Combined Statement of Budgetary Resources: The Agency's balances for the FY 2009 third quarter agreed with our amounts for this statement. Procedure 1.d Extract GL ending balances for Earmarked Funds from the RGLTS using Interactive Data Extraction Analysis and enter into ProSystem. Enter on-top entries and generate a Consolidated Statement of Changes in Net Position for Earmarked Funds and compare to EPA's Consolidated Statement of Changes in Net Position for Earmarked Funds. Results of Procedure 1.d We extracted the GL ending balances for Earmarked Funds from the RGLTS, generated a Consolidated Statement of Changes in Net Position for Earmarked Funds, and compared it to EPA's Statement of Changes in Net Position for Earmarked Funds. The balances agreed. Procedure 1.e Compare the Agency's Third Quarter Consolidated Statement of Net Cost by Goal to the consolidated totals from the Consolidated Statement of Net Cost. Results of Procedure 1.e We compared the Agency's Third Quarter Consolidated Statement of Net Cost by Goal to the consolidated totals (total costs, total earned revenue, and net cost of operations) from the Consolidated Statement of Net Cost. The amounts agreed. 3 ------- 09-2-0247 Procedure 1.f Mathematically verify accuracy of the Consolidated All Other column on the Consolidating Statement of Changes in Net Position in the Agency's Financial Statements. Results of Procedure 1.1 We mathematically verified the accuracy of the All Other column in the Agency's Financial Statements on the Consolidating Statement of Changes in Net Position. Procedure 1.g Identify significant fluctuations in balances by comparing current year balances to prior year balances. (Criteria - Percentage change of 10 percent or more and dollar change exceeding $50 million). Results of Procedure 1.g We identified significant fluctuations in the Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, and Statement of Budgetary Resources. OIG identified the same fluctuations as the Agency, as well as other fluctuations, which are detailed in Appendix A. OMB Circular A-136 states, "The analysis should be only on the significant variances between the current quarter and the same quarter from the prior year. Management has discretion on what constitutes a significant variance. Management is to provide variances for only the top three items with significant fluctuations." The Agency elected to identify seven fluctuations and submit them to OMB as follows: Balance Sheet (1) The Agency reported to OMB that the $5.8 billion increase in Fund Balance With Treasury is primarily due to the State and Tribal Assistance Grant program contained in the American Recovery and Reinvestment Act of 2009 (Recovery Act). (2) The Agency reported to OMB that the $6.1 billion increase in Unexpended Appropriations is primarily due to the State and Tribal Assistance Grant program contained in the Recovery Act. (3) The Agency reported to OMB that the $206 million decrease in Non-Federal Accounts Payable and Accrued Liabilities is primarily due to a decrease in Grantee Liability Accruals as a result of a lower statistical sample rate used in the FY 2008 fourth quarter compared to the rate used in the FY 2007 fourth quarter. 4 ------- 09-2-0247 Statement of Budgetary Resources (1) The Agency reported to OMB that the $8 billion increase in Appropriations is primarily due to the $6.4 billion State and Tribal Assistance Grant program contained in the Recovery Act. (2) The Agency reported to OMB that the $4.8 billion increase in Obligations is primarily due to the $4 billion State and Tribal Assistance Grant program as well as the $600 million Superfund program contained in the Recovery Act. (3) The Agency reported to OMB that the $2.7 billion increase in Apportioned Unobligated Balance is primarily due to the State and Tribal Assistance Grant program as well as the Superfund program contained in Recovery Act. Statement of Net Cost (1) The Agency reported to OMB that the decrease of $100 million in current year Gross Costs is primarily due to a reduction in Grant expenses in FY 2009. Procedure 2 Obtain and compare EPA's identified Earmarked Treasury Symbols to Federal Accounting Standards Advisory Board Statement of Federal Financial Accounting Standards (SFFAS) 27, Identifying and Reporting Earmarked Funds, for compliance. Results of Procedure 2 We obtained and compared EPA's identified Earmarked Treasury Symbols to SFFAS 27. We found EPA's [Identified Earmarked] Treasury Symbols to be in compliance with SFFAS 27. Earmarked Treasury Symbols consist of the following trust funds: Hazardous Substance Superfund; Federal Insecticide, Fungicide, and Rodenticide Act Fund; Revolving Fund for Certification and Other Services; Licenses and Other Services; Environmental Services; Exxon Valdez Settlement Fund; Pesticide Registration Improvement Act Fund; Oil Spill Response Fund; and Contributed Funds; as well as Treasury Symbols established for the Recovery Act (Superfund and Leaking Underground Storage Tank). Procedure 3 Obtain and compare FY 2009 and FY 2008 Child Trial Balances to the Child on-top entry. Results of Procedure 3 We obtained and compared EPA's FY 2009 and FY 2008 Child Trial Balances to the Child on-top entry. We found that the on-top entry to record child agency balances agreed with the support. 5 ------- 09-2-0247 Procedure 4 Compare the FY 2009 reversals to the FY 2008 on-top adjustments and EPA's Closing Instructions to assess if EPA followed its guidance. Results of Procedure 4 We compared the FY 2009 reversals to the FY 2008 on-top adjustments and to EPA's closing instructions to assess if EPA followed its guidance. We found that the Agency reversed the FY 2008 on-tops properly in FY 2009. Procedure 5 Compare the RGLTS FY 2009 beginning balances to the FY 2008 ending balances and note any differences. Results of Procedure 5 During the first and second quarter of the Agreed-Upon Procedures, we identified a difference in GL account 4201, Total Actual Resources. The difference between the FY 2008 ending and FY 2009 beginning balance of $43,627 was a result of errors in the year-end closing process. GL account 4165, Allocation of Authority - Anticipated, incorrectly closed to GL account 4201 instead of to GL account 4450, Authority Available for Apportionment, according to the Year End Account Table. The Agency forced the closure to GL account 4201 to ensure that beginning balances on line 1 of the FY 2009 Statement of Budgetary Resources matched the ending balances of the year end FY 2008 Statement of Budgetary Resources lines 9 and 10. The Agency made an adjustment in the third quarter to correct the error. Procedure 6 Review elimination and consolidation entries prepared by the Reporting and Analysis Staff for reasonableness and completeness. Results of Procedure 6 We reviewed the FY 2009 third quarter elimination and consolidation entries prepared by the Reporting and Analysis Staff for reasonable and completeness. The elimination and consolidation entries appeared reasonable and complete. 6 ------- 09-2-0247 Status of Recommendations and Potential Monetary Benefits RECOMMENDATIONS POTENTIAL MONETARY BENEFITS (In $000s) Rec. No. Page No. Subject Status1 Action Official Planned Completion Date No recommendations Claimed Amount Agreed To Amount 1 0 = recommendation is open with agreed-to corrective actions pending C = recommendation is closed with all agreed-to actions completed U = recommendation is undecided with resolution efforts in progress 7 ------- 09-2-0247 Appendix A OIG-ldentified Significant Fluctuations between 06/30/09 and 06/30/08 (Dollars in Thousands) Consolidated Balance Sheet: FY 2009 FY 2008 Difference % ASSETS Intragovernmental: Fund Balance With Treasury $17,242,174 $11,429,580 $5,812,594 50.86% Investments $7,226,402 $6,301,983 $924,419 14.67% Other $205,207 $85,245 $119,962 140.73% Accounts Receivable, Net $312,472 $441,680 ($129,208) -29.25% LIABILITIES Accounts Payable & Accrued Liabilities $661,007 $867,056 ($206,049) -23.76% NET POSITION Unexpended Appropriations - Other Funds $16,431,068 $10,272,712 $6,158,356 59.95% Cumulative Results of Operations - Earmarked Funds $7,239,852 $6,432,884 $806,968 12.54% Source: FY 2009 Financial Statements provided by EPA Consolidated Statement of Net Cost: FY 2009 Consolidated FY 2008 Consolidated Difference % COSTS Earned Revenue $390,560 $490,400 ($99,840) -20.36% Source: FY 2009 Financial Statements provided by EPA Consolidated Statement of Changes in Net Position: FY 2009 Consolidated FY 2008 Consolidated Difference % BUDGETARY FINANCING SOURCES Appropriations Received $14,406,297 $7,197,712 $7,208,585 100.15% Other Adjustments ($10,000) ($117,285) $107,285 -91.47% Source: FY 2009 Financial Statements provided by EPA 8 ------- 09-2-0247 Consolidated Statement of Changes in Net Position - All Other Funds: FY 2009 Consolidated All Other Funds FY 2008 Consolidated All Other Funds Difference % CUMULATIVE RESULTS OF OPERATIONS Budgetary Financing Sources: Trust Fund Appropriations ($1,747,911) ($984,974) ($762,937) 77.46% BUDGETARY FINANCING SOURCES Appropriations Received $14,406,297 $7,197,712 $7,208,585 100.15% Other Adjustments ($10,000) ($117,285) $107,285 -91.47% Source: FY 2009 Financial Statements provided by EPA Consolidated Statement of Changes in Net Position - Earmarked Funds: FY 2009 Consolidated Earmarked Funds FY 2008 Consolidated Earmarked Funds Difference % CUMULATIVE RESULTS OF OPERATIONS Budgetary Financing Sources: Trust Fund Appropriations $1,747,911 $984,974 $762,937 77.46% Source: FY 2009 Financial Statements provided by EPA 9 ------- 09-2-0247 Combined Statement of Budgetary Resources: FY 2009 FY 2008 Difference % BUDGETARY RESOURCES Appropriation $15,277,062 $7,263,159 $8,013,903 110.34% Advance Received $80,475 $143,536 ($63,061) -43.93% Without Advance from Federal Sources ($78,090) $11,248 ($89,338) -794.26% Anticipated for Rest of Year, Without Advances $361,654 $119,309 $242,345 203.12% Permanently Not Available ($11,000) ($118,284) $107,284 -90.70% STATUS OF BUDGETARY SOURCES Direct $10,561,137 $5,724,936 $4,836,201 84.48% Apportioned $9,144,656 $6,462,859 $2,681,797 41.50% Unobligated Balances Not Available $1,086,308 $373,594 $712,714 190.77% CHANGE IN OBLIGATED BALANCE Obligations Incurred, Net $10,968,569 $6,111,701 $4,856,868 79.47% Change in Uncollected Customer Payments from Federal Sources $54,888 ($12,460) $67,348 -540.51% Unpaid Obligations $11,874,254 $8,212,341 $3,661,913 44.59% NET OUTLAYS Less: Distributed Offsetting Receipts ($1,714,124) ($1,045,003) ($669,121) 64.03% Source: FY 2009 Financial Statements provided by EPA 10 ------- 09-2-0247 Appendix B Distribution Acting Chief Financial Officer Acting Deputy Chief Financial Officer Acting Director, Office of Financial Management, Office of the Chief Financial Officer Director, Reporting and Analysis Staff, Office of the Chief Financial Officer Acting Director, Office of Financial Services, Office of the Chief Financial Officer Acting Inspector General 11 ------- |