Fiscal Year
2020
Agency Financial Report
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ABOUT THIS REPORT
The U.S. Environmental Protection Agency (EPA)
Fiscal Year 2020 Agency Financial Report (AFR)
provides an overview of the financial and
performance results for the fiscal year (FY)
spanning October 1, 2019 through September 30,
2020.
The information, data, and analyses provided in
this AFR assists the President, Congress, and the
American people in assessing the agency's yearly
activities and accomplishments towards its
mission of protecting human health and the
environment
The FY 2020 AFR includes the EPA's FY 2020
Financial Statements Audit Report and the
Agency's FY 2020 Management Integrity Act
Report, including the Administrator's statement
assuring the soundness of the agency's internal
controls.
The AFR includes information in accordance
with the Chief Financial Officers (CFO) Act and
Office of Management and Budget (OMB)
How the Report Is Organized
Circular A-136, Financial Reporting
Requirements, and fulfills the requirements set
forth in OMB Circular A-11, Preparation,
Submission and Execution of the Budget, and the
Government Performance and Results Act
Modernization Act of 2010 (GPRAMA).
The AFR is one of two annual reports on the
EPA's programmatic and financial activities. The
financial information within the AFR will be
supplemented by the EPA's Annual Performance
Report (APR), which will present the agency's FY
2020 performance results as measured against
the targets established in its FY 2020
Performance Plan and Budget and the goals
established in its FY 2018-2022 Strategic Plan.
The EPA's FY 2020 APR will be included with the
agency's FY 2022 Congressional Budget
Justification submission and will be posted on the
agency's website.
The AFR and APR combined will present a
complete overview of the agency's activities,
accomplishments, progress, and financial
information for each fiscal year. Both prior year
reports are available on the EPA's internet at:
http://www.epa.gov/planandbudget/results.
The EPA's FY 2020 AFR is organized into
three sections to provide clear insight into
the agency's financial results.
Section I—Management's Discussion and
Analysis
This section contains an overview on the EPA's
mission and organizational structure; a summary
of performance results; an analysis of the
financial statements and stewardship data;
information on systems, legal compliance, and
controls; and other management initiatives.
Section II—Financial Section
This section includes the agency's
independently audited financial statements,
which comply with the CFO Act, the related
Independent Auditors' Report and other
information on the agency's financial
management.
Section III—Other Accompanying Information
This section contains additional material as
specified under OMB Circular A-136, Financial
Reporting Requirements; and the Reports
Consolidation Act of 2000. The subsection titled
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"Management Integrity and Challenges" describes
the EPA's progress toward strengthening
management practices to achieve program results
and presents OIG's list of top management
challenges and the agency's response.
Appendices
The appendices include links to relevant
information on the agency website and a
glossary of acronyms and abbreviations.
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Table of Contents
ABOUT THIS REPORT 1
Message from the Administrator 5
SECTION I - Management's Discussion and Analysis[[[ 8
ABOUT EPA 9
History and Purpose 9
Mission 9
Organization[[[ 10
Regional Map 11
Collaborating with Partners and Stakeholders[[[ 11
FY 2020 PROGRAM PERFORMANCE 12
FINANCIAL ANALYSIS AND STEWARDSHIP INFORMATION 13
Sound Financial Management: Good for the Environment, Good for the Nation 13
Financial Condition and Results 16
Financial Management for the Future [[[ 20
Limitations of the Principal Financial Statements 20
IMPROVING MANAGEMENT AND RESULTS 21
Office of Inspector General Audits, Evaluations, and Investigations................................................. 21
Grants Management 21
ACCOUNTABILITY: SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE 22
Federal Managers' Financial Integrity Act (FMFIA)[[[ 22
The Digital Accountability and Transparency Act[[[ 23
Federal Financial Management Improvement Act (FFMIA)[[[ 24
Fiscal Year 2020 Annual Assurance Statement 25
SECTION II - Financial Section 26
Message from the Deputy Chief Financial Officer[[[ 27
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Agency Response to Office of Inspector General-Identified Management Challenges 164
PROGRESS IN ADDRESSING FY 2020 WEAKNESSES [[[ 172
Material Weakness 172
Summary of Financial Statement Audit[[[173
Summary of Management Assurances 173
REAL PROPERTY 174
PAYMENT INTEGRITY 175
I. Payment Reporting [[[177
II. Recapture of Improper Payments Reporting[[[178
III. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative ......................182
IV. Fraud Reduction 182
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Message from the Administrator
November 16, 2020
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
It is my privilege to present you with U.S. Environmental Protection
Agency's Fiscal Year 2020 Agency Financial Report This report outlines the
EPA's use of taxpayer resources to advance the administration's environmental
priorities, ensuring accountability and demonstrating our financial integrity. I
am proud to report that this marks the 21st consecutive year that the agency
has earned a clean, unmodified financial audit opinion from its independent
auditors - an achievement that speaks to the dedication, professionalism and integrity of the agency's
career staff.
This year also marks the 50th anniversary of the creation of the EPA. As an agency and a nation,
we have made remarkable strides since our inception to ensure a clean environment for our citizens.
The United States continues to be a global leader with respect to access to safe drinking water and clean
air, and over the last four years, we have accelerated cleaning up and returning land to communities. We
also have made great progress in removing burdensome regulation to help the economy thrive and
create more jobs for American workers. In addition, the agency's decisions are now providing more
clarity and certainty to the states, tribes and local governments that implement the EPA's rules and rely
on the EPA's guidance. This past fiscal year, the EPA used its resources to move forward with its mission
and help local, state and tribal governments clean our nation's water, land and air.
In January, the EPA activated - for the first time in history - its Emerging Viral Pathogens
Guidance for Antimicrobial Pesticides as part of our response to the COVID-19 public health emergency;
it was an unprecedented move for unprecedented times. Under this guidance, manufacturers are
empowered and incentivized to proactively show the EPA, ahead of an outbreak, how their products are
effective against harder-to-kill viruses. Once approved by our agency, these companies can make claims
that their product is expected to be effective against the novel COVID-19 - providing assurance to the
American public. Since March, under our expedited review process new EVP claim submissions are
reviewed in one to two weeks instead of several months. Also, in March the agency released its initial
List N: Disinfectants for Use Against SARS-CoV-2. Starting with 35 products, this list now includes over
500 wipes, sprays and other products that are verified as effective against this virus. We also
implemented an expedited review pathway for products with residual viral efficacy over extended
periods - one of the most innovative areas of the antimicrobial marketplace today. Since the start of the
public health emergency, our enforcement office has worked to keep over 7 million unapproved
products out of commerce, keeping Americans safe.
Ensuring that drinking water and wastewater services are fully operational and safe has proved
to be another critical aspect of containing COVID-19. It's important for the American public to know that
both their drinking water is safe to consume and their wastewater is appropriately treated. The EPA is
working with our state, local and tribal partners to ensure that the 165,000 public water and wastewater
treatment facilities in this country continue to protect public health and the environment. Today, more
than 93 percent of community water systems meet all federal health-based standards, all the time. The
two State Revolving Funds continue to assist our implementing partners in rebuilding aging water
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infrastructure. As part of our continued commitment to local communities, the revolving nature of the
Drinking Water and Clean Water SRFs, combined with substantial contributions from our state partners,
has greatly expanded the scope and impact of federal investment The EPA estimates for every federal
dollar contributed to date, communities have received more than $3 of water infrastructure investments
in return.
The Water Infrastructure Finance and Innovation Act credit program has spurred new investment
of $15 billion for water infrastructure by extending $7 billion in credit assistance. More than $2.6 billion
was spent to improve drinking water, including by reducing lead and emerging contaminants. In
addition, the WIFIA funds were used for various sewer overflow control projects, and more than $1.2
billion was allocated for water reuse and recycling projects. All told, between the WIFIA and the SRFs,
the EPA has helped states and communities finance more than $40 billion in clean water infrastructure
since the beginning of your term in office.
We continue to work to identify and, if necessary, address potential emerging sources of drinking
water contamination. The EPA is aggressively implementing the Per- and Polyfluoroalkyl Substances
Action Plan - the EPA's first multi-media, multi-program, national research, management and risk
communication plan to address these emerging chemicals of concern.
We also continue to support geographic programs where the EPA has a unique and critical role.
We are investing $320 million for the Great Lakes and $4.8 million for South Florida to support
environmental monitoring, cleanup and protection. As a result, in part to the South Florida funding, more
than 30,000 septic tanks have been eliminated, helping homes and businesses in the Florida Keys
transition to more advanced wastewater treatment.
Clean water infrastructure is just one aspect of the EPA's infrastructure investment agenda. The
cleanup and redevelopment of contaminated lands also play a crucial role in revitalizing communities
throughout the country. We are in the process of cleaning up some of the nation's largest, most complex
contaminated sites and returning them to communities for productive use. The EPA has deleted all or
part of 27 Superfund sites from the National Priorities List in FY 2020, which ended in September,
meaning the cleanup work is complete and the land is safe for redevelopment During the first term of
the Trump Administration, the EPA deleted all or part of 82 sites from the NPL, matching the deletion
total of the previous administration's two terms.
When discussing the Superfund program, it is important to remember that annual
appropriations are just one source of funding to help facilitate the cleanup and restoration of
contaminated lands. In 2020, the Superfund Enforcement Program secured more than $461 million (as
of August 31, 2020) in private party commitments for cleanup and cost recovery and billed more than
$98 million (as of August 31, 2020] for the EPA's oversight of the process. These funds, paid by
potentially responsible parties, enable the agency to make substantial progress in cleaning up sites and
reducing significant exposure risks.
Brownfields work is spurring capital investment in economically distressed areas, leading to
diversified economies, increased job opportunities and restored fiscal health in communities. This
provides communities with a greater capacity to focus on innovating solutions to environmental
problems. Leveraging Brownfields work in Opportunity Zones, which represent some of our nation's
most distressed communities, can help attract public and private capital to further advance economic,
environmental and public health gains. In May 2020, the EPA awarded $65.6 million in Brownfields
grants to 151 communities, where more than 75 percent of those communities could potentially assess
or clean up Brownfield sites within census tracts designated as Opportunity Zones. Opportunity Zones
are designated economically distressed census tracts where public and private investments can support
revitalization for environmental justice communities.
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In FY 2020, the EPA also took measures to improve air quality and reduce emissions. When it
comes to reducing air pollution, we are moving forward with common sense reforms that will help more
areas reach attainment of the National Ambient Air Quality Standards established under the Clean Air
Act. In addition, we are helping communities comply with visibility obligations by improving the
efficiency and effectiveness of the Clean Air Act's State Implementation Plan process and working to
reduce the SIP backlog. In FY 2020, the EPA acted on more than 3 70 SIPs -180 of which were backlogged.
Not only is this good for the health and well-being of American citizens, but also supports economic
growth. This reduction of backlogged SIPs builds on our nation's strides toward cleaner air. Between
1970 and 2019, the combined emissions of six key pollutants dropped by 77 percent, while the U.S.
economy grew 285 percent
A top priority in FY 2020 has been to ensure that chemicals used in commerce and sold in the
marketplace are safe for public use. The allocation of $66 million of appropriated funds to the Chemical
Risk Review and Reduction Program is helping to fulfill the agency's statutory requirements as mandated
by the Toxic Substances Control Act to conduct risk evaluations and take actions on those chemicals that
pose unreasonable risks to human health and the environment Furthermore, TSCA was amended in
2016 to provide the EPA with the authority to collect fees from certain chemical manufacturers
(including importers) and processors to support a portion of TSCA implementation costs. As such, the
TSCA Service Fee Fund, which became effective on October 18, 2018, collected $5,567,940 in FY 2020,
which is an increase from $2,797,188 collected in FY 2019. This allows the program to enhance and
accelerate the review of chemicals to ensure they are safe. We anticipate collecting more fees in FY 2021
as the program continues to scale.
In FY 2020, the EPA also finalized 25 deregulatery actions, many of which involved modernizing
decades-old regulations and bringing them up to date. These actions are estimated to save Americans
nearly $4.9 billion every year while continuing to implement and enforce the environmental laws
enacted by Congress. The agency also continues to implement its agency-wide EPA Lean Management
System, which has resulted in more effective and efficient operations. In addition, in our continued
support of the President's Management Agenda and the Cross-Agency Priority goals, we are saving
taxpayers money by adopting federal shared services, modernizing legacy systems and turning the old
ones off and reducing burden to the public by implementing electronic contract invoice submission and
tracking.
I am pleased to provide this report knowing that the EPA's financial and performance data is a
reliable, complete and accurate reflection of our efforts to continue improving financial management,
performance, transparency and accountability. My assurance statement, as required under the Federal
Managers' Financial Integrity Act, appears in Section 1, "Management's Discussion and Analysis," of this
report Section III of this report identifies areas that need improvement by the assessment, including our
management challenges as identified by the Office of Inspector General. We will use their findings and
recommendations as a guide to strive for continuous improvement More results for FY 2020 will be
highlighted in the upcoming FY 2022 Annual Performance Plan and Budget
It is my honor to work among colleagues who have devoted their careers to protecting human
health and the environment The agency's accomplishments are the result of our collective commitment
to the EPA's 50-year-old mission and our enduring responsibility to help create a safer, cleaner and
healthier environment for all Americans.
Most Respectfully,
Andrew R. Wheeler
Administrator
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Section I
Management's
Discussion and Analysis
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ABOUT EPA
History and Purpose
The American people deserve a clean, healthy, and safe environment where they live, work, and play.
Established in 1970 as the negative impact and hazards of environmental pollution became
increasingly evident, the EPA has worked for over four decades to identify, evaluate, and execute
sustainable solutions to existing and emerging environmental concerns.
The EPA incorporates environmental research, monitoring, standard-setting, and enforcement
functions under the guidance of a single agency. As a result, the agency ensures environmental
protection remains an integral part of all U.S. policies, whether related to economic growth, natural
resource use, energy, transportation, agriculture, or human health.
Since its inception, the EPA has made great strides in providing a cleaner, safer, and healthier
environment for all Americans and future generations. Focused cleanup efforts have helped remedy
the mistakes of the past, while the EPA's continuous help work to monitor andregulate pollutants,
evaluate new chemicals, and inspire better decision- making to safeguard our environmental future.
The EPA is committed to collaboration. Identifying and addressing the complex environmental issues
affecting the nation and the world requires consistent, efficient cooperation and communication
among a diverse group of partnerships, ranging from state, tribal, and local governments to foreign
governments and international organizations throughout the world.
Everyone has a role to play in creating a healthy, sustainable environment By serving as the primary
federal source of rigorously researched, scientific information on the environment, the EPA motivates
individuals and organizations to better recognize and engage in environmental protection and develop
lasting solutions domestically and internationally.
Mission
The mission of the EPA is to protect human health and the
environment.
To accomplish this mission, the EPA depends upon the most
accurate scientific information to identify human health and
environmental concerns that affect policy decisions and
enforcement actions. The EPA works to ensure all communities,
individuals, businesses, and state, local and tribal governments
have access to accurate sufficient information to effectively
participate in delivering a cleaner, safer, and healthier
environment. The EPA will continue to effectively and efficiently
serve the American people and conduct business with
transparency in a manner worthy of the public's trust and
confidence.
What EPA Does
¦S Enforce environmental laws
¦S Responds to the release of
hazardous substances
¦S Gives grants to states, local
communities, and tribes
¦S Studies environmental issues
¦S Sponsors partnerships
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Organization
The EPA's headquarters is located in Washington, D.C. Together, the EPA's headquarters offices, 10 regional
offices, and more than a dozen laboratories and field offices across the country employ a diverse, highly
educated, and technically trained workforce of roughly 14,000 people.
Works carry out Agency's mission
while advancing U.S. national
interests through international
environmental collaboration and
strengthening environmental
protection in Indian Country.
Office of International and
Tribal Affairs
Office of Air and Radiation
Develops national programs,
policies, and regulations for
controlling air pollution and
radiation exposure.
Office of Inspector General
Conducts independent audits,
evaluations and investigations,
promotes economy, efficiency and
effectiveness; helps to prevent
fraud, waste, abuse,
mismanagement and misconduct.
Office of Chemical Safety
and Pollution Prevention
Works to protect people and the
environment from potential risks
from pesticides and toxic
chemicals through innovative
partnerships and collaboration, &
proactively preventing pollution.
Office of Enforcement and
Compliance Assurance
Tackles pollution problems through
vigorous civil & criminal
enforcements targeting serious
water, air, & chemical hazards and
advances environmental justice by
protecting vulnerable communities.
Serves as the scientific research
arm of EPA, whose leading edge
research helps provide the solid
underpinning of science and
technology for the Agency.
Office Research and
Development
Office of the Chief
Financial Officer
Manages Agency's annual budget
and performance plan,
coordinates EPA's strategic
planning efforts, provides financial
services for the Agency, & makes
all Agency payment transactions.
Region 10
Seattle, WA
Region 9
San Francisco, CA
Region 4
Atlanta, GA
Region 8
Denver, CO
Region 3
Philadelphia, PA
Region 7
Kansas City, KS
Office of the
Administrator
Provides overall supervision of the
Agency and is responsible directly to
the President of the United States.
Serves as the scientific research
arm of EPA, whose leading edge
research helps provide the solid
underpinning of science and
technology for the Agency.
Office of Land and
Emergency Management
Office of Mission Support
Provides national leadership,
policy, & management of many
essential Agency support
functions.
Region 5
Chicago, IL
Region 6
Dallas, TX
Region 1
Boston, MA
Region 2
New York, NY
Ensures drinking water is safe,
restores & maintains oceans,
watersheds, and their aquatic
ecosystems protecting human
health, support economic &
recreational activities, & healthy
habitats for fish, plants, & wildlife.
Office of Water
Provides legal support for Agency
rules and policies, case-by-case
decisions, defensive litigation,
operations, and legislation.
Office of General Counsel
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Regional Map
WA
ND
MT
ME
MN
NH
SD
Wl
OR
NY
MA
NE
® DE
VA MD
NV
OH
UT
CO
MO
KY
CA
TN
OK
NC
AR
AZ
NM
MS
GA
TX
GU
• FL
VT
WY
HI
EPA Offices and Facilites
EPA National Headquarters -jf EPA Regional Headquarters • EPA Regional and Program Laboratories and Facilities
Collaborating with Partners and Stakeholders
The idea that environmental protection is a shared responsibility between the states, tribes, and the
federal government is embedded in our environmental laws, which in many cases provide states and
tribes the opportunity and responsibility for implementing environmental protection programs. More
than 45 years after the creation of the EPA and the enactment of a broad set of federal environmental
protection laws, most states, and to a lesser extent territories and tribes, are authorized to implement
environmental programs within their jurisdictions. The EPA understands that improvements to
protecting human health and the environment cannot be achieved by any actor operating alone, but
only when the states, tribes, and the EPA, in conjunction with affected communities, work together in a
spirit of trust, collaboration, and partnership.
Effective environmental protection is best achieved when the EPA and its state and tribal partners
work from a foundation of transparency, early collaboration - including public participation - and a
spirit of shared accountability for the outcomes of this joint work. This foundation involves active
platforms for public participation, including building the capacity for the most vulnerable community
stakeholders to provide input.
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FY 2020 PROGRAM PERFORMANCE
Detailed FY 2020 performance results will be presented in the EPA's FY2020 Annual Performance
Report (APR). The EPA will include its FY2020 APR with its FY2022 Annual Performance Plan and
Budget. These reports, along with FY 2020 performance results will be posted at
http: / /www.epa.go v /planandbudget concurrent with the publication of the FY2022 President's
Budget.
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FINANCIAL ANALYSIS AND STEWARDSHIP
INFORMATION
Sound Financial Management: Good for the Environment, Good for the Nation
The financial management overview below highlights some of the EPA's most significant financial
achievements carried out during the agency's efforts to execute its mission to protect human health
and the environment during FY 2020:
• Agency Financial Statements, For the 21st consecutive year, the EPA's OIG issued a "clean" audit
opinion, unmodified, in the agency's financial statements. This accomplishment underlines the
EPA's consistency in timely, reliable, and accurate financial information that is reported in all
material aspects.
• Anti-Deficiency Act. In FY20, the EPA did not report any Anti-Deficiency Act violations. In FY 19,
the EPA submitted a report of violations of the voluntary services prohibition that occurred at
various points between 2011 and 2016. Since reporting, the agency has continued implementing
corrective actions, including updated policies and training related to voluntary services.
• Water Infrastructure Finance and Innovation Act. In March of this year, the Office of the Chief
Financial Officer developed and successfully implemented a new module in Compass. This web
application provides the tools we use to effectively manage, budget and track expenditures, which
manage and provide a more detailed and accurate accounting of Water Infrastructure loans. To
demonstrate the magnitude of this effort, in FY 2020, there were $2.1 billion obligated loans and
$221 million disbursed loans. We look forward to continuing success next fiscal year.
• EPA's Lean Management System. The EPA implemented an agencywide initiative of continuous
improvement systems to assess and increase the efficiency of various financial and non-financial
processes, including Superfund Billing; Internal Control Reviews; Conference Spending reporting;
Governmentwide Treasury Account Symbol Submissions; and Freedom of Information Act
requests. These lean management approaches, which identify and solve problems as they occur,
have resulted in more streamlined processes and increased transparency.
• Payment Integrity Information Act Reporting. Sustained low improper payment rates remain
the norm across the EPA's various payment resources. The Office of the Inspector General's audit
of the EPA's FY 2019 improper payment reporting determined the EPA was in full compliance with
IPERA, marking the seventh consecutive year of compliance for the EPA. With the passage of the
new Payment Integrity Information Act of 2019, the agency has successfully updated its payment
integrity program to incorporate the law's new requirements.
• Superfund Billing. Another notable effort OCFO leads the improvement of the agency's Superfund
Cost Recovery Program. In FY 2019, a group of subject matter experts came together to design a
new and more efficient billing methodology. The new billing process was put into place in FY 2020.
Because of its success in improving efficiencies, the agency has been able to send out over 100
Superfund bills compared to FY 2019. This totaled an additional $20 million in the amount billed to
primary responsible parties. Such accomplishments make us reasonably optimistic that we will be
able to continue success in FY 2021.
• Working Capital Fund Financial Statements. The EPA's Working Capital Fund provides common
administrative services to the EPA and other federal agencies, where the costs of goods and
services provided are charged to users on a fee-for-service basis. In FY20, the WCF began its 24th
year of operation. The WCF is not mandated to be audited by a third-party; however, the EPA's
WCF has contracted with an external Certified Public Accounting firm to conduct an annual audit
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For the 17th consecutive year, the EPA's WCF received a clean opinion, indicating its financial
statements were presented fairly, in all material respects, in accordance with U.S. Generally
Accepted Accounting Principles.
• CARES Act. The Coronavirus Aid, Relief, and Economic Security Act provided the EPA with $7.23
million to prevent, prepare, and respond to COVID-19, domestically and/or internationally. The
funds helped the agency to continue protecting human health and the environment during the
global pandemic. Specifically, the EPA's CARES Act resources funded cleaning and disinfecting the
EPA of equipment and facilities, maintaining the operational continuity of the EPA programs and
related activities. This provided research on methods to reduce the risks from environmental
transmission of Coronavirus via contaminated surfaces or materials, and, additionally, expedited
registration and other actions related to pesticides to address Coronavirus.
• Digital Accountability & Transparency Act. The Office of Inspector General conducted an audit
on the EPA's FY19 First Quarter financial and award data. The DATA Act audit guide is defined as
being of higher, moderate or lower quality based on the highest error rate found in testing
completeness, accuracy and timeliness of data submitted. While the audit discovered reporting
errors, and some issues with documentation of policies and procedures, overall, the EPA was
found to have "higher" quality data as defined by the DATA Act audit guide issued by the Council of
the Inspectors General on Integrity and Efficiency. Moreover, the audit found that the EPA
complied with requirements of the DATA Act, submitted financial and award data to the Treasury
Broker in a timely fashion, and implemented data standards as defined by the OMB and Treasury.
• OCFO Technical Training Conference. In June 2020, the Office of the Chief Financial Officer held
its annual Technical Training Conference for the EPA employees virtually. The conference offered a
range of professional development and Continuing Learning Credit courses related to the agency's
various financial tools and processes. A record of 599 students registered for courses to learn
something new and expand their skills. Furthermore, each course was captured via a recording
ensuring employees agencywide have these courses available as resources until next year's
conference.
• Shared Services (G-Invoicing & i-Invoicing), The EPA continues to make great strides in
providing a more shared services approach to our financial tools and processes.
G-Invoicing. The EPA has been working with federal agencies to implement the Government
Invoicing solution to transition all interagency buy/sell activities for over 1,400 open
agreements. During this change in business process, the agency will continue improving the
quality of Intragovernmental Transactions, while also maintaining our core mission in the most
effective and efficient manner.
E-Invoicing/Invoice Processing Platform. In October 2019, the agency launched the Invoice
Processing Platform as an electronic invoicing system for all invoices that are currently
processed through the Contract Payment System. IPP is a web-based system used to efficiently
manage government invoicing from contract award through payment notification, and
provides a secure online platform that vendors use to submit invoices, while centralizing all
invoice transaction data and documents in one place. As of January 1, 2020, all contract
vendors doing business with the EPA were required to enroll in IPP and the agency has been
matching vendors in IPP on a rolling basis so that they can utilize the system to submit
invoices. The EPA continues to work with our vendors to help facilitate a smooth transition and
is in the process of modifying contracts to include the IPP invoicing requirements in the EPA
contracts and adding the clause to all new contracts.
• Office of Inspector General & Government Accountability Office Audit Tracker. In response to
the Good Accounting Obligation Act, we also conducted analyses on unimplemented
recommendations and corrective actions to help the agency with reaching resolutions, and
developed agencywide performance metrics on these items to keep senior leadership informed of
potential issues or the need for mediation. In an ongoing effort to continue to improve
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communication throughout the audit community, GAO and the OIG, OCFO developed an Audit
Community SharePoint site to provide agency stakeholders with a forum for obtaining audit
guidance, updates and hot topics. In addition, the Agency will publish a report listing the status of
open, closed, or unimplemented recommendations made by the OIG and the GAO with the FY 2022
Congressional Budget Justification.
• U.S. EPA Toxic Substances Control Act Service Fee Fund. The Toxic Substances Control Act
provides the EPA with authority to collect fees from certain chemical manufacturers and
processors to defray a portion of TSCA implementation costs. Furthermore, the EPA is required to
track the costs it incurs in implementing TSCA Sections 4, 5, 6, and 14, including both direct and
indirect costs. As such, in the first audit conducted by the Office of Inspector General of the
agency's TSCA Service Fee Fund from its inception on June 22, 2016 through September 30, 2018,
the agency received a clean opinion.
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Financial Condition and Results
Financial statements are formal financial records that document the EPA's activities at the transaction level,
where a "financial event" occurs. A financial event is any occurrence having financial consequences to the
federal government related to the receipt of appropriations or other financial resources; acquisition of
goods or services; payments or collections; recognition of guarantees, benefits to be provided, and other
potential liabilities; or other reportable financial activities.
The EPA prepares four consolidated statements (a
balance sheet, a statement of net cost, a statement of
changes in net position, and a statement of custodial
activity) and one combined statement, the
Statement of Budgetary Resources. Together, these
statements with their accompanying notes provide
the complete picture of the EPA's financial situation.
The complete statements with accompanying notes,
as well as the auditors' opinion, are available in
Section II of this report.
The balance sheet displays assets, liabilities, and net
position as of September 30, 2020, and September
30, 2019. The statement of net cost shows the EPA's
gross cost to operate, minus exchange revenue
earned from its activities. Together, these two
statements provide information about key
components of the EPA's financial condition—
assets, liabilities, net position, and net cost of
operations. The balance sheet trend chart depicts
the agency's financial activity levels since FY 2018.
Key Terms
Assets: What EPA owns and manages.
Liabilities: Amounts EPA owes because of
past transactions or events.
Net position: The difference between EPA's
assets and liabilities.
Net cost of operations: The difference between
the costs incurred by EPA's programs and EPA's
revenues.
Balance Sheet Trend
(dollars in billions)
$¦
Assets Liabilities Net Position Net Cost of
Operations
¦ 2018 H2019 i 2020
I.Ill
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EPA Resources and Spending
The figure below depicts the EPA's aggregate budgetary resources (congressional appropriations and
some agency collections], obligations (authorized commitment of funds], and total outlays (cash
payments] for each of the last five fiscal years. The Statement of Budgetary Resources in Section II
provides more information on the makeup of the agency's resources.
EPA Financial Trends
(dollars in billions)
$20
$18
S16
$14
$12
$10
$8
2016 2017 2018 2019 2020
~ Budgetary Resources ¦ Obligations A Total Outlays
Assets—What EPA Owns and Manages
The EPA's assets totaled $18.41 billion atthe end of FY 2020, a decrease of $0.93 billion from the FY
2019 level. In FY 2020, approximately 91 percent of the EPA's assets fall into two categories: fund
balance with Treasury and investments. All of the EPA's investments are backed by U.S. government
securities. The graph below compares the agency's FY 2020 and FY 2019 assets by major categories.
FY 2020 COMPOSITION OF ASSETS
Accounts Receivable (Net) 3%
Property, Plant,
and Equipment
(Net)
4%
Investments
32%
Other Assets
Fund Balance
with Treasury
FY 2019 COMPOSITION OF ASSETS
Accounts Receivable (Net) 4% Other Assets
Property, Plant
and
4%
Investments
34%
Fund Balance
with Treasury
57%
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Liabilities—What EPA Owes
The EPA's liabilities were $5.09 billion at the end of FY 2020, a decrease of $0.21 million from the FY
2019 level. In FY 2020, the EPA's largest liability (68 percent) was Superfund unearned revenue, which
the agency uses to pay for cleanup of contaminated sites under the Superfund program. Additional
categories include payroll and benefits payable, salaries, pensions and other actuarial liabilities, the
EPA's debt due to Treasury, custodial liabilities that are necessary to maintain assets for which the EPA
serves as custodian, environmental cleanup costs, and other miscellaneous liabilities. The graphs
compare FY 2020 and FY 2019 liabilities by major categories.
FY 2020 COMPOSITION OF LIABILITIES
FY 2019 COMPOSITION OF LIABILITIES
Payroll and Benefits
5%
Other
14%
Cashout Advances, Supei
68%
Accounts Payab
and Accrued
Liabilities
13%
Payroll and Benefits, 4%
Other, 9%
Cashout Advances, Superfund,
73%
Accounts Payable
and Accrued
Liabilities, 14%
Net Cost of Operations—How EPA Used Its Funds
The graph that follows show how the EPA's funds are expended among five expenditure accounts in
FY 2020 and FY 2019.
FY 2020 NET COST BY PROGRAM
FY 2019 NET COST BY PROGRAM
State and Tribal Assistance
Agreements
46%
Environmental
Programs &
Management
31%
<
Leaking
Underground
_ Storage Tanks
1%
Science & Technology
9%
State and Tribal Assistance
Agreements
46%
Environmental
Programs &
Management
30%
Superfund
13%
iuiierfund
Leaking Undergroui
Storage Tanks
1%
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Stewardship Funds
The EPA serves as a steward on beh alf of the American people. The chart below presents four
categories of stewardship: land, research and development, infrastructure, and human capital. In FY
2020, The EPA devoted a total of $3.9 billion to its stewardship activities.
FY 2020 STEWARDSHIP FY 2019 STEWARDSHIP
Development
14%
una
0%
itesearcn &
Development
13%
Human
Capital
Human Capital
Infrastructure
86%
Infrastructure
86%
Per the Federal Accounting Standards Advisory Board (FASAB), stewardship investments consist of
expenditures made by the agency for the long-term benefit of the nation that do not result in the
federal government acquiring tangible assets.
The largest infrastructure programs are the Clean Water State Revolving Fund (CWSRF) and
Drinking Water State Revolving Fund (DWSRF) programs that provide grant funds to states for
water infrastructure projects, such as the construction of wastewater and drinking water
treatment facilities. States lend the majority of these funds to localities or utilities to fund the
construction and or upgrade of facilities (some may also be used for loan forgiveness or given
as grants). Loan repayments then revolve at the State level to fund future water infrastructure
projects. The EPA's budget included nearly $2.76 billion in FY 2020 appropriated funds for the
SRFs for states' use. In addition, states lent billions of dollars from funds they received as
repayments from previous State Revolving Fund (SRF) loans. These funds provide assistance to
public drinking water and wastewater systems for the enhancemen t of water infrastructure,
allowing for cleaner water bodies and crucial access to safer drinking water for millions of
people.
Research and development activities enable the EPA to identify and assess important risks to
human health and the environment This critical research investment provides the basis for the
EPA's regulatory work, including regulations to protect children's health and at-risk
communities, drinking water, and the nation's ecosystems.
Land includes contaminated sites to which the EPA acquires title under the Superfund
authority. This land needs remediation and cleanup because its quality is well below any usable
and manageable standards. To gain access to contaminated sites, the EPA may acquire
easements that are in good and usable condition. These easements may also serve to isolate the
site and restrict usage while the cleanup is taking place.
The agency's investment in human capital through training, public awareness, and research
fellowships are components of many of the agency's programs and are effective in achieving the
agency's mission of protecting public health and the environment.
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Financial Management for the Future
During times of environmental challenges, sound stewardship of the EPA's financial resources
continues to be critical to the agency's ability to protect the environment and human health locally,
nationally, and internationally. Reliable, accurate, and timely financial information is essential to
ensure cost-effective decisions for addressing land, water, air and ecosystem issues. To strengthen the
EPA's financial stewardship capabilities, the agency focuses on the fundamental elements of financial
management: people and systems.
People: The EPA leverages every available tool to recruit the best people with the necessary skills to
meet tomorrow's financial challenges. Staff members are trained in financial analysis and forecasting
to understand financial data and what it means. The EPA is integrating financial information into
everyday decision-making so that it maximizes the use of its resources.
Systems: The EPA's core financial system, called Compass, is based on a commercial-off-the-shelf
software solution that addresses the agency's most critical business needs. Compass has improved the
EPA's financial stewardship by strengthening accountability, data integrity, and internal controls, on
the following business areas:
• General ledger
• Accounts payable
• Accounts receivable
• Property
• Project cost
• Intra-governmental transactions
• Budget execution
Compass provides core budget execution and accounting functions and facilitates more efficient
transaction processing. The system posts updates to ledgers and tables as transactions are processed
and generates source data for the preparation of financial statements and budgetary reports. Compass
is integrated with 15 agency systems that support diverse functions, such as budget planning,
execution, and tracking; recovery of Superfund site-specific cleanup costs; property inventory; agency
travel; payroll; document and payment tracking; and research planning. Compass is a Web-based, open
architecture application managed at the CGI Federal Phoenix Data Center, a certified shared service
provider.
Limitations of the Principal Financial Statements
The EPA prepared the principal financial statements to report the financial position and results of its
operations of the reporting entity, pursuant to the requirements of 31 U.S.C. 3515 (b). The EPA has
prepared the statements from the books and records of the entity in accordance with federal generally
accepted accounting principles and the formats prescribed by OMB. Reports used to monitor and
control budgetary resources are prepared from the same books and records. The financial statements
should be read with the realization that they are for a component of the U.S. government.
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IMPROVING MANAGEMENT AND RESULTS
Office of Inspector General Audits, Evaluations, and Investigations
OIG contributes to the EPA's mission to protect human health and the environment by assessing the
efficiency and effectiveness of the agency's program management and results. OIG ensures that agency
resources are used as intended, develops recommendations for improvements and cost savings, and
provides oversight and advisory assistance in helping the EPA carry out its objectives. The OIG detects
and prevents fraud, waste and abuse to help the agency protect human health and the environment
more efficiently and cost effectively. The OIG performs its mission through independent oversight of
the programs and operations of the EPA. The OIG also contributes to the oversight integrity of and
public confidence in the agency's programs and to the security of its resources by preventing and
detecting possible fraud, waste, and abuse and pursuing judicial and administrative remedies.
In FY 2020, OIG identified key management challenges and internal control weaknesses. OIG audits,
evaluations, and investigations resulted in:
• 290 recommendations accounting for over $83.0 million in potential savings and recoveries;
• 127 actions taken by the agency for improvement from OIG recommendations; and
• 279 criminal, civil, or administrative enforcement actions.
Grants Management
The EPA has two major grants management metrics, one for grant competition, the other for grants
closeout The EPA's Policy for Competition of Assistance Agreements establishes requirements for the
competition of assistance agreements (grants, cooperative agreements, and fellowships) to the
maximum extent practicable. The Agency tracks the percentage of new grant awards that are
competed according to the policy. For FY 2020, the agency exceeded the grant competition target by
5%.
EPA tracks the closeout of grants through two measures, one for grants for which the project period
expired within the previous fiscal year and one for older grants for which the project period expired
prior to the last fiscal year. For FY 2020, EPA closed out 90% of the awards that expired
Grants Management Performance Measures for EPA
Performance Measure
Target
Progress in FY 2020
Progress in FY 2019
Percentage of grants
closed out
90%
90% closure of grants that
expired in 2019
87.3 % closure of grants
that expired in 2018
99%
99.5% closure of grants
that expired in 2018 and
earlier
98% closure of grants that
expired in 2017 and
earlier
Percentage of new grants
subject to the
competition policy that
are competed
90%
95%
95%
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ACCOUNTABILITY: SYSTEMS, CONTROLS,
AND LEGAL COMPLIANCE
Federal Managers' Financial Integrity Act (FMFIA)
FMFIA requires agencies to conduct on-going evaluations of their internal controls and financial
management systems and report the results to the President and Congress.
The EPA evaluated its internal controls in accordance with OMB Circular A-123, Management's
Responsibility for Enterprise Risk Management and Internal Control. The agency operates a
comprehensive internal control program, which ensures compliance with the requirements of FMFIA
and other laws and regulations. Each year, the EPA's national program and regional offices conduct
assessments and submit annual assurance letters attesting to the soundness of the internal controls
within their organizations. These assurance letters provide the basis for the Administrator's overall
statement of assurance on the adequacy of the EPA's internal controls over operations and financial
management systems.
In FY 2020, the EPA did not identify any new material weaknesses related to effectiveness and
efficiency of operations. The agency has one existing material weakness related to the financial
statement preparation process. The agency has established a plan of action to evaluate and improve its
financial statement preparation process and to provide accurate and reliable supporting
documentation for adjustments and corrections. The agency anticipates all corrective actions will be
implemented and validated in FY 2021. Section III of this report provides details about the EPA's
corrective actions underway. The EPA remains committed to eliminating its weaknesses and continues
to emphasize the importance of maintaining effective internal controls in order to comply with FMFIA
and other applicable laws and regulations.
Internal Controls Over Financial Reporting
The agency has evaluated the key internal controls spanning its financial processes. Based on this
evaluation, no new material weaknesses were identified. Subsequent to the agency's review, the EPA's
OIG identified no new material weaknesses during the FY 2020 financial statement audit.
Internal Controls Over Financial Management Systems
The Federal Financial Management Improve Act requires agencies to ensure that financial
management systems consistently provide reliable data that comply with government-wide principles,
standards, and requirements. Based on the agency's evaluation of its financial management systems,
no material weaknesses were identified. The assessment included a review of the agency's core
financial system, Compass Financials, as well as those considered as financially related or mixed
systems that support or interface with the core financial system. The EPA has determined that its
financial management systems substantially comply with FFMIA requirements.
Based on the results of the agency's and the OIG's FY 2020 evaluations, the Administrator can provide
reasonable assurance on the adequacy and effectiveness of the EPA's internal controls over financial
management systems.
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The Digital Accountability and Transparency Act
The DATA Act of 2014 was designed to increase the standardization and transparency of federal
spending. It requires agencies to report data, consistent with data standards established by 0MB and
the Department of the Treasury for publication on USASpending.gov.
In FY 2017, the EPA certified compliance with 0MB guidance and provided reasonable assurance that
internal controls support the reliability and validity of account-level and award-level data reported on
USASpending.gov. This level of assurance in the internal controls was enabled through three elements
of the EPA DATA Act submission process: 1) establishment of the DATA Act Evaluation and Approval
Repository Tool; 2) multi-level approval process; and 3) documentation of all associated warnings in
its statement of assurance.
The DEAR Tool was designed to transform data to meet the data standards, pre-validate all of the
warnings and edits that would be triggered when submitting the information to the DATA Act broker,
and to standardize and fully document the multi-level approval process, culminating in the Senior
Accountable Official approval.
The multi-level approval process within the DATA Act submission process allowed all parties of the
approval process to be briefed and fully comprehend the issues present and documented within the
files. The approval process consists of three "lock-downs" of the data starting with the case manager,
who is responsible for overseeing the review of the warnings and edits associated with the DATA Act.
Next, the Office Director (SES) is briefed on the analysis of the DATA Act files, which includes an
explanation as to why particular warnings could not be fully resolved. The final briefing is to give the
appropriate assurance to the SAO and to address questions or concerns prior to certification so the
files fully comply with the law.
The Statement of Assurance is the central piece of information for the agency to document its data
issues that triggered the DATA Act warnings but remain unresolved. The EPA's approach was to
address all data issues that could easily be resolved with changes to the host financial system or the
DEAR, and fully document the cause of the warnings within the Statement of Assurance. This includes
issues that could not be addressed in a timely manner. Therefore, the EPA used the Statement of
Assurance as the document to illustrate recognition of flaws and understanding of the issues in the
larger context of the DATA Act submission.
In FY 2020, the agency continued to provide accurate and timely data for the DATA Act. The agency
has continually worked to resolve data issues as they have arisen during submissions or in the form of
warnings. Additionally, in FY 2020, the Department of the Treasury increased the reporting frequency
to monthly in which the EPA has adapted it business process to be compliant with the new
requirements.
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Federal Financial Management Improvement Act (FFMIA)
FFMIA requires that agencies implement and maintain financial management systems that comply with
1) federal financial management system requirements, 2) applicable federal accounting standards, and
3) the U.S. Standard General Ledger (USSGL). Annually, agency heads are required to assess and report
on whether these systems comply with FFMIA.
The EPA's FY 2020 assessment included the following:
• A-12 3 review found no significant deficiencies.
• An Office of Inspector General's (OIG) FY 2020 report identified items within the information
security program as a management challenge. The report states:
• The agency needs to develop and maintain an up-to-date inventory of the software and
associated licenses used within the organization. The agency implemented a dashboard and
review process that leverages existing capabilities and provides a current inventory of
approved software for network endpoints.
• The agency needs to establish a control to validate that agency personnel are creating the
required plans of action and milestones (POA&M) for weaknesses identified from
vulnerability testing but not remediated within the agency's established timeframes per the
EPA's information security procedures. The agency has a documented POA&M monitoring,
validation and verification process. The process is used for all sources of vulnerabilities to
include those from vulnerability scanning. The agency checks monthly a sampling of
vulnerabilities for POA&M need and establishment
• The agency needs to implement file integrity and data loss prevention tools to support the
EPA's incident response program. The agency implemented a host-based tool that provides
integrity controls. The capabilities have been integrated into the agency's incident response
processes. The agency implemented a network-based tool that provides data loss
prevention capabilities for cloud related on-premise and cloud services traffic. The tool
provides indications of possible unauthorized data movement on the network and in the
cloud. The agency developed a playbook to integrate related capabilities into incident
response processes.
• The agency conducted other systems-related activities, including:
• Third-party control assessments
• Network scanning for vulnerabilities
• Annual certification for access to the agency's accounting system
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Fiscal Year 2020 Annual Assurance Statement
The U.S. Environmental Protection Agency's management is responsible for managing risk and
maintaining effective internal control to meet the objectives of the Federal Managers' Financial
Integrity Act.
In accordance with Section 2 of the FMFIA and the Office of Management and Budget's Circular A-123,
Management's Responsibility for Enterprise Risk Management and Internal Control, the EPA assessed the
effectiveness of its internal control to support the effectiveness and efficiency of operations, reliable
financial reporting and compliance with applicable laws and regulations. Section 4 of the FMFIA and
the Federal Financial Management Improvement Act of 1996 requires management to ensure financial
management systems provide reliable, consistent disclosure of financial data. In accordance with
Appendix D of 0MB Circular A-123, the agency evaluated whether financial management systems
substantially comply with the FFMIA requirements.
The EPA did not identify any new material weaknesses during Fiscal Year 2020. The agency continued
to make progress in addressing one previously identified weakness related to the financial statement
preparation process and expects to implement and validate all corrective actions in FY 2021. More
information on the previously identified material weakness is provided in Section III, "Other
Accompanying Information," of the Agency Financial Report
Although no new material weaknesses were identified, the agency will continue to monitor its
programmatic, financial and administrative controls to ensure compliance with laws and regulations.
Based on the results of the EPA's assessments and recent program improvements, I can provide
reasonable assurance that the agency's internal control over operations were operating effectively and
financial management systems conform to government-wide standards as of September 30, 2020. The
agency's internal control over financial reporting were operating effectively as well.
Andrew R. Wheeler
Administrator
Date
25
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> ,v
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Message from the Deputy Chief Financial
Officer
¦*
•¦4
/V
I am pleased to present the U.S. Environmental Protection Agency's Fiscal
Year 2020 Agency Financial Report. This report summarizes the EPA's
financial results and presents its audited financial statements and the EPA's
FY 2020 Assurance Statement and Financial Statement Audit Report. In
addition, this report outlines the EPA's FY 2020 accomplishments and
provides a snapshot of our innovations and improvements in effectively
using taxpayers' dollars to finance and fulfill our mission to protect human
health and the environment.
FY 2020 marks the 21st consecutive year that the EPA achieved an
unmodified "clean" audit opinion on its financial statements. As one of the
few federal agencies to have achieved this outcome, we are extremely proud
of this milestone. It is an honor to work alongside the dedicated staff who
have maintained the financial integrity of this agency year after year. In addition, in the first audit
conducted by the Office of Inspector General of the agency's Toxic Substances Control Act Service Fee
Fund from its inception on June 22, 2016, through September 30, 2018, and a review of the financial
statements from the agency's Hazardous Waste Electronic Manifest System Fund for FY 2018, the
agency received clean opinions on both audits.
In FY 2020, the Office of the Chief Financial Officer has continued to seek efficiencies and continuous
improvement in providing accurate and effective financial management. This involved reviewing and
enhancing our internal processes, applying the principles of the EPA's Enterprise Lean Management
System, known as ELMS, and also leveraging the agency's financial system, Compass, by activating
additional, specialized accounting functions called modules. These functions can improve accuracy and
controls, as well as reduce manual entry, but often configuration is complex and converting existing
records and aligning with interfaces to other systems pose challenges. In FY 2020, we put two new
functions in place in Compass to provide more effective and efficient accounting for agency resources.
We also worked with agency partners to improve multiple internal processes, including Superfund
billing and the management of agency response to Office of Inspector General and Governmental
Accountability Office reports.
In 2017, the agency received funding for a new loan program, the Water Infrastructure Finance and
Innovation Act program, which offers innovative and flexible financing for water system
improvements. The EPA manages these loans directly and the scope is substantial, with $2.1 billion in
loans obligated and $221 million disbursed in the two years since the first loan. In FY 2020, the OCFO
worked with the Office of Water to configure, test and implement the credit module for the WIFIA
loans, which will be vital to effectively managing the continued growth of the portfolio.
Another area of significant progress has focused on efficiently and accurately completing the
Governmentwide Treasury Account Symbol reporting on time every month by leveraging Compass
functionality. The GTAS reporting touches every aspect of the general ledger and means accounting
model updates as well as ensuring all new data and data previously brought into the accounting
system meets certain additional standards. Late in FY 2020, we transitioned to using the Compass
generated report and expect continued improvement going forward.
27
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This past year, the OCFO worked to improve our audit processes, partnering with agency offices to
increase communication and coordination between leadership and the audit community in responding
to the GAO and the EPA's OIG. We conducted analyses on unimplemented recommendations and
corrective actions to help the agency with reaching resolution and tracked agencywide performance
metrics integrated into ELMS on these items to keep senior leadership informed of potential issues or
the need for mediation.
In pursuit of further transparency and more efficient coordination agencywide, my office modernized
the Enterprise Audit Management System, a database where all audit and corrective actions
information are tracked, and also made tailored reports available to agency leadership and
stakeholders to ensure visibility into early results and potential issues. To improve communication
throughout the agency's audit community, the OCFO developed an Audit Community SharePoint site to
provide agency stakeholders with a forum for obtaining audit guidance, updates and hot topics.
Another notable effort my office is leading is to improve the agency's Superfund Cost Recovery
program. In FY 2019, a group of subject matter experts came together to design a new and more
efficient billing methodology. The new billing process was put into place in FY 2020 and because of its
success in improving efficiency, the agency has been able to send out 48 more Superfund bills than in
FY 2019, totaling an additional $4 million in the amount billed to primary responsible parties, and has
reduced the process timeframe from a targeted goal of 100 days to an average of 72 days.
Throughout FY 2020, the EPA has continued its efforts to provide more efficient agency operations to
increase certainty, compliance and effectiveness and improve agency operations, service delivery and
regulatory relief. As the Deputy Chief Financial Officer, I have made it a top priority to standardize the
agency's financial business practices and modernize our information technology systems. My office
continues to participate in the ELMS to help identify areas for improvement and strengthen our ability
to maintain the highest financial management standards. Significant effort has been made to
strengthen our partnerships and expand our communication to stakeholders with the goal of finding
ways to improve our processes to enhance operational efficiency and ease of use.
David A. Bloom
Doputv Chief Financial Officer
November 16, 2020
28
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EPA'S FISCAL YEARS 2020 AND 2019
CONSOLIDATED FINANCIAL STATEMENTS
(WITH RESTAEMENT)
29
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Table of Contents
Principal Financial Statements 31
Notes to Financial Statements 38
Note 1. Summary of Significant Accounting Policies 38-45
Note 2. Fund Balance with Treasury (FBWT) 45-46
Note 3. Cash and Other Monetary Assets 46
Note 4. Investments 46-47
Note 5. Accounts Receivable, Net 47
Note 6. Other Assets 47
Note 7. Direct Loans Receivable, Net 48-50
Note 8. Accounts Payable and Accrued Liabilities 51
Note 9. General Property Plant and Equipment 51 - 52
Note 10. Debt Due to Treasury 52
Note 11. Stewardship Property, Plant and Equipment 53
Note 12. Custodial Liability 53
Note 13. Other Liabilities 54 - 55
Note 14. Leases 55 - 56
Note 15. FECA Actuarial Liabilities 56
Note 16. Cashout Advances, Superfund (Restated) 56
Note 17. Commitments and Contingencies 57-58
Note 18. Funds from Dedicated Collections (Unaudited) (Restated) 59 - 61
Note 19. Environmental Cleanup Costs 62
Note 20. State Credits 62-63
Note 21. Preauthorized Mixed Funding Agreements 63
Note 22. Custodial Revenues and Accounts Receivable 63
Note 23. Reconciliation of President's Budget to the Statement of Budgetary Resources 63
Note 24. Recoveries and Resources Not Available, Statement of Budgetary Resources 64
Note 25. Unobligated Balances Available 64
Note 26. Undelivered Orders at the End of the Period 64
Note 27. Offsetting Receipts 65
Note 28. Transfers-In and Out, Statement of Changes inNet Position 65-66
Note 29. Imputed Financing 66
Note 30. Payroll and Benefits Payable 67
Note 31. Other Adjustments, Statement of Changes in Net Position 67
Note 32. Non-Exchange Revenue, Statement of Changes inNet Position 68
Note 33. Reconciliation of Net Cost of Operations to Budget (Restated) 69 - 71
Note 34. Amounts Held by Treasury (Unaudited) 72-75
Note 35. COYID-19 Activity 75
Note 36. Reclassified Financial Statements for Government-wide Reporting 75 - 80
Note 37. Restatement 80
Required Supplementary Information (Unaudited) 81 - 84
Deferred Maintenance 81
Supplemental Statement of Budgetary Resources 84
30
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Principal Financial Statements
United States Environmental Protection Agency
Consolidated Balance Sheet
As of September 30, 2020 and 2019 (Restated)
(Dollars in Thousands)
Restated
2020
2019
ASSETS
Intragovernmental:
Fund Balance With Treasury (Note 2)
$
10,823,112
$
10,056,926
Investments (Note 4)
5,969,666
5,997,657
Accounts Receivable, Net (Note 5)
51,872
34,802
Other (Note 6)
198.268
210.591
Total Intragovernmental
17,042,918
16,299,976
Cash and Other Monetary Assets (Note 3)
10
10
Accounts Receivable, Net (Note 5)
503,725
500,886
Direct Loans Receivable, Net (Note 7)
196,470
263
Property, Plant and Equipment, Net (Note 9)
659,668
671,207
Other (Note 6)
8.209
7.714
Total Assets
$
18.411.000
$
17.480.056
LIABILITIES
Intragovernmental:
Accounts Payable and Accrued Liabilities (Note 8)
$
152,014
$
136,825
Debt Due to Treasury (Note 10)
221,652
266
Custodial Liability (Note 12)
72,018
36,494
Other (Note 13)
158.195
177.294
Total Intragovernmental
603,879
350,879
Accounts Payable and Accrued Liabilities (Note 8)
525,173
540,235
Pensions and Other Actuarial Liabilities (Note 15)
50,451
42,044
Environmental Cleanup Costs (Note 19)
38,383
32,810
Cashout Advances, Superfund (Note 16 and 37)
3,472,784
3,573,240
Commitments and Contingencies (Note 17)
38
-
Payroll and Benefits Payable (Note 30)
253,254
203,985
Other (Note 13)
149.681
140.549
Total Liabilities
5.093.643
4.883.742
NET POSITION
Unexpended Appropriations - Funds from Dedicated Collections (Note 18)
(189)
(1,264)
Unexpended Appropriations - Other Funds
9,600,037
8,929,585
Cumulative Results of Operations - Funds from Dedicated Collections (Note 18
and 37)
3,307,079
3,170,594
Cumulative Results of Operations - Other Funds
410.430
497.399
Total Net Position
13.317.357
12.596.314
Total Liabilities and Net Position
$
18.411.000
$
17.480.056
31
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United States Environmental Protection Agency
Consolidated Statement of Net Cost
For the Fiscal Years Ending September 30, 2020 and 2019
(Dollars in Thousands)
Restated
2020 2019
COSTS
Gross Costs
Earned Revenue (Note 37)
9,335,328 $
514,164
8,883,930
338,757
NET COST OF OPERATIONS (Note 33 and 37)
8.821.164 S 8.545.173
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Costs:
United States Environmental Protection Agency
Statement of Net Cost by Major Program
For the Fiscal Year Ending September 30, 2020
(Dollars in Thousands)
Environmental Leaking
Programs & Underground Science &
State &
Tribal
Assistance
Management Storage Tanks Technology Superfund Agreements Other
Totals
Gross Costs
WCF Elimination
Total Costs
2,721,796 $ 97,770 $721,616 $ 1,505,864 $ 3,999,283 $ 563,190 $ 9,609,519
- - - - - (274.1911 (274.1911
2.721.796 97.770 721.616 1.505.864 3.999.283 288.999 9.335.328
Less:
Earned Revenue
WCF Elimination
Total Earned Revenue
26,615
26,615
6,978 362,342
6,978 362,342
392,420
(274.1911
118,229
788,355
(274.1911
514,164
NET COST OF
OPERATIONS
2.695.181
97.770
714.638 S 1.143.522 S 3.999.283
170.770 S 8.821.164
Costs:
United States Environmental Protection Agency
Statement of Net Cost by Major Program
For the Fiscal Year Ending September 30, 2019 (Restated)
(Dollars in Thousands)
Environmental Leaking
Programs & Underground Science &
State &
Tribal
Assistance
Management Storage Tanks Technology Superfund Agreements Other
Totals
Gross Costs
WCF Elimination
Total Costs
$ 2,650,992 $
2,650,992
89,019 $709,019 $ 1,392,940 $ 3,876,041 $ 398,223 $9,116,234
^ - - - (232.3041 (232.3041
89,019 709,019 1,392,940 3,876,041 165,919 8,883,930
Less:
Earned Revenue (Note 37)
WCF Elimination
Total Earned Revenue
79,874
79.874
5,963
179,115
5.963 179.115
305,887
(232.0821
73.805
570,839
(232.0821
338.757
NET COST OF
OPERATIONS (Note
37)
2.571.118
89.019
: 703.056 S 1.213.825 S 3.876.041
92.114 S 8-545-173
33
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United States Environmental Protection Agency
Consolidated Statement of Changes in Net Position
For the Fiscal Year Ending September 30, 2020
(Dollars in Thousands)
Funds from
Dedicated All Other Consolidated
Collections Funds Total
Cumulative Results of Operations:
Net Position - Beginning of Period
$ 3,170,594
$
497,399
$ 3,667,993
Budgetary Financing Sources:
Other Adjustments (Note 31)
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 32)
Nonexchange Revenue - Other (Note 32)
Transfers In/Out
Transfers In/Out - Nonmonetary
Trust Fund Appropriations
Total Budgetary Financing Sources
(1,072)
(3)
90,116
239,795
(26,636)
544
1.076.535
1,379,279
8,458,703
42,081
(325)
(1.071.007)
7,429,452
(1,072)
8,458,700
90,116
239,795
15,445
219
5.528
8,808,731
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 29)
Other Financing Sources
9,131
415
52,818
(415)
61,949
Total Other Financing Sources
9,546
52,403
61,949
Net Cost of Operations
$ (1,252,340)
$
(7,568,824)
$(8,821,164)
Net Change
136.485
(86.969)
49.516
Cumulative Results of Operations
S 3.307.079
$
410.430
S 3.717.509
Funds from
Dedicated
Collections
All Other
Funds
Consolidated
Total
Unexpended Appropriations:
Net Position - Beginning of Period
$ (1,264)
$
8,929,585
$ 8,928,321
Budgetary Financing Sources:
Appropriations Received
Appropriation Transfers-In/Out
Other Adjustments (Note 31)
Appropriations Used
1,072
3
9,148,119
(18,964)
(8.458.703)
9,148,119
(17,892)
(8.458.700)
Total Budgetary Financing Sources
1,075
670,452
671,527
Total Unexpended Appropriations
(189)
9.600.037
9.599.848
TOTAL NET POSITION
S 3.306.890
S 10.010.467
S 13.317.357
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United States Environmental Protection Agency
Consolidated Statement of Changes in Net Position
For the Fiscal Year Ending September 30, 2019 (Restated)
(Dollars in Thousands)
Cumulative Results of Operations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 32)
Nonexchange Revenue - Other (Note 32)
Transfers In/Out
Transfers In/Out - Nonmonetary
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 29)
Total Other Financing Sources
Net Cost of Operations (Note 37)
Net Change
Cumulative Results of Operations (Note 37)
Unexpended Appropriations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Appropriations Received
Appropriation Transfers-In/Out
Other Adjustments (Note 31)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
Funds from
Dedicated
Collections
All Other
Funds
Consolidated
Total
2,966,236
4,054
134,699
270,253
15,608
1.083.758
1,508,372
508,636
8,190,426
(58)
21,330
142
(1.083.758)
7,128,082
85,205
3,474,872
8,194,480
134,699
270,195
36,938
142
8,636,454
101,840
16.635
16,635 85,205 101,840
$(1,320,649) $(7,224,524) $(8,545,173)
204,358 (11,237) 193,121
$ 3.170.594 S 497.399 S 3.667.993
Funds from
Dedicated
Collections
2,790
(4,054)
(4,054)
(1.264)
All Other
Funds
8,058,744
9,288,440
2,717
(229,890)
(8,190,426)
870,841
Consolidated
Total
8,061,534
9,288,440
2,717
(229,890)
(8,194,480)
866,787
8.929.585
8.928.321
S 3.169.330 S 9.426.984 S 12.596.314
35
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United States Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Fiscal Years Ending September 30, 2020 and 2019
(Dollars in Thousands)
2020
2019
BUDGETARY RESOURCES
Unobligated Balance From Prior Year Budget
Authority, Net (discretionary and mandatory)
Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and mandatory)
Spending Authority (discretionary and mandatory)
Total Budgetary Resources
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward adjustments (total)
Unobligated Balance, End of Year:
Apportioned, Unexpired Accounts
Unapportioned, Unexpired accounts
Expired Unobligated Balance, End of Year
Unobligated Balance, End of Year (total):
Total Status of Budgetary Resources
OUTLAYS, NET AND DISBURSEMENTS, NET
Outlays, Net (total) (discretionary and mandatory)
Distributed Offsetting Receipts (-) (Note 27)
Agency Outlays, Net (discretionary and mandatory)
Disbursements, Net (total) (mandatory)
Non-
Budgetary
Credit Reform
Financing
Budgetary Account Budgetary
Non-
Budgetary
Credit Reform
Financing
Account
$ 1,461,572
$ 5,808,190 $ 20,914 $ 4,714,826
10,737,950 - 10,801,690
3,576,684
398.507 5.805 557.467
S 16.944.647 S 3.603.403 S 16.073.983 S 2.545.077
1,083,500
5
$ 11,304,380 $
5,446,701
4,562
189,004
5,640,267
2,988,163
615,240
615,240
$ 10,613,226 $
5,273,498
917
186,342
5,460,757
2,524,163
20,914
20,914
S 16.944.647 S 3.603.403 S 16.073.983 $ 2.545.077
$ 10,092,803
(1.369.396)
$ 8.723.407
$ 9,648,346
(1.584.783)
$ 8.063.563
221.381
264
36
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United States Environmental Protection Agency
Statement of Custodial Activity
For the Fiscal Years Ending September 30, 2020 and 2019
(Dollars in Thousands)
2020 2019
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties
$
171,950 $
352,092
Other
(16.486)
(4.359)
Total Cash Collections
155,464
347,733
Accrual Adjustment
13.714
8.912
Total Custodial Revenue (Note 22)
$
169.178 S
356.645
Disposition of Collections:
Transferred to Others (General Fund)
$
155,055 $
347,711
Increases/Decreases in Amounts to be Transferred
14.123
8.934
Total Disposition of Collections
$
169.178 $
356.645
Net Custodial Revenue Activity
$
S
-
37
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Reporting Entities
The EPA was created in 1970 by executive reorganization from various components of other federal agencies to better
marshal and coordinate federal pollution control efforts. The Agency is generally organized around the media and
substances it regulates - air, water, waste, pesticides, and toxic substances.
The FY 2020 financial statements are presented on a consolidated basis for the Balance Sheet, Statement of Net Cost,
Statement of Net Costs by Major Program, and Statement of Changes in Net Position. The Statement of Custodial
Activity and the Statement of Budgetary Resources are presented on a combined basis. The financial statements
include the accounts of all funds described in this note by their respective Treasury fund group.
B. Basis of Presentation
The accompanying financial statements have been prepared to report the financial position and results of operations of
the U. S. Environmental Protection Agency (the EPA or Agency) as required by the Chief Financial Officers Act of
1990 and the Government Management Reform Act of 1994. The reports have been prepared from the financial
system and records of the Agency in accordance with Office of Management and Budget (OMB) Circular No. A-136,
Financial Reporting Requirements, and the EPA accounting policies, which are summarized in this note.
C. Budgets and Budgetary Accounting
I. General Funds
Congress enacts an annual appropriation for State and Tribal Assistance Grants (STAG), Buildings and Facilities
(B&F), and for payments to the Hazardous Substance Superfund to be available until expended. Annual
appropriations for the Science and Technology (S&T), Environmental Programs and Management (EPM) and for the
Office of Inspector General (OIG) are available for two fiscal years. When the appropriations for the General Funds
are enacted, Treasury issues a warrant for the respective appropriations. As the Agency disburses obligated amounts,
the balance of funds available in the appropriation is reduced at the U.S. Department of Treasury (Treasury).
The EPA has three-year appropriation accounts and a no-year revolving fund account to provide funds to carry out
section 3024 of the Solid Waste Disposal Act, including the development, operation, maintenance, and upgrading of
the hazardous waste electronic manifest system. The Agency is authorized to establish and collect user fees for the
Hazardous Waste Electronic Manifest System Fund to recover the full cost of providing the hazardous waste
electronic manifest fund system related services.
The EPA receives two-year appropriated funds to carry out the Frank R. Lautenberg Chemical Safety for the 21st
Century Act. Under the Act, the Agency is authorized to collect users fees (up to $25 million annually) from chemical
manufacturers and processors. Fees collected will defray costs for new chemical reviews and a range of Toxic
Substances Control Act Service Fee Fund (TSCA) implementation activities for existing chemicals.
The Water Infrastructure Finance and Innovation Act of 2014 (WIFIA) established a Federal credit program
administered by the EPA for eligible water and wastewater infrastructure projects. The program is financed from
appropriations to cover the estimated long-term cost of the loan. The long-term cost of the loans is defined as the net
present value of the estimated cash flows associated with the loans. A permanent indefinite appropriation is available
to finance the costs of re-estimated loans that occur in subsequent years after the loans are disbursed. The Agency
received two-year appropriations in fiscal years 2020 and 2019 to finance the administration portion of the program.
EPA re-estimates the risk on each individual loan annually. Proceeds issued by EPA cannot exceed forty-nine percent
of eligible project costs. Project costs must exceed a minimum of $20 million for large communities and $5 million for
communities with populations of 25,000 or less. After substantial completion of a project, the borrower may defer up
to five years to start loan repayment and cannot exceed thirty-five years for the final loan maturity date.
38
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Funds transferred from other federal agencies are processed as non-expenditure transfers. Clearing accounts and
receipt accounts receive no appropriated funds. Amounts are recorded to the clearing accounts pending further
disposition. Amounts recorded to the receipt accounts capture amounts collected for or payable to the Treasury
General Fund.
II. Revolving Funds
Funding of the Reregistration and Expedited Processing Fund (FIFRA) is provided by fees collected from industry to
offset costs incurred by the Agency in carrying out this program. Each year, the Agency submits an apportionment
request to OMB based on the anticipated collections of industry fees.
Funding of the Working Capital Fund (WCF) is provided by fees collected from other Agency appropriations and
other federal agencies to offset costs incurred for providing the Agency administrative support for computer and
telecommunication services, financial system services, employee relocation services, background investigations,
continuity of operations, and postage.
The EPA Damage Assessment and Restoration Revolving Fund was established through the Treasury and OMB for funds
received for critical damage assessments and restoration of natural resources injured as a result of the Deepwater Horizon
oil spill.
III. Special Funds
The Environmental Services Receipts Account Fund obtains fees associated with environmental programs. The
Pesticide Registration Improvement Act Funds (PRIA) collects pesticide registration service fees for specified
registration and amended registration and associated tolerance actions which set maximum residue levels for food and
feed.
IV. Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit accounts pending further
disposition. Until a determination is made, these are not the EPA's funds. The amounts are reported to the
Treasury through the Government-Wide Treasury Account Symbol Adjusted Trial Balance System (GTAS).
V. Trust Funds
Congress enacts an annual appropriation for the Hazardous Substance Superfund, Leaking Underground Storage Tank
(LUST) and the Inland Oil Spill Programs accounts to remain available until expended. Transfer accounts for the
Superfund and LUST Trust Funds have been established to record appropriations moving from the Trust Fund to
allocation accounts for purposes of carrying out the program activities. As the Agency disburses obligated amounts
from the expenditure account, the Agency draws down monies from the Superfund and LUST Trust Funds held at
Treasury to cover the amounts being disbursed. The Agency draws down all the appropriated monies from the
Principal Fund of the Oil Spill Liability Trust Fund when Congress enacts the Inland Oil Spill Programs appropriation
amount to the EPA's Inland Oil Spill Programs account.
In 2015, the EPA established a receipt account for Superfund special account collections. Special accounts are
comprised of reimbursements from other federal agencies, state cost share payments under Superfund State Contracts
(SSCs), and settlement proceeds from Potentially Responsible Parties (PRPs) under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) Section 122(b)(3). This allows the Agency to
invest the funds until drawdowns are needed for special accounts disbursements. The Agency updated posting models
and began to fully utilize this receipt account on January 31, 2019.
VI. Classified Activities
Accounting standards require all reporting entities to disclose that accounting standards allow certain presentations
and disclosures to be modified, if needed, to prevent the disclosure of classified information.
39
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
VII. Allocation Transfers
The EPA is a party to allocation transfers with other federal agencies as both a transferring (parent) entity and/or a
receiving (child) entity. Allocation transfers are legal delegations for one entity of its authority to obligate budget
authority and outlay funds to another entity. A separate fund account (allocation account) is created in the Treasury as
a subset of the parent fund account for tracking and reporting purposes. All allocation transfers of balances are
credited to this account, and subsequent obligations and outlays incurred by the child entity are charged to this
allocation account as they execute the delegated activity on behalf of the parent entity. Generally, all financial activity
related to allocation transfers (e.g., budget authority, obligations, outlays) is reported in the financial statements of the
parent entity from which the underlying legislative authority, appropriations and budget apportionments are derived.
The EPA allocates funds, as the parent, to the Center for Disease Control. The
EPA receives allocation transfers, as the child, from the Bureau of Land Management.
D. Basis of Accounting
Generally Accepted Accounting Principles (GAAP) for federal entities is the standard prescribed by the Federal
Accounting Standards Advisory Board (FASAB), which is the official standard-setting body for the Federal
Government and the American Institute of Certified Public Accountants (AICPA). The financial statements are
prepared in accordance with GAAP for federal entities.
Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the accrual method, revenues
are recognized when earned and expenses are recognized when liabilities are incurred, without regard to receipt or
payment of cash. Budgetary accounting facilitates compliance with legal constraints and controls over the use of
federal funds posted in accordance with OMB directives and the U.S. Treasury regulations.
EPA uses a modified matching principle since federal entities recognize unfunded liabilities (without budgetary
resources) in accordance FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 5 Accounting
for Liabilities of the Federal Government.
E. Revenues and Other Financing Sources
The following EPA policies and procedures to account for inflow of revenue and other financing sources are in
accordance with SFFAS No. 7, Accounting for Revenues and Other Financing Sources.
I. Superfund
The Superfund program receives most of its funding through appropriations that may be used within specific statutory
limits for operating and capital expenditures (primarily equipment). Additional financing for the Superfund program is
obtained through: reimbursements from other federal agencies, state cost share payments under Superfund State
Contracts (SSCs), and settlement proceeds from PRPs under CERCLA Section 122(b)(3) which are placed into special
accounts. Special accounts and corresponding interest are classified as mandatory appropriations due to the 'retain and
use' authority under CERCLA 122(b) (3). Cost recovery settlements that are not placed in special accounts are
deposited in the Superfund Trust Fund.
II. Other Funds
Funds under the Federal Credit Reform Act of 1990 receive program guidance and funding needed to support loan
programs through appropriations which may be used within statutory limits for operating and capital expenditures.
The WIFIA program receives additional funding to support awarding, servicing and collecting loans and loan
guarantees through application fees collected in the program fund. WIFIA authorizes the EPA to charge fees to
recover all or a portion of the Agency's cost of providing credit assistance and the costs of retaining expert firms,
including financial, engineering, and legal services, to assist in the underwriting and servicing of federal credit
instruments. The fees are to cover costs to the extent not covered by congressional appropriations.
40
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
The FIFRA and PRIA funds receive funding through fees collected for services provided and interest on invested
funds and can obligate collections up to the amount of anticipated collections within the fiscal year on the approved
letter of apportionment. The Hazardous Waste Electronic Manifest System Fund receives funding through fees
collected for use of the Hazardous Waste Electronic Manifest System and can obligate collections up to the amount of
anticipated collections on the approved letter of apportionment. The WCF receives revenue through fees collected for
services provided from the Agency program offices. Such revenue is eliminated with related Agency program
expenses upon consolidation of the Agency's financial statements.
Appropriated funds are recognized as other financing sources expended when goods and services have been rendered
without regard to payment of cash. Other revenues are recognized when earned (i.e., when services have been
rendered).
F. Funds with the Treasury
The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are handled by
Treasury. The major funds maintained with Treasury are General Funds, Revolving Funds, Trust Funds, Special
Funds, Deposit Funds, and Clearing Accounts. These funds have balances available to pay current liabilities and
finance authorized obligations, as applicable.
G. Investments in U.S. Government Securities
Investments in U.S. Government securities are maintained by Treasury and are reported at amortized cost net of
unamortized discounts. Discounts are amortized over the term of the investments and reported as interest income. No
provision is made for unrealized gains or losses on these securities because they generally are held to maturity (see
Note 4).
H. Marketable Securities
The Agency records marketable securities at cost as of the date of receipt. Marketable securities are held by Treasury
and reported at their cost value in the financial statements until sold (see Note 4).
I. Accounts Receivable and Interest Receivable
Superfund accounts receivable represent recovery of costs from PRPs as provided under CERCLA as amended by the
Superfund Amendments and Reauthorization Act of 1986 (SARA). Since there is no assurance that these funds will be
recovered, cost recovery expenditures are expensed when incurred (see Note 5). The Agency also records allocations
receivable from the Superfund Trust Fund, which are eliminated in the consolidated totals.
The Agency records accounts receivable from PRPs for Superfund site response costs when a consent decree,
judgment, administrative order, or settlement is entered. These agreements are generally negotiated after at least some,
but not necessarily all, of the site response costs have been incurred. It is the Agency's position that until a consent
decree or other form of settlement is obtained, the amount recoverable should not be recorded.
The Agency also records an accounts receivable from states for a percentage of Superfund site remedial action costs
incurred by the Agency within those states. As agreed to under SSCs, cost sharing arrangements may vary according
to whether a site was privately or publicly operated at the time of hazardous substance disposal and whether the
Agency response action was removal or remedial. SSC agreements are usually for 10 percent or 50 percent of site
remedial action costs, depending on who has the primary responsibility for the site (i.e., publicly or privately owned).
States may pay the full amount of their share in advance or incrementally throughout the remedial action process.
Most remaining receivables for non-Superfund funds represent penalties and interest receivable for general fund
receipt accounts, unbilled intragovernmental reimbursements receivable, and refunds receivable for the STAG
appropriation.
41
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
J. Advances and Prepayments
Advances and prepayments represent funds paid to other entities both internal and external to the Agency for which a
budgetary expenditure has not yet occurred.
K. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. Loans receivable resulting from loans
obligated on or after October 1, 1991, are reduced by an allowance equal to the present value of the subsidy costs
associated with these loans. The subsidy cost is calculated based on the interest rate differential between the loans and
Treasury borrowing, the estimated delinquencies and defaults net of recoveries offset by fees collected and other
estimated cash flows associated with these loans. Loan proceeds are disbursed pursuant to the terms of the loan
agreement. Interest is calculated semi-annually on a per loan basis. Repayments are made pursuant to the terms of the
loan agreement with the option to repay loan amounts early.
L. Appropriated Amounts Held by Treasury
Cash available to the Agency that is not needed immediately for current disbursements of the Superfund and LUST
Trust Funds and amounts appropriated from the Superfund Trust Fund to the OIG and Science and Technology
appropriations, remains in the respective Trust Funds managed by Treasury.
M. Property, Plant, and Equipment
The EPA accounts for its personal and real property accounting records in accordance with SFFAS No. 6, Accounting
for Property, Plant and Equipment as amended. For EPA-held property, the Fixed Assets Subsystem (FAS) maintains
the official records and automatically generates depreciation entries monthly based on in-service dates.
A purchase of EPA-held or contractor-held personal property is capitalized if it is valued at $25 thousand or more and
has an estimated useful life of at least two years. For contractor-held property, depreciation is taken on a modified
straight-line basis over a period of six years depreciating 10 percent the first and sixth year, and 20 percent in years
two through five. For contractor-held property, detailed records are maintained and accounted for in contractor
systems, not in EPA's FAS. Acquisitions of EPA-held personal property are depreciated using the straight-line method
over the specific asset's useful life, ranging from two to fifteen years.
Personal property includes capital leases. To be defined as a capital lease, a lease, at its inception, must have a lease
term of two or more years and the lower of the fair value or present value of the projected minimum lease payments
must be $75 thousand or more. Capital leases containing real property (therefore considered in the real property
category as well), have a $150 thousand capitalization threshold. In addition, the lease must meet one of the following
criteria: transfers ownership at the end of the lease to the EPA; contains a bargain purchase option; the lease term is
equal to 75 percent or more of the estimated economic service life; or the present value of the projected cash flows of
the lease and other minimum lease payments is equal to or exceeds 90 percent of the fair value.
Superfund contract property used as part of the remedy for site-specific response action is capitalized in accordance
with the Agency's capitalization threshold. This property is part of the remedy at the site and eventually becomes part
of the site itself. Once the response action has been completed and the remedy implemented, the EPA retains control
of the property (i.e., pump and treat facility) for 10 years or less, and transfers its interest in the facility to the
respective state for mandatory operation and maintenance - usually 20 years or more. Consistent with the EPA's 10-
year retention period, depreciation for this property is based on a 10-year useful life. However, if any property is
transferred to a state in a year or less, this property is charged to expense. If any property is sold prior to the EPA
relinquishing interest, the proceeds from the sale of that property shall be applied against contract payments or
refunded as required by the Federal Acquisition Regulations (FAR). An exception to the accounting of contract
property includes equipment purchased by the WCF. This property is retained in EPA's FAS, depreciated utilizing the
straight- line method based upon the asset's in-service date and useful life.
42
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Real property consists of land, buildings, capital and leasehold improvements and capital leases. In FY 2017, the EPA
increased the capitalization threshold for real property, other than land, to $150 thousand from $85 thousand for
buildings and improvements and $25 thousand for plumbing, heating, and sanitation projects. The new threshold was
applied prospectively. Land is capitalized regardless of cost. Buildings are valued at an estimated original cost basis,
and land is valued at fair market value, if purchased prior to FY 1997. Real property purchased after FY 1996 is
valued at actual cost. Depreciation for real property is calculated using the straight-line method over the specific
asset's useful life, ranging from 10 to 50 years. Leasehold improvements are amortized over the lesser of their useful
life or the unexpired lease term. Additions to property and improvements not meeting the capitalization criteria,
expenditures for minor alterations, and repairs and maintenance are expensed when incurred.
Internal use software includes purchased commercial off-the-shelf software, contractor-developed software, and
software that was internally developed by Agency employees. In FY 2017, the EPA reviewed its capitalization
threshold levels for PP&E. The Agency performed an analysis of the values of software assets, reviewed capitalization
of other federal entities, and evaluated the materiality of software account balances. Based on the review, the Agency
increased the capitalization threshold from $250 thousand to $5 million to better align with major software acquisition
investments. The $5 million threshold was applied prospectively to software acquisitions and
modifications/enhancements placed into service after September 30, 2016. Software assets placed into service prior to
October 1, 2016 were capitalized at the $250 thousand threshold. Internal use software is capitalized at full cost
(direct and indirect) and amortized using the straight-line method over its useful life, not exceeding five years.
Internal use software purchased or developed for the working capital fund is capitalized at $250 thousand and is
amortized using the straight-line method over its useful life, not exceeding five years.
N. Liabilities
Liabilities represent the amount of monies or other resources that are more likely than not to be paid by the Agency as
the result of an Agency transaction or event that has already occurred and can be reasonably estimated. However, no
liability can be paid by the Agency without an appropriation or other collections authorized for retention. Liabilities
for which an appropriation has not been enacted are classified as unfunded liabilities and there is no certainty that the
appropriations will be enacted. Liabilities of the Agency arising from other than contracts can be abrogated by the
Government acting in its sovereign capacity.
O. Borrowing Payable to the Treasury
Borrowing payable to Treasury results from loans from Treasury to fund the non-subsidy portion of the WIFIA direct
loans. The Agency borrows the funds from Treasury when the loan disbursements agreed upon in the loan agreement
are made. Principal payments are made to Treasury periodically based on the collection of loan receivables.
P. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Annual leave earned but not taken at the end
of the fiscal year is accrued as an unfunded liability. Accrued unfunded annual leave is included in the Balance Sheet
as a component of "Payroll and Benefits Payable." Sick leave earned but not taken is not accrued as a liability; it is
expensed as it is used.
Q. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January 1, 1987, may
participate in the Civil Service Retirement System (CSRS). On January 1, 1987, the Federal Employees Retirement
System (FERS) went into effect pursuant to Public Law 99-335. Most employees hired after December 31, 1986, are
automatically covered by FERS and Social Security. Employees hired prior to January 1, 1987, elected to either join
FERS and Social Security or remain in CSRS. A primary feature of FERS is that it offers a savings plan to which the
Agency automatically contributes one percent of pay and matches any employee contributions up to an additional four
percent of pay. The Agency also contributes the employer's matching share for Social Security.
43
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
With the issuance of SFFAS No. 5, Accounting for Liabilities of the Federal Government, accounting and reporting
standards were established for liabilities relating to the federal employee benefit programs (Retirement, Health
Benefits, and Life Insurance). SFFAS No. 5 requires that the employing agencies recognize the cost of pensions and
other retirement benefits during their employees' active years of service. SFFAS No. 5 requires that the Office of
Personnel Management (OPM), as administrator of the CSRS and FERS, the Federal Employees Health Benefits
Program, and the Federal Employees Group Life Insurance Program, provide federal agencies with the actuarial cost
factors to compute the liability for each program.
R. Prior Period Adjustments and Restatements
Prior period adjustments, if any, are made in accordance with SFFAS No. 21, Reporting Corrections of Errors and
Changes in Accounting Principles. Specifically, prior period adjustments will only be made for material prior period
errors to: (1) the current period financial statements, and (2) the prior period financial statements presented for
comparison. Adjustments related to changes in accounting principles will only be made to the current period financial
statements, but not to prior period financial statements presented for comparison.
S. Deepwater Horizon Oil Spill
The April 20, 2010 Deepwater Horizon (DWH) oil spill was the largest oil spill in U.S. history. In the wake of the
spill, the National Contingency Plan regulation was revised to reflect the EPA's designation as a DWH Natural
Resource Trustee. The DWH Natural Resources Damage Assessment (NRDA) is a legal process pursuant to the Oil
Pollution Act and the April 4, 2016 Consent Decree between the U.S., the five Gulf states, and BP entered by a federal
court in New Orleans. Under the Consent Decree, a payment schedule was set forth for BP to pay $7.1 billion in
natural resource damages. The NRDA trustees are then jointly responsible to use those funds in the manner set forth in
Appendix 2 of the Consent Decree to restore natural resources injured by the DWH oil spill. In FY 2016, the EPA
received an advance of $184 thousand from BP and $2 million from the U.S. Coast Guard, to participate in addressing
injured natural resources and service resulting from the Deepwater Horizon Oil Spill. In FY 2017 and 2018, the EPA
returned the unused balance of fund amounts of $900 and $440 thousand, respectively, to the U.S. Coast Guard for
deposit in the Oil Spill Liability Trust Fund. As additional projects are identified, the EPA may continue to receive
funding through the 2016 Consent Decree to implement its DWH NRDA Trustee responsibilities in the Agency's
Damage Assessment and Restoration Revolving Trust Fund.
T. Puerto Rico Insolvency
In February 2016, the Puerto Rico Aqueduct and Sewer Authority (PRASA) requested a restructuring of the Clean
Water (CW) and Drinking Water (DW) SRF debt due to a lack of cash flows and inability to access the municipal
bond market. PRASA is the primary water utility for Puerto Rico and, at the time of their request, the debt outstanding
to the SRFs was $547 million. Annual debt service to the SRFs is approximately $37 million per year.
In June 2016, the EPA and the Puerto Rico SRFs agreed to a 1-year forbearance on principal and interest payments.
Since that time, the forbearance agreement was extended multiple times with a final expiration date of July 31, 2019.
In May 2017, following PRASA's fiscal plan approval by the Puerto Rico Oversight, Management, and Economic
Stability Act (PROMESA) oversight board created by Congress, the EPA, and the Puerto Rico SRFs began
negotiations with PRASA on restructuring current debt and setting terms for future debt.
44
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Negotiations concluded on July 26, 2019, when the Puerto Rico CW and DW SRF programs closed on loan
agreements that restructure 200 delinquent loans held by PRASA and total approximately $571 million in principal.
The restructuring agreements supersede the forbearance and ensure the repayment of PRASA's SRF loans. The
restructuring also means that PRASA will once again be eligible to apply for financial assistance from the PR SRFs.
On August 18, 2020, the Puerto Rico CW SRF program signed a $163 million loan with PRASA to provide funding
for 28 wastewater projects. The loan offers a 30-year amortization, with a 1.0% annual interest rate payable on
January 1 and July 1 of each year.
The Puerto Rico DW SRF program expects to soon sign a $46 million loan with PRASA to provide funding to 5
drinking water projects. The loan offers a 30-year amortization, with a 1.0% annual interest rate payable on January 1
and July 1 of each year.
U. Use of Estimates
The preparation of financial statements requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities, including environmental and grant liabilities, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates.
V. Reclassifications and Comparative Figures
Certain reclassifications have been made to the prior year's financial statements to enhance comparability with the
current year's financial statements in accordance with Office of Management and Budget (OMB) Circular No. A-136,
Financial Reporting Requirements revised August 27, 2020. As a result Net Disbursements for Non-Budgetary Credit
Reform Financing Account has been added to the Statement of Budgetary Resources.
Note 2. Fund Balance With Treasury (FBWT)
Fund Balance with Treasury as of September 30, 2020 and 2019 consists of the following:
2020 2019
Entity
Assets
Non-Entity
Assets
Total
Entity
Assets
Non-Entity
Assets
Total
Trust Funds:
Superfund
$ 152,246
$
$ 152,246
$ 77,906
$
$ 77,906
LUST
28,191
-
28,191
21,902
-
21,902
Oil Spill & Misc.
12,643
-
12,643
12,109
-
12,109
Revolving Funds:
FIFRA/T olerance
52,574
-
52,574
58,133
-
58,133
Working Capital
87,215
-
87,215
129,185
-
129,185
Credit Reform Financing
-
-
-
-
-
-
E-Manifest
10,790
-
10,790
8,029
-
8,029
WIFIA
6
-
6
2
-
2
NRDA
1,916
-
1,916
1,551
-
1,551
Appropriated
9,936,774
-
9,936,774
9,236,309
-
9,236,309
Other Fund Types
535.447
5.310
540.757
507.871
3.929
511.800
Total
S10.817.802
S 5.310
S10.823.112
S10.052.997
S 3.929
S10.056.926
45
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Entity fund balances, except for special fund receipt accounts, are available to pay current liabilities and to finance
authorized purchase commitments (see Status of Fund Balances below). Entity Assets for Other Fund Types consist of
special purpose funds and special fund receipt accounts, such as the Pesticide Registration funds and the
Environmental Services receipt account. The Non-Entity Assets for Other Fund Types consist of clearing accounts
and deposit funds, which are either awaiting documentation for the determination of proper disposition or being held
by the EPA for other entities.
Status of Fund Balances:
2020
2019
Unobligated Amounts in Fund Balance:
Available for Obligation
Unavailable for Obligation
Net Receivables from Invested Balances
Balances in Treasury Trust Fund (Note 34)
Obligated Balance not yet Disbursed
Non-Budgetary FBWT
Total
$ 6,094,950 $ 5,294,411
191,669
(5,033,099)
19,840
9,025,670
524,082
187,260
(5,096,874)
14,912
9,160,730
496,487
$ 10,823,112 X 10.056.926
The funds available for obligation may be apportioned by OMB for new obligations at the beginning of the following
fiscal year. Funds unavailable for obligation are mostly balances in expired funds, which are available only for
adjustments of existing obligations. For September 30, 2020 and 2019, no differences existed between Treasury's
accounts and the EPA's statements for fund balances with Treasury.
Note 3. Cash and Other Monetary Assets
As of September 30, 2020 and 2019, the balance in the imprest fund was $10 thousand.
Note 4. Investments
As of September 30, 2020 and 2019, investments related to Superfund and LUST consist of the following:
Amortized
(Premium) Interest Investments, Market
Cost Discount Receivable HgJ Value
Intragovernmental Securities:
Non-Marketable FY 2020 $ 5,828,179 (135,189) 6,298 5,969,666 $ 5,969,666
Non-Marketable FY 2019 $ 6,024,413 32,170 5,414 5,997,657 $ 5,997,657
CERCLA, as amended by SARA, authorizes the EPA to recover monies to clean up Superfund sites from responsible
parties (RPs). Some RPs file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy settlements, the EPA is an
unsecured creditor and is entitled to receive a percentage of the assets remaining after secured creditors have been
satisfied. Some RPs satisfy their debts by issuing securities of the reorganized company. The Agency does not intend
to exercise ownership rights to these securities, and instead will convert them to cash as soon as practicable. All
investments in Treasury securities are funds from dedicated collections (see Note 18).
The Federal Government does not set aside assets to pay future benefits or other expenditures associated with funds
46
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
from dedicated collections. The cash receipts collected from the public for dedicated collection funds are deposited in
the Treasury, which uses the cash for general Government purposes. Treasury securities are issued to the EPA as
evidence of its receipts. Treasury securities are an asset to the EPA and a liability to the Treasury. Because the EPA
and the Treasury are both parts of the Government, these assets and liabilities offset each other from the standpoint of
the Government as a whole. For this reason, they do not represent an asset or liability in the U.S. Government-wide
financial statements.
Treasury securities provide the EPA with authority to draw upon the Treasury to make future benefit payments or
other expenditures. When the EPA requires redemption of these securities to make expenditures, the Government
finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from
the public or repaying less debt, or by curtailing other expenditures. This is the same way that the Government
finances all other expenditures.
Note 5. Accounts Receivable, Net
Accounts Receivable as of September 30, 2020 and 2019, consist of the following:
Intragovernmental:
Accounts & Interest Receivable
Less: Allowance for Uncollectible
Total
2020
2019
$ 54,470 $ 34,802
(2.598) -
$ 51,872 S 34.802
Non-Federal:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Uncollectible
Total
$ 130,449 $ 109,545
2,556,734 2,573,004
(2.183.458) (2.181.663)
$ 503,725 S 500.886
The Allowance for Uncollectible Accounts is determined both on a specific identification basis, as a result of a case-
by-case review of receivables, and on a percentage basis for receivables not specifically identified.
Note 6. Other Assets
Other Assets as of September 30, 2020 and 2019, consist of the following:
2020
2019
Intragovernmental:
Advances to Federal Agencies
$ 198,229
$
210,498
Advances for Postage
39
93
Total
S 198.268
$
210.591
Non-Federal:
Travel Advances
$ 77
$
90
Other Advances
7,844
7,607
Inventory Purchased for Resale
288
17
Total
S 8.209
$
7.714
47
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 7. Direct Loans Receivable, Net
Direct Loans Receivable disbursed from obligations made after FY 1991 are governed by the Federal Credit Reform
Act, which mandates that the present value of the subsidy costs (i.e., interest rate differentials, interest subsidies,
anticipated delinquencies, and defaults) associated with direct loans be recognized as a cost in the year the loan is
disbursed. The net loan present value is the gross loan receivable less the subsidy present value. EPA does not have
any loans obligated prior to 1992.
EPA administers the WIFIA Direct Loans program. In fiscal year 2020 and 2019, the Agency received borrowing
authority of $3.6 billion and $2.5 billion respectively for the non-subsidy portion of loan proceeds disbursed. The
cumulative loan limit for the WIFIA Loan Program through fiscal year 2020 is $28.6 billion. For the fiscal year ended
September 30, 2020 and 2019, the Agency closed $3.2 billion and $2.5 billion in WIFIA loans, respectively.
Interest on the loans is accrued based on the terms of the loan agreement. For the fiscal years ended September 30,
2020 and 2019, the WIFIA program has incurred $9.7 and $7.3 million in administrative expenses, respectively.
Obligated after FY 1991
Direct Loan Program
2020 Loans
Receivable,
Gross
Interest
Receivable
Foreclosed
Property/
Allowance
for
Loan Losses
Allowance for
Subsidy
Cost
Value of Assets
Related to
Direct
Loans, Net
WIFIA
220,970
(24,500) $
196,470
Direct Loan Program
WIFIA
2019 Loans
Receivable,
Gross
261"
Interest
Receivable
Foreclosed
Property/
Allowance
for
Loan Losses
Allowance for
Subsidy
Cost
Value of Assets
Related to
Direct
Loans, Net
2 $
263
Total Amount of Direct Loans Disbursed (Post-1991)
Direct Loan Program 2020 2019
WIFIA $ 220,970 261
Subsidy Expense for Direct Loans by Program and Component
Subsidy Expense for New Direct Loans Disbursed
2020 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA $ - - - (1,043) $ (1,043)
48
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
2019 Interest Fees and Other Other Subsidy
Differential Defaults Collections Costs Total
Direct Loan Program
WIFIA $
Modifications and Reestimates
Direct Loan Program
WIFIA
2 $
2020
Total
Modifications
Interest
Rate
Reestimates
Technical
Reestimates
Total
Reestimates
$
(23,459) $
(23,459)
2019 Interest
Total Rate Technical Total
Direct Loan Program Modifications Reestimates Reestimates Reestimates
WIFIA $ - - 4~~$ 4
Total Direct Loans Subsidy Expense
Direct Loan Program 2020 2019
WIFIA $ 1,043 -
Budget Subsidy Rates for Direct Loans for the Current Year Cohort
2020 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA 0% 75% 0% 0% 75%
2019 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA 0% ^0% 0% 0% !80%
The subsidy rates disclosed pertain to the current year's cohort. The rates cannot be applied to the direct loans
disbursed during the current reporting year to yield the subsidy expense. The subsidy expense for new loans reported
in the current year could result from disbursement of loans from both current year cohorts and prior year cohorts. The
subsidy expense reported in the current year also includes modifications and re-estimates.
49
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Schedule for Reconciling Subsidy Cost Allowance Balances
Beginning Balance, Changes and Ending Balance 2020 2019
Beginning Balance of the Subsidy Allowance $ 2 $ -
Add: Subsidy Expense for Direct Loans Disbursed During the Reporting Years
by Component
Default Costs (Net of Recoveries)
Fees and Other Collections
Other Subsidy Costs (1.043) 2
Total of the Above Subsidy Expense Components (1,043) 2
Adjustments
Loan Modifications
Foreclosed Property Acquired
Loans Written Off
Subsidy Allowance Amortization
Other : :
Ending Balance of the Subsidy Cost Allowance Before Reestimates
Add or Subtract Subsidy Reestimates by Component
Interest Rate Reestimate
Technical/Default Reestimate (23.459) :
Total of the Above Reestimate Components (23.459) :
Ending Balance of the Subsidy Cost Allowance $ (24.500) $ 2
The economic assumptions of the WIFIA upward and downward adjustments were a reassessment of risk levels as
well as estimated changes in future cash flows on loans. Actual interest rates used for FY 2020 loan disbursements
were lower than the interest rate assumptions used during the budget formulation process at loan origination.
50
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 8. Accounts Payable and Accrued Liabilities
The Accounts Payable and Accrued Liabilities are current liabilities and consist of the following amounts as
of September 30, 2020 and 2019:
2020 2019
Intragovernmental:
Accounts Payable
$ 7,001 $
5,719
Liability for Allocation
-
226
Accrued Liabilities
145.013
130.880
Total
S 152.014 S
136.825
2020
2019
Non-Federal:
Accounts Payable
$ 52,693 $
68,012
Advances Payable
(3,787)
(2,454)
Interest Payable
5
5
Grant Liabilities
317,258
325,335
Other Accrued Liabilities
159.004
149.337
Total S 525.173 S 540.235
Other Accrued Liabilities are mostly comprised of contractor accruals.
Note 9. General Property, Plant and Equipment, Net
General property, plant, and equipment (PP&E) consist of software, real property, EPA-held and contractor-held
personal property, and capital leases.
As of September 30, 2020, General PP&E Cost consisted of the following:
2020
EPA-
Contractor
Land
Held
Software
Software
Held
and
Capital
Eauinment
(nroduction)
(develonment)
Eauinment
Buildings
Leases
Total
Balance,
Beginning of
Year
$ 304,453
$ 439,787
$
27,046
$ 44,707
$ 794,192
$ 24,485
$ 1,634,670
Additions
36,393
-
18,794
1,581
18,184
-
74,952
Dispositions
(19,777)
-
-
(5,633)
(10,056)
-
(35,466)
Revaluations
-
-
-
(6.760)
-
-
(6.760)
Balance, End
of Year
S 321.069
S 439.787
$
45.840
S 33.895
S 802.320
S 24.485
S 1.667.396
51
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
As of September 30, 2020, General PP&E Accumulated Depreciation consisted of the following:
2020
EPA- Contractor Land
Held Software Software Held and Capital
Equipment (production) (development) Equipment Buildings Leases Total
Balance,
Beginning of
Year $ 212,886 $ 398,613 $ - $ 28,593 $ 303,239 $ 20,132 $ 963,463
Dispositions (18,780) - - ... (18,780)
Revaluations ... (2,825) - - (2,825)
Depreciation
Expense 23.889 21.889 - 716 18.560 816 65.870
Balance, End
of Year S 217.995 $ 420.502 $ - $ 26.484 S 321.799 S 20.948 S 1.007.728
As of September 30, 2020, General PP&E, Net consisted of the following:
2020
EPA- Contractor Land
Held Software Software Held and Capital
Equipment (production) (development) Equipment Bnildinps Leases Total
Balance, End
of Year, Net S 103.074 S 19.285 S 45.840 S 7.411 S 480.521 S 3.537 S 659.668
Note 10. Debt Due to Treasury
All debt is classified as not covered by budgetary resources, except for direct loan and guaranteed loan financing
account debt to Treasury and that portion of other debt covered by budgetary resources at the Balance Sheet date.
EPA borrows funds from The Bureau of Public Debt right before funds are disbursed to the borrower for the non-
subsidy portion of WIFIA loans. As of September 30, 2020 and 2019, the EPA had debt due to Treasury consisting
entirely of funds borrowed to finance the non-subsidy portion of the WIFIA Direct Loan Program of:
2019 2020
Beginning Net Ending Net Ending
Balance Borrowing Balance Borrowing Balance
Debt to the
Treasury $ $ 266 S 266 $ 221.386 S 221.652
52
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 11. Stewardship Property, Plant and Equipment
The Agency acquires title to certain property and property rights under the authorities provided in Section 104(j)
CERCLA related to remedial clean-up sites. The property rights are in the form of fee interests (ownership) and
easements to allow access to clean-up sites or to restrict usage of remediated sites. The Agency takes title to the land
during remediation and transfers it to state or local governments upon the completion of clean-up. A site with "land
acquired" may have more than one acquisition property. Sites are not counted as a withdrawal until all acquired
properties have been transferred under the terms of 104(j).
As of September 30, 2020 and 2019, the Agency possessed the following land and land rights:
Superfund Sites with Easements:
Beginning Balance
Additions
Withdrawals
Ending Balance
S jperfund Sites with Land Acquired:
Beginning Balance
Additions
Withdrawals
Ending Balance
20202019
$ 40 $ 39
3 1
$ 43 $ 40
$ 31 $ 32
1
: Q)
$ 32 $ 31
Note 12. Custodial Liability
Custodial Liability represents the amount of net accounts receivable that, when collected, will be deposited to the
Treasury General Fund. Included in the custodial liability are amounts for fines and penalties, interest assessments,
repayments of loans, and miscellaneous other accounts receivable. As of September 30, 2020 and 2019, custodial
liability is approximately $72,018 and $36,494 thousand, respectively.
53
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2020:
Covered by Not Covered
Budgetary by
Resources Resources
Current
Total
Employer Contributions & Payroll Taxes
$ 23,764 $
$
23,764
WCF Advances
1,154
-
1,154
Other Advances
14,843
-
14,843
Advances HRSTF Cashout
81
-
81
Deferred HRSTF Cashout
86,619
-
86,619
Non-Current
Unfunded FECA Liability
-
9,225
9,225
Unfunded Unemployment Liability
-
97
97
Direct Loans Subsidy Liability
-
412
412
Payable to Treasury Judgement Fund
-
22.000
22.000
Total Intragovernmental
S 126.461 $
31.734 S
158.195
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
$ 141,368 $
$
141,368
Liability for Deposit Funds, Non-Federal
5,944
-
5,944
Capital Lease Liability
-
399
399
Non-Current
Capital Lease Liability
-
1.970
1.970
Total Non-Federal
S 147.312 $
2.369 S
149.681
54
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Other Liabilities consist of the following as of September 30, 2019:
Current
Employer Contributions & Payroll Taxes
WCF Advances
Other Advances
Advances HRSTF Cashout
Deferred HRSTF Cashout
Non-Current
Unfunded FECA Liability
Payable to Treasury Judgement Fund
Total Intragovernmental
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
Liability for Deposit Funds, Non-Federal
Capital Lease Liability
Non-Current
Capital Lease Liability
Total Non-Federal
Covered by
Budgetary
Resources
I 19,161
3,504
6,062
82
117,256
Not Covered
by
Resources
$
$ 146.065 $_
134,076
3,769
9,229
22.000
31.229 $_
343
2.361
Total
19,161
3,504
6,062
82
117,256
9,229
22.000
177.294
134,076
3,769
343
2.361
$ 137.845 $_
2.704 $_
140.549
Liabilities not covered by budgetary resources require future congressional action whereas liabilities covered by
budgetary resources reflect prior congressional action. Regardless of when the congressional action occurs, when the
liabilities are liquidated, Treasury will finance the liquidation in the same way that it finances all other disbursements,
using some combination of receipts, other inflows, and borrowing from the public (if there is a budget deficit).
Note 14. Leases
The value of assets held under Capital Leases as of September 30, 2020 and 2019, are as follows:
Capital Leases:
im.
Summary of Assets Under Capital Lease:
Real Property
Personal Property
Total
Accumulated Amortization
im.
$ 24,485
$
24,485
24.485
24.485
S 20.948
$
20.132
55
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
The EPA has one capital lease for land and buildings housing scientific laboratories. This lease includes a base rental
charge and escalation clauses based upon either rising operating costs and/or real estate taxes. The base operating
costs are adjusted annually according to escalators in the Consumer Price Indices published by the Bureau of Labor
Statistics, U.S. Department of Labor. The EPA's lease will terminate in FY 2025.
Future Payments Due
Fiscal Year Canital Leases
2021 $ 786
2022 786
2023 786
2024 785
2025 262
Total Future Minimum Lease Payments 3,405
Less: Imputed Interest (1.036)
Net Capital Lease Liability 2.369
Liabilities not Covered by Budgetary Resources $ 2.369
The capital lease payments have been adjusted to reflect payments in the lease agreement. Per the lease agreement,
yearly lease payments of $4,215 thousand are due for 20 years from 1995 until 2015. Upon exercise of a 10-year
renewal, the yearly lease payment will be $786 thousand from 2015 until 2025.
Note 15. FECA Actuarial Liabilities
The Federal Employees' Compensation Act (FECA) provides income and medical cost protection to covered Federal
civilian employees injured on the job, employees who have incurred a work-related occupational disease, and
beneficiaries of employees whose death is attributable to a job-related injury or occupational disease. Annually, the
EPA is allocated the portion of the long-term FECA actuarial liability attributable to the entity. The liability is
calculated to estimate the expected liability for death, disability, medical and miscellaneous costs for approved
compensation cases. The liability amounts and the calculation methodologies are provided by the Department of
Labor.
The FECA Actuarial Liability as of September 30, 2020 and 2019, was $50,451 thousand and $42,044 thousand,
respectively. The estimated future costs are recorded as an unfunded liability. The FY 2020 present value of these
estimated outflows is calculated using a discount rate of 2.414 percent in the first year, and 2.414 percent in the years
thereafter. The estimated future costs are recorded as an unfunded liability.
Note 16. Cashout Advances, Superfund (Restated)
Cashout advances are funds received by the EPA, a state, or another responsible party under the terms of a settlement
agreement (e.g., consent decree) to finance response action costs at a specified Superfund site. Under CERCLA
Section 122(b)(3), cash-out funds received by the EPA are placed in site-specific, interest bearing accounts known as
special accounts and are used for potential future work at such sites in accordance with the terms of the settlement
agreement. Funds placed in special accounts may be disbursed to PRPs, to states that take responsibility for the site, or
to other federal agencies to conduct or finance response actions in lieu of the EPA without further appropriation by
Congress. As of September 30, 2020 and 2019, cash-out advances total $3,472,784 thousand and $3,573,240
(Restated) thousand, respectively. See Note 37 for the restatement of the 2019 balance.
56
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 17. Commitments and Contingencies
The EPA may be a party in various administrative proceedings, actions and claims brought by or against it. These
include:
a) Various personnel actions, suits, or claims brought against the Agency by employees and others.
b) Various contract and assistance program claims brought against the Agency by vendors, grantees and others.
c) The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the collection
of fines and penalties from responsible parties.
d) Claims against recipients for improperly spent assistance funds which may be settled by a reduction of future
EPA funding to the grantee or the provision of additional grantee matching funds.
As of September 30, 2020, there were $38 thousand of accrued liabilities for commitments and potential loss
contingencies. As of September 30, 2019, there was no accrued liabilities for commitments and potential loss
contingencies.
A. Gold King Mine
On August 5, 2015, EPA and its contractors were conducting an investigation under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) of the Gold King Mine, an inactive mine in
Colorado, when a release of acid mine drainage occurred. While the EPA team was excavating above the mine adit,
water began leaking from the mine adit. The small leak quickly turned into a significant breach, releasing
approximately three million gallons of mine water into the North Fork of Cement Creek, a tributary of the Animas
River. The plume of acid mine water traveled from Colorado's Animas River into New Mexico's San Juan River,
passed through the Navajo Nation, and deposited into Utah's Lake Powell. As of June 30, 2020, EPA has received
claims under the Federal Tort Claims Act from individuals and businesses situated on or near the affected waterways
for alleged lost wages, loss of business income, agricultural and livestock losses, property damage, diminished
property value, and personal injury. The amounts estimated related to the Gold King Mine are $2 billion but they are
only reasonably possible, and the final outcomes are not probable.
B. Flint, Michigan
The EPA has received claims from over 7,000 individuals under the Federal Tort Claims Act for alleged injuries and
property damages caused by the EPA's alleged negligence related to the water health crisis in Flint, Michigan. There
are no estimated loss amounts related to the water health crisis and they are only reasonably possible and the final
outcomes are not probable.
C. Superfund
Under CERCLA Section 106(a), the EPA issues administrative orders that require parties to clean up contaminated
sites. CERCLA Section 106(b) allows a party that has complied with such an order to petition the EPA for
reimbursement from the fund of its reasonable costs of responding to the order, plus interest. To be eligible for
reimbursement, the party must demonstrate either that it was not a liable party under CERCLA Section 107(a) for the
response action ordered, or that the Agency's selection of the response action was arbitrary and capricious or
otherwise not in accordance with law. The amounts related to Superfund are $20 million, but they are only reasonably
possible, and the final outcomes are not probable.
D. Environmental Liabilities
As of September 30, 2020, there is one case pending against the EPA that is reported under Environmental Liabilities:
Bob's Home Service Landfill amount is $900 thousand but it is only reasonable possible, and the final outcome is not
probable. Secondly, in January 2020, the CDPHE found several violations of Colorado hazardous waste laws after
57
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
inspecting an EPA lab where Region 8 and OECA's NEIC are co-located. $38 thousand of the penalty amount has
been accrued, which is categorized under probable.
E. Judgement Fund
In cases that are paid by the U.S. Treasury Judgment Fund, the EPA must recognize the full cost of a claim regardless
of which entity is actually paying the claim. Until these claims are settled or a court judgment is assessed and the
Judgment Fund is determined to be the appropriate source for the payment, claims that are probable and estimable
must be recognized as an expense and liability of the Agency. For these cases, at the time of settlement or judgment,
the liability will be reduced and an imputed financing source recognized. See Interpretation of Federal Financial
Accounting Standards No. 2, Accounting for Treasury Judgment Fund Transactions. The EPA has a $22 million
liability to the Treasury Judgment Fund for a payment made by the Fund to settle a contract dispute claim. As of
September 30, 2020, there is no other case pending in the court.
F. Other Commitments
EPA has a commitment to fund the United States Government's payment to the Commission of the North American
Agreement on Environmental Cooperation between the Governments of Canada, the Government of the United
Mexican States, and the Government of the United States of America (commonly referred to as CEC). According to
the terms of the agreement, each government pays an equal share to cover the operating costs of the CEC. EPA paid
$2.5 million to the CEC in the period ending September 30, 2020 and $2.5 million in the period ending September
2019.
EPA has a legal commitment under a noncancelable agreement, subject to the availability of funds, with the United
Nations Environmental Program (UNEP). This agreement enables EPA to provide funding to the Multilateral Fund for
the Implementation of the Montreal Protocol. EPA made payments totaling $8.3 million in the period ending
September 2020 and $8.3 million in the period ending September 2019.
58
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 18. Funds from Dedicated Collections (Unaudited) (Restated)
Other Funds
Total Funds
Environmental
from Dedicated
from Dedicated
Services
LUST
Superfund
Collections
Collections
Balance sheet as of September 30,2020
Assets
Fund Balance with Treasury
$ 518,165 $
28,191 !
£ 152,246
$ 95,212
$ 793,814
Investments
-
895,016
5,074,650
-
5,969,666
Accounts Receivable, Net
-
82,281
346,291
27,135
455,707
Other Assets
-
424
44.685
201.757
246.866
Total Assets
518.165
1.005.912
5.617.872
324.104
7.466.053
Other Liabilities
.
89.348
3.768.226
301.589
4.159.163
Total Liabilities
_
89.348
3.768.226
301.589
4.159.163
Unexpended Appropriations
(2)
(187)
(189)
Cumulative Results of Operations
518.165
916.564
1.849.646
22.702
3.307.077
Total Liabilities and Net Position
518.165
1.005.912
5.617.870
324.104
7.466.051
Statement of Net Cost for the Fiscal
Year Ended September 30,2020
Gross Program Costs
-
97,770
1,505,864
116,583
1,720,217
Less: Earned Revenues
-
-
362.428
105.449
467.877
Net Costs of Operations
$ - $
97.770
$ 1.143.436
$ 11.134
$ 1.252.340
Statement of Changes in Net Position
for the Fiscal Year Ended September
30,2020
Net Position, Beginning of Period
$ 491,972 $
788,492 !
£ 1,863,347
$ 25,519
$ 3,169,330
Nonexchange Revenue - Securities
Investments
-
6,282
83,301
533
90,116
Nonexchange Revenue
26,193
219,210
3,225
(8,833)
239,795
Other Budgetary Finance Sources
-
-
1,033,974
15,697
1,049,671
Other Financing Sources
-
350
9,237
729
10,316
Net Cost of Operations
-
(97.770)
(1.143.436)
(11.134)
(1.252.340)
Change in Net Position
26.193
128.072
(13.699)
(3.008)
137.558
Net Position
$ 518.165 $
916.564 !
£ 1.849.648
$ 22.511
$ 3.306.888
59
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Other Funds Total Funds
Environmental from Dedicated from Dedicated
Services LUST Superfund Collections Collections
Balance sheet as of September 30,2019
(Restated)
Assets
Fund Balance with Treasury $
491,972 $
21,902 $
; 77,906 $
95,702 $
687,482
Investments
-
773,397
5,224,260
-
5,997,657
Accounts Receivable, Net
-
92,029
357,602
1,198
450,829
Other Assets
.
176
56.709
7.256
64.141
Total Assets
491.972
887.504
5.716.477
104.156
7.200.109
Other Liabilities CNote 37)
.
99.012
3.853.130
78.639
4.030.781
Total Liabilities
_
99.012
3.853.130
78.639
4.030.781
Unexpended Appropriations
(2)
(1,262)
(1,264)
Cumulative Results of Operations
491.972
788.492
1.863.349
26.779
3.170.592
Total Liabilities and Net Position
491.972
887.504
5.716.477
104.156
7.200.109
(Note 37)
Statement of Net Cost for the Fiscal
Year Ended September 30,2019
(Restated)
Gross Program Costs
-
89,019
1,392,940
82,165
1,564,124
Less: Earned Revenues (Note 37)
-
-
179.115
64.362
243.477
Net Costs of Operations $
$
89.019
$ 1.213.825 $
17.803 $
1.320.647
Statement of Changes in Net Position
for the Fiscal Year Ended September
30,2019 (Restated)
Net Position, Beginning of Period $
469,191 $
623,356 $
1,856,334 $
20,145 $
2,969,026
Nonexchange Revenue - Securities
Investments
-
16,183
117,318
1,198
134,699
Nonexchange Revenue
22,781
237,962
6,197
3,314
270,254
Other Budgetary Finance Sources
-
-
1,080,982
18,384
1,099,366
Other Financing Sources
-
10
16,341
281
16,632
Net Cost of Operations (Note 37)
-
(89.019)
(1.213.825)
(17.803)
(1.320.647)
Change in Net Position
22.781
165.136
7.013
5.374
200.304
Net Position (Note 37) $
491.972 $
788.492 $
1.863.347 $
25.519 $
3.169.330
A. Funds from Dedicated Collections
i. Environmental Services Receipt Account:
The Environmental Services Receipt Account, authorized by a 1990 act, "To amend the Clean Air Act (P.L. 101-
549)," was established for the deposit of fee receipts associated with environmental programs, including radon
measurement proficiency ratings and training, motor vehicle engine certifications, and water pollution permits.
Receipts in this special fund can only be appropriated to the S&T and EPM appropriations to meet the expenses of the
programs that generate the receipts if authorized by Congress in the Agency's appropriations bill.
II. Leaking Underground Storage Tank (LUST) Trust Fund:
The LUST Trust Fund was authorized by the SARA as amended by the Omnibus Budget Reconciliation Act of 1990.
The LUST appropriation provides funding to prevent and respond to releases from leaking underground petroleum
tanks. The Agency oversees cleanup and enforcement programs which are implemented by the states. Funds are
60
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
allocated to the states through cooperative agreements and prevention grants to inspect and clean up those sites posing
the greatest threat to human health and the environment. Funds are used for grants to non-state entities including
Indian tribes under Section 8001 of the Resource Conservation and Recovery Act.
hi. Superfund Trust Fund:
In 1980, the Superfund Trust Fund, was established by CERCLA to provide resources to respond to and clean up
hazardous substance emergencies and abandoned, uncontrolled hazardous waste sites. The Superfund Trust Fund
financing is shared by federal and state governments as well as industry. The EPA allocates funds from its
appropriation to the Department of Justice to carry out CERCLA. Risks to public health and the environment at
uncontrolled hazardous waste sites qualifying for the Agency's National Priorities List (NPL) are reduced and
addressed through a process involving site assessment and analysis and the design and implementation of cleanup
remedies. NPL cleanups and removals are conducted and financed by the EPA, private parties, or other Federal
agencies. The Superfund Trust Fund includes Treasury's collections, special account receipts from settlement
agreements, and investment activity.
B. Other Funds from Dedicated Collections
i. Inland Oil Spill Programs Account:
The Inland Oil Spill Programs Account was authorized by the Oil Pollution Act of 1990 (OPA). Monies are
appropriated from the Oil Spill Liability Trust Fund to the EPA's Inland Oil Spill Programs Account each year. The
Agency is responsible for directing, monitoring and providing technical assistance for major inland oil spill response
activities. This involves setting oil prevention and response standards, initiating enforcement actions for compliance
with OPA and Spill Prevention Control and Countermeasure requirements, and directing response actions when
appropriate. The Agency carries out research to improve response actions to oil spills including research on the use of
remediation techniques such as dispersants and bioremediation. Funding for specific oil spill cleanup actions is
provided through the U.S. Coast Guard from the Oil Spill Liability Trust Fund through reimbursable Pollution
Removal Funding Agreements (PRFAs) and other inter-agency agreements.
II. Pesticide Registration Fund:
The Pesticide Registration Fund authorized by a 2004 Act, "Consolidated Appropriations Act (P.L. 108-199)," and
reauthorized until September 30, 2023, for the expedited processing of certain registration petitions and associated
establishment of tolerances for pesticides to be used in or on food and animal feed. Fees covering these activities, as
authorized under the FIFRA Amendments of 1988, are to be paid by industry and deposited into this fund group.
ill. Reregistration and Expedited Processing Fund:
The Revolving Fund, was authorized by the FIFRA of 1972, as amended by the FIFRA Amendments of 1988 and as
amended by the Food Quality Protection Act of 1996. Pesticide maintenance fees are paid by industry to offset the
costs of pesticide re-registration and reassessment of tolerances for pesticides used in or on food and animal feed, as
required by law.
iv. Tolerance Revolving Fund:
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees were paid by industry
for Federal services to set pesticide chemical residue limits in or on food and animal feed. Fees collected prior to
January 2, 1997 were accounted for under this fund. Presently, collection of these fees is prohibited by statute enacted
in the Consolidated Appropriations Act, 2004 (P.L. 108-199).
v. Hazardous Waste Electronic Manifest System
The Hazardous Waste Electronic Manifest System Fund, authorized in 2014, receives funding through fees collected
for use of the Hazardous Waste Electronic Manifest System.
61
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 19. Environmental Cleanup Costs
Annually, the EPA is required to disclose its audited estimated future costs associated with:
a) Cleanup of hazardous waste and restoration of the facility when it is closed, and
b) Costs to remediate known environmental contamination resulting from the Agency's operations.
The EPA has 30 sites for which it is responsible for clean-up costs incurred under federal, state, and/or local
regulations to remove, contain, or dispose of hazardous material found at these facilities.
The EPA is also required to report the estimated costs related to:
a) Clean-up from federal operations resulting in hazardous waste
b) Accidental damage to nonfederal property caused by federal operations, and
c) Other damage to federal property caused by federal operations or natural forces.
The key to distinguishing between future clean-up costs versus an environmental liability is to determine whether the
event (accident, damage, etc.) has already occurred and whether we can reasonably estimate the cost to remediate the
site.
The EPA has elected to recognize the estimated total clean-up cost as a liability and record changes to the estimate in
subsequent years.
As of September 30, 2020, the EPA has one site that requires clean up stemming from its activities. The claimants'
chances of success are characterized as reasonably possible with costs amounting to $900 thousand that may be paid
out of the Treasury Judgment Fund. Secondly, in January 2020, the CDPHE found several violations of Colorado
hazardous waste laws after inspecting an EPA lab where Region 8 and OECA's NEIC are co-located. $38 thousand of
the penalty amount has been accrued, which is categorized under probable.
A. Accrued Clean-up Cost
The EPA has 30 sites for which it is required to fund the environmental cleanup. As of September 30, 2020, the
estimated costs for site clean-up were $38.4 million unfunded, and $1,836 thousand funded, respectively. In 2019 the
estimated costs for site clean-up were $32.8 million unfunded, and $551 thousand funded, respectively. Since the
clean-up costs associated with permanent closure were not primarily recovered through user fees, the EPA has elected
to recognize the estimated total clean-up cost as a liability and record changes to the estimate in subsequent years.
In FY 2020, the estimate for unfunded clean-up cost increased by $5.6 million from the FY 2019 estimate. This is
primarily due to additional anticipated lab cleanup actions in facilities that resulted in estimates of future clean-up
costs in various regions to increase.
Note 20. State Credits
Authorizing statutory language for Superfund and related Federal regulations requires states to enter into Superfund
State Contracts (SSC) when the EPA assumes the lead for a remedial action in their state. The SSC defines the state's
role in the remedial action and obtains the state's assurance that it will share in the cost of the remedial action. Under
Superfund's authorizing statutory language, states will provide the EPA with a 10 percent cost share for remedial
action costs incurred at privately owned or operated sites, and at least 50 percent of all response activities (i.e.,
removal, remedial planning, remedial action, and enforcement) at publicly operated sites. In some cases, states may
use EPA-approved credits to reduce all or part of their cost share requirement that would otherwise be borne by the
states. The credit is limited to state site-specific expenses the EPA has determined to be reasonable, documented,
direct out-of-pocket expenditures of non-Federal funds for remedial action.
62
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Once the EPA has reviewed and approved a state's claim for credit, the state must first apply the credit at the site
where it was earned. The state may apply any excess/remaining credit to another site when approved by the EPA. As
of September 30, 2020 and 2019, the total remaining state credits have been estimated at $20.2 million, and $21.3
million, respectively.
Note 21. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at their sites with
the understanding that the EPA will reimburse them a certain percentage of their total response action costs. The
EPA's authority to enter into mixed funding agreements is provided under CERCLA Section 111(a) (2). Under
CERCLA Section 122(b)(1), as amended by SARA, PRPs may assert a claim against the Superfund Trust Fund for a
portion of the costs they incurred while conducting a preauthorized response action agreed to under a mixed funding
agreement. As of September 30, 2020, the EPA had three outstanding preauthorized mixed funding agreements with
obligations totaling $11.5 million. As of September 30, 2019, the EPA had three outstanding preauthorized mixed
funding agreements with obligations totaling $6.3 million. A liability is not recognized for these amounts until all
work has been performed by the PRP and has been approved by the EPA for payment. Further, the EPA will not
disburse any funds under these agreements until the PRP's application, claim and claims adjustment processes have
been reviewed and approved by the EPA.
Note 22. Custodial Revenues and Accounts Receivable
The EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.
Collectability by the EPA of the fines and penalties is based on the respondents' willingness and ability to pay. As of
September 30, 2020 and 2019 Custodial Revenues and Accounts Receivable are:
2m im
Fines, Penalties and Other Miscellaneous Receipts $ 169.178 $ 356.645
Accounts Receivable for Fines, Penalties and Other Miscellaneous
Receipts:
Accounts Receivable $ 191,307 $ 166,089
Less: Allowance for Uncollectible Accounts (141.118) (129.680)
Total $ 50.189 S 36.409
Note 23. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited FY 2020 Statement of Budgetary
Resources, will be reconciled to the amounts included in the FY 2020 Budget of the United States Government when
they become available. The Budget of the United States Government with actual numbers for FY 2020 has not yet
been published. We expect it will be published by early 2021, and it will be available on the Office of Management
and Budget website at https://www.whitehouse. gov/
The actual amounts published for the year ended September 30, 2019 are listed immediately below (dollars in
millions):
FY 2019 Budgetary Offsetting
Resources Obligations Receipts Net Outlays
Statement of Budgetary Resources $ 18.619 $ 13.137 $ 1.585 $ 9.648
Reported in the Budget of the U.S. Government $ 18.424 $ 13.086 $ 1.585 $ 9.647
63
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 24. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available, and Permanently Not Available on the Statement of
Budgetary Resources consist of the following amounts as of September 30, 2020 and 2019:
2020 2019
Unobligated Balance Brought Forward, Oct 1. S 5.460.757 S 4.479.928
Adjustments to Budgetary Resources Made During the Current Year
Downward Adjustments of Prior Year Undelivered Orders 339,024 225,842
Downward Adjustments of Prior Year Delivered Orders 26,546 16,035
Other Adjustments (18.137) (6.979)
Total 347,433 234,898
Unobligated Balance from Prior Year Budget Authority, Net
(discretionary and mandatory) S 5.808.190 S 4.714.826
Temporarily Not Available - Rescinded Authority $ (2.000) $ (4.592)
Permanently Not Available:
Rescinded Authority $ - $ 210,529
Cancelled Authority 19.140 19.588
Total Permanently Not Available S 19.140 S 230.117
Note 25. Unobligated Balances Available
Unobligated balances are a combination of two lines on the Statement of Budgetary Resources: Apportioned,
Unobligated Balances and Unobligated Balances Not Available. Unexpired unobligated balances are available to be
apportioned by the OMB for new obligations at the beginning of the following fiscal year. The expired unobligated
balances are only available for upward adjustments of existing obligations.
The unobligated balances available consist of the following as of September 30, 2020 and 2019:
2020 2019
Unexpired Unobligated Balance $ 6,066,503 $ 5,295,329
Expired Unobligated Balance 189.004 186.342
Total $ 6,255,507 S 5.481.671
Note 26. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders as of September 30, 2020 and 2019, were $15.8 billion and
$12.7 billion, respectively.
64
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 27. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt accounts offset gross
outlays. As of September 30, 2020 and 2019, the following receipts were generated from these activities:
Trust Fund Recoveries
Special Fund Services
Trust Fund Appropriation
Miscellaneous Receipt and Clearing Accounts
Total
2020
237,778
51,502
1,076,535
3,581
2019
73,266
22,778
1,455,299
33,440
$ 1,369,396 S1.584.783
Note 28. Transfers-In and Out, Statement of Changes in Net Position
A. Appropriations Transfers, In/Out:
As of September 30, 2020 and 2019, the Appropriation Transfers under Budgetary Financing Sources on the
Statement of Changes in Net Position are comprised of non-expenditure transfers that affect Unexpended
Appropriations for non-invested appropriations. These amounts are included in the Budget Authority, Net Transfers
and Prior Year Unobligated Balance, and Net Transfers lines on the Statement of Budgetary Resources. Details of the
Appropriation Transfers on the Statement of Changes in Net Position and reconciliation with the Statement of
Budgetary Resources follow for September 30, 2020 and 2019:
2020 2019
Net Transfers from Invested Funds $ 1,396,692 $ 1,572,990
Transfer to the Department of Transportation 101,700 89,000
Transfers to Another Agency 809 2.884
Total of Net Transfers on the Statement of Budgetary Resources S 1.499.201 S 1.664.874
65
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
B. Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2020 and 2019, Transfers In/Out under Budgetary Financing Sources on the Statement of Changes
in Net Position consist of transfers between EPA funds. These transfers affect Cumulative Results of Operations.
Details of the transfers-in and transfers-out, expenditure and non-expenditure, follow for September 30, 2020 and
2019:
2020 2019
Funds From
Dedicated
Funds From
Dedicated
Type of Transfer/Funds:
Collections Other Funds Collections Other Funds
Transfers-in (out) nonexpenditure, Earmark to
Science and Technology and Office of the
Inspector General funds
Transfers-in (out) nonexpenditure, Oil Spill
Transfers-in (out) nonexpenditure, e-Manifest
Transfers-in (out), TSCA
PRIA
National Resource Damage Assessment
Total Transfer in (out) without Reimbursement,
Budgetary
(42,748)
19,581
23
(5,528)
389
1,647
42,081 $
(2,776)
18,209
167
$ (26.636) S 42.081 S 15.608 $_
24,048
(2,718)
21.330
Note 29. Imputed Financing
In accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government, Federal agencies must
recognize the portion of employees' pensions and other retirement benefits to be paid by the OPM trust funds. These
amounts are recorded as imputed costs and imputed financing for each Agency. Each year the OPM provides Federal
agencies with cost factors to calculate these imputed costs and financing that apply to the current year. These cost
factors are multiplied by the current year's salaries or number of employees, as applicable, to provide an estimate of
the imputed financing that the OPM trust funds will provide for each Agency. The estimates for FY 2020 were $28.1
million. For FY 2019, the estimates were $81.1 million.
SFFAS No. 4, Managerial Cost Accounting Standards and Concepts and SFFAS No. 30, Inter-Entity
Cost Implementation, requires Federal agencies to recognize the costs of goods and services received from other
Federal entities that are not fully reimbursed, if material. The EPA estimates imputed costs for inter-entity
transactions that are not at full cost and records imputed costs and financing for these unreimbursed costs subject to
materiality. The EPA applies its Headquarters General and Administrative indirect cost rate to expenses incurred for
inter-entity transactions for which other Federal agencies did not include indirect costs to estimate the amount of
unreimbursed (i.e., imputed) costs. For FY 2020 total imputed costs were $29.7 million.
In addition to the pension and retirement benefits described above, the EPA also records imputed costs and financing
for Treasury Judgment Fund payments made on behalf of the Agency. Entries are made in accordance with the
Interpretation of Federal Financial Accounting Standards No. 2, Accounting for Treasury Judgment Fund
Transactions. For FY 2020, entries for Judgment Fund payments totaled $4.1 million. For FY 2019, entries for
Judgment Fund payments totaled $3.9 million.
66
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 30. Payroll and Benefits Payable
Payroll and benefits payable to the EPA employees for the fiscal years ending September 30, 2020 and 2019, consist
of the following:
Covered by
Not Covered
Budgetary
by Budgetary
Resources
Resources
Total
FY 2020 Payroll and Benefits Payable
Accrued Funded Payroll and Benefits
$ 36,385
$
$
36,385
Withholdings Payable
30,297
-
30,297
Employer Contributions Payable - Thrift Savings Plan
1,792
-
1,792
Accrued Unfunded Annual Leave
-
184.780
184.780
Total - Current
S 68.474
S 184.780
$
253.254
Covered by
Not Covered
Budgetary
by Budgetary
Resources
Resources
Total
FY 2019 Payroll and Benefits Payable
Accrued Funded Payroll and Benefits
$ 50,890
$
$
50,890
Withholdings Payable
10,582
-
10,582
Employer Contributions Payable - Thrift Savings Plan
810
-
810
Accrued Unfunded Annual Leave
-
141.703
141.703
Total - Current
62.282 $ 141.703 $ 203.985
Note 31. Other Adjustments, Statement of Changes in Net Position
The Other Adjustments under Budgetary Financing Sources on the Statement of Changes in Net Position consist of
rescissions to appropriated funds and cancellation of funds that expired 7 years earlier. These amounts affect
Unexpended Appropriations. Other Adjustments, Statement of Changes in Net Position for the years ended September
30, 2020 and 2019, consist of the following:
Other Other
Funds Funds
2020 2019
Cancelled General Authority $ 18.964 $ 229.890
Total Other Adjustments S 18.964 S 229.890
67
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 32. Non-Exchange Revenue, Statement of Changes in Net Position
Non-Exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net Position for the fiscal
years ended September 30, 2020 and 2019:
2020
Interest on Trust Fund
Tax Revenue, Net of Refunds
Fines and Penalties Revenue
Special Receipt Fund Revenue
Total Nonexchange Revenue
Funds from
Dedicated
Collections
$ 90,116
219,210
3,239
17,346
$_
All Other
Funds
329.911
2019
Funds from
Dedicated All Other
Collections Funds
$ 134,699 $
237,963
6,195
26.095 (58)
$_
404.952
$_
JM)
68
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 33. Reconciliation of Net Cost of Operations to Budget (Restated)
For the Fiscal Year 2020:
Intra-
governmental
With the
Public
Total 2020
NET COST
Components of Net Cost That Are Not Part of Net Outlays:
Property, Plant and Equipment Depreciation
Property, Plant and Equipment Disposal & Revaluation
Year-end Credit Reform Subsidy Re-estimates
Other
$ 1,331,109 $ 7,490,055 $ 8,821,164
(23,459)
68,599
(1,373)
57,917
68,599
(1,373)
(23,459)
57,917
Increase/(Decrease) in Assets:
Accounts Receivable
Loans Receivable
Investments
Other Assets
(Increase)/Decrease in Liabilities:
Accounts Payable and Accrued Liabilities
Debt Due to Treasury
Pensions and Other Actuarial Liabilities
Environmental Cleanup Costs
Cashout Advances, Superfund
Commitments and Contingencies
Payroll and Benefits Payable
Other Liabilities
Other Financing Sources:
Federal Employee Retirement Benefit Costs Paid by OPM and
Imputed to the Agency
Transfer Out (In) Without Reimbursement
Other Imputed Financing
Total Components of Net Cost That Are Not Part of Net
Outlays
Components of Net Outlays That Are Not Part of Net Cost:
Effect of Prior Year Agencies Credit Reform Subsidy Re-
estimates
Acquisitions of Capital Leases
Acquisition of Inventory
Acquisition of Other Assets
Other
Total Components of Net Outlays That Are Not Part of Net
Cost
Other Temporary Timing Differences
NET OUTLAYS
69
17,070
(27,990)
(12,323)
(15,188)
(221,385)
19,100
28,090
15,509
33,859
1,144,392
2,840
196,206
495
15,062
(8,408)
(5,573)
100,456
(38)
(49,269)
(9,132)
7,857,837
567
15,915
474,408
490.890
19,910
196,206
(27,990)
(11,828)
(126)
(221,385)
(8,408)
(5,573)
100,456
(38)
(49,269)
9,968
28,090
15,509
33.859
9,002,229
567
15,915
474,408
490.890
(769,712) (769,712)
1.144.392 S 7.579.015 S 8.723.407
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
For the Fiscal Year 2019: (Restated)
NET COST (Note 37)
Components of Net Cost That Are Not Part of Net Outlays:
Property, Plant and Equipment Depreciation
Property, Plant and Equipment Disposal & Revaluation
Year-end Credit Reform Subsidy Re-estimates
Other
Increase/(Decrease) in Assets:
Accounts Receivable
Loans Receivable
Investments
Other Assets
(Increase)/Decrease in Liabilities:
Accounts Payable and Accrued Liabilities
Debt Due to Treasury
Pensions and Other Actuarial Liabilities
Environmental Cleanup Costs
Cashout Advances, Superfund (Note 37)
Commitments and Contingencies
Payroll and Benefits Payable
Other Liabilities
Other Financing Sources:
Federal Employee Retirement Benefit Costs Paid by OPM and
Imputed to the Agency
Transfer Out (In) Without Reimbursement
Other Imputed Financing
Total Components of Net Cost That Are Not Part of Net
Outlays
Components of Net Outlays That Are Not Part of Net Cost:
Effect of Prior Year Agencies Credit Reform Subsidy Re-
estimates
Acquisitions of Capital Leases
Acquisition of Inventory
Acquisition of Other Assets
Other
Total Components of Net Outlays That Are Not Part of Net
Cost
Other Temporary Timing Differences
NET OUTLAYS
Intra-
governmental
With the
Public
Total 2019
$ 1,209,171 $ 7,336,002 $ 8,545,173
16,953
499,610
(1,918)
(6,364)
(266)
(51,799)
81,061
2,256,131
20.779
4,023,362
(77,679)
(1,160)
62,120
42,430
263
4,426
(17,245)
1,635
148
(268,217)
(1,966)
(4,481)
(77,679)
(1,160)
4
62,120
59,383
263
499,610
2,508
(23,609)
(266)
1,635
148
(268,217)
(1,966)
(56,280)
81,061
2,256,131
20,779
7,076,276 11,099,638
194 194
21,059 21,059
(2,908,309) (2,908,309)
(2,887,056) (2,887,056)
(149,019) (149,019)
S 4.023.362 S 4.040.201 S 8.063.563
70
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Budgetary and financial accounting information differ. Budgetary accounting is used for planning and control
purposes and relates to both the receipt and use of cash, as well as reporting the federal deficit. Financial accounting is
intended to provide a picture of the government's financial operations and financial position, so it presents
information on an accrual basis. The accrual basis includes information about costs arising from the consumption of
assets and the incurrence of liabilities. The reconciliation of net outlays, presented on a budgetary basis, and the net
cost, presented on an accrual basis, provides an explanation of the relationship between budgetary and financial
accounting information.
The reconciliation serves not only to identify costs paid for in the past and those that will be paid in the future, but also
to assure integrity between budgetary and financial accounting. The reconciliation explains the relationship between
the net cost of operations and net outlays by presenting components of net cost that are not part of net outlays (e.g.
depreciation and amortization expenses of assets previously capitalized, change in asset/liabilities), components of net
outlays that are not part of net cost (e.g. acquisition of capital assets), other temporary timing difference (e.g. prior
period adjustments due to correction of errors). The analysis above illustrates this reconciliation by listing the key
differences between net cost and net outlays.
71
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Note 34. Amounts Held by Treasury (Unaudited)
Amounts held by Treasury for future appropriations consist of amounts held in trusteeship by Treasury in the
Superfund and LUST Trust Funds.
A. Superfund
Superfund is supported by general revenues, cost recoveries of funds spent to clean up hazardous waste sites, interest
income, and fines and penalties.
The following reflects the Superfund Trust Fund maintained by Treasury as of September 30, 2020 and 2019. The
amounts contained in these notes have been provided by Treasury. As indicated, a portion of the outlays represents
amounts received by the EPA's Superfund Trust Fund; such funds are eliminated on consolidation with the Superfund
Trust Fund maintained by Treasury.
SUPERFUND FY 2020
Undistributed Balances
Uninvested Fund Balance
EPA
Treasury
Combined
5.759 $_
5,759
Total Undistributed Balance
-
5,759
5,759
Interest Receivable
-
6,298
6,298
Investments, Net
4.863.644
204.708
5.068.352
Total - Assets
S 4.863.644 S
216.765 S
5.080.409
Liabilities and Equity
Equity
4.863.644
216.765
5.080.409
Total Liabilities and Equity
4.863.644
216.765
5.080.409
Receipts
Cost Recoveries
-
237,778
237,778
Fines and Penalties
-
4.278
4.278
Total Revenue
-
242,056
242,056
Appropriations Received
-
1,076,535
1,076,535
Interest Income
-
83.302
83.302
Total Receipts
-
1.401.893
1.401.893
Outlays
Transfers to/from EPA, Net
1.548.747
(1.548.747)
-
Total Outlays
1.548.747
(1.548.747)
-
Net Income
S 1.548.747 S
(146.854) S
1.401.893
72
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
In FY 2020, the EPA received an appropriation of $1.1 billion for Superfund. Treasury's Bureau of the Fiscal Service
(BFS), the manager of the Superfund Trust Fund assets, records a liability to the EPA for the amount of the
appropriation. BFS does this to indicate those trust fund assets that have been assigned for use and therefore are not
available for appropriation. As of September 30, 2020 and 2019, the Treasury Trust Fund has a liability to the EPA for
previously appropriated funds and special accounts of $5.1 billion and $5.2 billion, respectively.
SUPERFUND FY 2019 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance
$
$
3.003
$ 3.003
Total Undistributed Balance
-
3,003
3,003
Interest Receivable
-
5,413
5,413
Investments, Net
4.962.820
277.526
5.240.346
Total - Assets
S 4.962.820
$
285.942
S 5.248.762
Liabilities and Equity
Equity
4.962.820
285.942
5.248.762
Total Liabilities and Equity
4.962.820
285.942
5.248.762
Receipts
Cost Recoveries
-
444,806
444,806
Fines and Penalties
-
2.504
2.504
Total Revenue
-
447,310
447,310
Appropriations Received
-
1,083,758
1,083,758
Interest Income
-
117.318
117.318
Total Receipts
-
1.648.386
1.648.386
Outlays
Transfers to/from EPA, Net
1.592.858
(1.592.858)
-
Total Outlays
1.592.858
(1.592.858)
-
Net Income
S 1.592.858
$
55.528
S 1.648.386
73
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
B. LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2020 and 2019, there
were no fund receipts from cost recoveries. The amounts contained in these notes are provided by Treasury. Outlays
represent appropriations received by the EPA's LUST Trust Fund; such funds are eliminated on consolidation with
the LUST Trust Fund maintained by Treasury.
LUST FY 2020 EPA Treason, Combing
Undistributed Balances
Uninvested Fund Balance $ - $ 14.081 $ 14.081
Total Undistributed Balance
-
14,081
14,081
Investments, Net
82.270
812.746
895.016
Total - Assets
S 82.270 S
826.827
S 909.097
Liabilities and Equity
Equity
82.270
826.827
909.097
Total Liabilities and Equity
82.270
826.827
909.097
Receipts
Highway TF Tax
-
207,604
207,604
Airport TF Tax
-
11,575
11,575
Inland TF Tax
-
31
31
Total Revenue
-
219,210
219,210
Interest Income
-
6.282
6.282
Total Receipts
-
225.492
225.492
Outlays
Transfers to/from EPA, Net
101.700
(101.700)
-
Total Outlays
101.700
(101.700)
-
Net Income
S 101.700 S
123.792
S 225.492
74
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
LUST FY 2019
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance
$
-
$
11.909
$
11.909
Total Undistributed Balance
-
11,909
11,909
Investments, Net
92.029
681.367
773.396
Total - Assets
$
92.029
$
693.276
$
785.305
Liabilities and Equity
Equity
92.029
693.276
785.305
Total Liabilities and Equity
92.029
693.276
785.305
Receipts
Highway TF Tax
-
213,944
213,944
Airport TF Tax
-
11,971
11,971
Inland TF Tax
-
15
15
Total Revenue
-
225,930
225,930
Interest Income
-
16.183
16.183
Total Receipts
-
242.113
242.113
Outlays
Transfers to/from EPA, Net
93.441
(93.441)
-
Total Outlays
93.441
(93.441)
-
Net Income
$
93.441
$
148.672
$
242.113
Note 35. COVID-19 Activity
On March 27, 2020, President Donald Trump signed into law The Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) in response to the economic fallout of the COVID-19 pandemic in the United States. The EPA
received a supplemental appropriation of $7,230 thousand to support Environmental Program Management, Science
and Technology, Building and Facilities, and Superfund program efforts related to the virus. Additional COVID-19
activities are discussed in Section I, Management's Discussion and Analysis, Financial Analysis and Stewardship
Information; and Section III, Other Accompanying Information, Agency Response to Office of Inspector General-
Identified Management Challenges.
Note 36. Reclassification of Balance Sheet, Statement of Net Cost and Statement of Changes in Net
Position for the FR Compilation Process
To prepare the Financial Report of the U.S. Government (FR), the Department of the Treasury requires agencies to
submit an adjusted trial balance, which is a listing of amounts by U.S. Standard General Ledger account that appear in
the financial statements. Treasury uses the trial balance information reported in the Governmentwide Treasury
Account Symbol Adjusted Trial Balance System (GTAS) to develop a Reclassified Balance Sheet, Reclassified
Statement of Net Cost, and Reclassified Statement of Changes in Net Position for each agency, which are accessed
using GTAS. Treasury eliminates all intragovernmental balances from the reclassified statements and aggregates lines
with the same title to develop the FR statements. This note shows EPA's financial statements and the EPA's
reclassified statements prior to the elimination of intragovernmental balances and prior to aggregation of repeated FR
line items. A copy of the 2019 FR can be found here: https: //www. fiscal .treasury. gov/reports -statements/ and a copy
of the 2020 FR will be posted to this site as soon as it is released.
75
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
The term "intragovernmental" is used in this note to refer to amounts that result from other components of the Federal
Government.
The term "non-Federal" is used in this note to refer to Federal Government amounts that result from transaction with
non-Federal entities. These include transactions with individuals, businesses, non-profit entities, and State, local, and
foreign governments.
76
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Reclassification of Balance Sheet to Line Items used for the Government-wide Balance Sheet as of September 30, 2020
FY 2020 EPA Balance Sheet
Line Items Used to Prepare the FY 2020 Government-wide Balance Sheet
Financial Statement Line
Amounts
Dedicated
Collections
Combined
Dedicated
Collections
Eliminations
All Other
Amounts
(with
Eliminations)
Eliminations
Between
Dedicated
and Other
Total
Reclassified Financial
Statement Line
ASSETS
ASSETS
Intra-Governmental Assets
Intra-Governmental Assets
FBWT
10,823,112
11,065,168
242,056
-
-
10,823,112
FBWT
5,963,368
-
-
-
5,963,368
Federal Investments
Investments, Net
5,969,666
6,298
_
_
_
6,298
Interest Receivable -
Investments
Total Investments, Net
5,969,666
5,969,666
_
_
_
5,969,666
Total Reclassified
Investments, Net
Accounts Receivable
51,872
4,979,904
4,945,914
27,929
-
6,061
Accounts Receivable
Total Accounts Receivable
51,872
4,979,904
4,945,914
27,929
-
6,061
Total Reclassified - A/R
Other
198,268
243,241
_
44,974
_
198,267
Advances to Others and
Prepayments
Total Other
198,268
243,241
-
44,974
-
198,267
Total Reclassified Other
Total Intra-Governmental
Assets
17,042,918
22,257,979
5,187,970
72,903
_
16,997,106
Total Intra-Governmental
Assets
Cash and Other Monetary
Assets
10
10
_
_
_
10
Cash and Other Monetary
Assets
Accounts Receivable, Net
503,725
503,725
_
_
_
503,725
Accounts and Taxes
Receivable, Net
Direct Loans, Net
196,470
196,470
-
-
-
196,470
Loans Receivable, Net
Inventory and Related
Property, Net
288
288
_
_
_
288
Inventory and Related
Property, Net
General PP&E
659,668
681,334
-
-
-
681,334
General PP&E, Net
Other
7,921
7,921
-
-
-
7,921
Other
Total Assets
18,411,000
23,647,727
5,187,970
72,903
-
18,386,854
Total Assets
LIABILITIES
LIABILITIES
Intra-Governmental
Liabilities
Intra-Governmental
Liabilities
Accounts Payable
152,014
5,159,503
4,967,412
45,745
-
146,346
Accounts Payable
Debt
221,652
221,652
-
-
-
221,652
Debt
Other - Custodial Liability
72,018
71,610
-
-
-
71,610
Other - Custodial Liability
Other - Miscellaneous
Liabilities
158,195
56,654
_
27,158
_
29,496
Benefit Program
Contributions Payable
_
104,490
_
_
_
104,490
Advances from Others &
Deferred Credits
-
5,381
-
-
-
5,381
Other Liabilities
Total Other - Miscellaneous
Liabilities
158,195
166,525
_
27,158
_
139,367
Total Reclassified Other -
Miscellaneous Liabilities
Total Intra-Governmental
Liabilities
603,879
5,619,290
4,967,412
72,903
_
578,975
Total Intra-Governmental
Liabilities
Accounts Payable
525,173
49,723
-
-
-
49,723
Accounts Payable
Federal Employee and
Veteran Benefits
50,451
235,230
_
_
_
235,230
Federal Employee and
Veteran Benefits
Environmental and Disposal
Liabilities
38,383
38,383
_
_
_
38,383
Environmental and Disposal
Liabilities
Contingent Liabilities
38
-
-
-
-
-
Contingent Liabilities
Advances and Deferred
Revenue
3,472,784
4,157,749
_
_
_
4,157,749
Miscellaneous Liabilities
402,935
-
-
-
-
-
Other Liabilities
Total Miscellaneous
Liabilities
402,935
4,481,085
_
_
_
4,481,085
Total Reclassified
Miscellaneous Liabilities48
Total Liabilities
5,093,643
10,100,375
4,967,412
72,903
-
5,060,060
Total Liabilities
77
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
NET POSITION
NET POSITION
Unexpended Appropriations
- Funds from Dedicated
Collections
(189)
(870)
(870)
Net Position - Funds from
Dedicated Collections
Unexpended Appropriations
- Other Funds
9,600,037
9,596,928
9,596,928
Net Position - Funds Other
Than Those From Dedicated
Collections
Cumulative Results of
Operations - Funds from
Dedicated Collections
3,307,079
2,521,500
220,558
2,300,942
Cumulative Results of
Operations - All Other
410,430
1,429,794
_
_
_
1,429,794
Total Net Position
13,317,357
13,547,352
220,558
-
-
13,326,794
Total Liabilities & Net
Position
18,411,000
23,647,727
5,187,970
72,903
-
18,386,854
Total Liabilities & Net
Position
Reclassification of Statement of Net Cost to Line Items Used for the Government-wide Statement of Net Cost for the Year Ended September 30, 2020
FY 2020 EPASNC
Line Items Used to Prepare the FY 2020 Government-wide SNC
Financial Statement Line
Amounts
Dedicated
Collections
Combined
Dedicated
Collections
Eliminations
All Other
Amounts
(with
Eliminations)
Eliminations
Between
Dedicated
and Other
Total
Reclassified Statement
Line
Gross Costs
9,335,328
Non-Federal Costs
-
7,886,866
-
-
-
7,886,866
Non-Federal Gross Costs
-
7,886,866
-
-
-
7,886,866
Total Non-Federal Costs
Intragovernmental Costs
-
403,800
-
-
-
403,800
Benefits Program Costs
-
5,666
-
-
-
5,666
Imputed Costs
-
919,646
-
-
-
919,646
Buy/Sell Costs
-
15,469
-
-
-
15,469
Purchase of Assets
_
6,471
_
_
_
6,471
Borrowing and Other
Interest Expense
_
317,266
_
274,191
_
43,075
Other Expenses (w/o
Reciprocals)
_
1,668,318
_
274,191
_
1,394,127
Total Intragovernmental
Costs
Total Gross Costs
9,335,328
9,555,184
_
274,191
_
9,280,993
Total Reclassified Gross
Costs
Earned Revenue
514,164
936,860
237,778
274,191
_
424,891
Non-Federal Earned
Revenue
Intragovernmental
Revenue
-
73,450
-
-
-
73,450
Buy/Sell Revenue
-
15,469
-
-
-
15,469
Purchase of Assets Offset
_
(26)
_
_
_
(26)
Borrowing and Other
Interest Revenue
_
88,893
_
_
_
88,893
Total Intragovernmental
Earned Revenue
Total Earned Revenue
514,164
1,025,753
237,778
274,191
_
513,784
Total Reclassified Earned
Revenue
NET COST
8,821,164
8,529,431
(237,778)
-
-
8,767,209
NET COST
78
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Reclassification of Statement on Changes in Net Position to Line Items Used for Government-wide Statement of Operations and Changes in Net
Position for the Year Ended September 30,2020
FY 2020 EPA SCNP
Line Items Used to Prepare the FY 2020 Government-wic
e SCNP
Financial Statement Line
Amounts
Dedicated
Collections
Combined
Dedicated
Collections
Eliminations
All Other
Amounts
(with
Eliminations)
Eliminations
Between
Dedicated
and Other
Total
Reclassified Statement
Line
UNEXPENDED
APPROPRIATIONS
UNEXPENDED
APPROPRIATIONS
Unexpended appropriations,
Beginning Balance
8,928,321
8,925,580
_
_
_
8,925,580
Net Position Beginning of
Period
Appropriations Received
9,148,119
9,129,155
_
_
_
9,129,155
Appropriations Received as
Adjusted
Other Adjustments
(17,892)
1
-
-
-
1
Other Adjustments
Appropriations Used
(8,458,700)
(8,458,677)
-
-
-
(8,458,677)
Appropriations Used
Total Unexpended
Appropriations
9,599,848
CUMUL. RESULTS OF
OPERATIONS
Cumulative Results,
Beginning Balance
3,667,993
3,639,072
(21,498)
_
_
3,660,570
Net Position, Beginning of
Period
Other Adjustments
(1,072)
_
_
_
_
_
Other Budgetary Financing
Sources
Appropriations Used
8,458,700
8,458,677
-
-
-
8,458,677
Appropriations Used
Non-Federal Non-
Exchange Revenues
Nonexchange Revenue -
Securities Investment
90,116
90,116
_
_
_
90,116
Nonexchange Revenue -
Securities Investment
Nonexchange
-
202,243
4,278
-
-
197,965
Borrowings and other
interest revenue
_
2,511
_
_
_
2,511
Borrowings and other
interest revenue
Nonexchange Revenue -
Other
239,795
219,210
_
_
_
219,210
Other Taxes and Receipts
329,911
514,080
4,278
_
_
509,802
Total Non-Federal Non-
Exchange Revenues
_
_
_
_
_
_
Borrowings and Other
Interest Revenue
-
-
-
-
-
-
Other Taxes and Receipts
Transfers In/Out w/o
Reimbursement-Budgetary
15,445
20,371
20,371
Non-Expenditure Transfers-
In of Unexpended
Appropriations and
Financing Sources
_
857
_
_
_
857
Expenditure transfers-in of
financing sources
219
219
_
_
_
219
Transfers-in without
reimbursement
_
_
_
_
_
_
Transfers-out without
reimbursement
Total Transfers In/Out w/o
Reimbursement-Budgetary
219
219
219
Total Reclassified Transfers
In/Out w/o Reimbursement-
Budgetary
Imputed Financing Sources
61,949
(152,907)
_
_
_
(152,907)
Imputed Financing Sources
(Federal)
Trust Fund Appropriations
5,528
5,666
5,666
Non-entity collections
transferred to the General
Fund of the U.S.
Government
_
(14,648)
_
_
_
(14,648)
Accrual of collections yet to
be trans, to the Gen. Fund
_
9,337
_
_
_
9,337
Other non-budgetary
financing sources
Total Financing Sources
67,696
(152,333)
-
-
-
(152,333)
Net Cost of Operations
(8,821,164)
(8,529,431)
237,778
-
-
(8,767,209)
Net Cost of Operations
79
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Years Ended September 30, 2020 and 2019
(Dollars in Thousands)
Ending Balance -
Cumulative Results of
Operations
3,717,509
3,951,293
220,558
3,730,735
Total Net Position
13,317,357
13,547,352
220,558
-
-
13,326,794
Total Net Position
Note 37. Restatements
During FY 2020, EPA determined that $120 million of Superfund Cashout Advances had been incorrectly classified
as earned revenue when it should have been unearned. To address this finding, EPA has restated its FY 2019 financial
statements.
This change impacts the FY 2019 Cashout Advances, Superfund on the Balance Sheet, Earned Revenue and Net Cost
of Operations on the Statement of Net Cost and Statement of Net Cost by Major Program, and Net Cost of Operations
and Cumulative Results of Operations for Funds From Dedicated Collections on the Statement of Changes in Net
Position.
80
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Required Supplementary Information (Unaudited)
United States Environmental Protection Agency
September 30, 2020 and 2019
(Dollars in Thousands)
Deferred Maintenance
Deferred maintenance is maintenance that was not performed when it should have been, that was scheduled and not
performed, or that was delayed for a future period. Maintenance is the act of keeping property, plant, and equipment
(PP&E) in acceptable operating condition and includes preventive maintenance, normal repairs, replacement of parts
and structural components, and other activities needed to preserve the asset so that it can deliver acceptable
performance and achieve its expected life. Maintenance excludes activities aimed at expanding the capacity of an
asset or otherwise upgrading it to serve needs different from or significantly greater than those originally intended.
Deferred Maintenance is described as the act of keeping fixed assets in acceptable condition.
Such activities include: Preventive maintenance, replacement of parts, systems, or components, and other activities
needed to preserve or maintain the asset.
The deferred maintenance as of Fiscal Year 2020:
2ML
2011
Asset Category
Buildings
Total Deferred Maintenance
$ 128.924 $ 131.059
$ 128.924 $ 131.059
81
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In Fiscal Year 2020, in accordance with SFFAS No. 42, Deferred Maintenance and Repairs: Amending Statements of
Federal Financial Accounting Standards 6, 14, 29 and 32, the EPA presents Deferred Maintenance and Repairs
(DM&R) information by asset category as follows:
buildings:
Policy
Explanation
Maintenance and repairs policies and how they are
applied.
The maintenance and repair policy is to maintain facilities and
real property installed equipment to fully meet mission needs
at each site. Systems are maintained to function efficiently at
full capacity and to meet or exceed life expectancy of buildings
and building systems.
How we rank and prioritize maintenance and repair
activities among other activities.
Building and facility program projects are scored and ranked
individually based on seven weighted factors to determine
priority needs. High scoring projects are prioritized above
lower scoring projects. The seven factors considered are:
health and safety, energy conservation, environmental
compliance, program requirements, repair and upkeep, space
alteration, and operational urgency. Repair and Improvement
(R&I) projects are identified and prioritized on a local basis.
Factors considered in determining acceptable
condition standards.
The nine building systems must function at a level that fully
meet mission needs. The nine building systems are: structure,
roof, exterior components and finish, interior finish, HVAC,
electrical, plumbing, conveyance, and specialized program
support equipment. Each system is rated from 0 to 5 during
facility assessments. Ratings are used to determine facility
condition index and estimated deferred maintenance.
State whether DM&R relate solely to capitalized
general PP&E and stewardship PP&E or also to
non-capitalized or fully depreciated general PP&E.
Facilities assessments and the resulting DM&R estimates are
applied to capitalize PP&E only. Full facility assessments
using the NASA parametric model are used to determine
facilities and systems indices and deferred maintenance
estimates.
PP&E for which management does not measure
and/or report DM&R and the rationale for the
exclusion of other than non-capitalized or fully
depreciated general PP&E.
Buildings are not excluded from DM&R estimates.
Explain significant changes from the prior year.
No significant changes.
CPA Held Equipment:
Policy
Explanation
Maintenance and repairs policies and how they are
applied.
Managers of the equipment consider manufacturers
recommendations in determining maintenance requirements.
How we rank and prioritize maintenance and repair
activities among other activities.
Equipment is maintained based on manufacture's
recommendations.
Factors considered in determining acceptable
condition standards.
Manufacturer recommendations.
State whether DM&R relate solely to capitalized
general PP&E and stewardship PP&E or also to
non-capitalized or fully depreciated general PP&E.
DM&R relates to all EPA Held Equipment as determined by
individual site managers.
PP&E for which management does not measure
and/or report DM&R and the rationale for the
exclusion of other than non-capitalized or fully
depreciated general PP&E.
Individual site managers determine the need to measure and/or
report DM&R based on mission needs.
Explain significant changes from the prior year.
Individual site equipment managers decide on a case-by-case
basis the need to maintain equipment.
82
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Vehicles:
Policy
Explanation
Maintenance and repairs policies and how they are
applied.
Vehicle managers maintain vehicles owned by the EPA in
accordance with the recommendations of the manufacturer.
How we rank and prioritize maintenance and repair
activities among other activities.
The goal is to maintain the vehicle as built and as
recommended by the manufacturer. Repairs and maintenance
are also described as system critical or minor. System critical
repairs and maintenance are high priority and are immediately
taken care of. Minor repairs are lower priority and may be
taken care of at a later date (time/scheduling permitting).
These are not critical to in-field functionality, but the repairs
are needed to maintain the vehicle as built.
Factors considered in determining acceptable
condition standards.
The vehicle is inspected to ensure that it (the vehicle) and
related specialized equipment are in good working order. The
criteria being that the vehicle is being maintained as built and
as recommended by the manufacturer.
State whether DM&R relate solely to capitalized
general PP&E and stewardship PP&E or also to
non-capitalized or fully depreciated general PP&E.
All vehicles are capitalized.
PP&E for which management does not measure
and/or report DM&R and the rationale for the
exclusion of other than non-capitalized or fully
depreciated general PP&E.
None.
Explain significant changes from the prior year.
No significant changes.
Beginning in FY 2015, requirements for recognizing and reporting significant and expected to be permanent
impairment of general PP&E (except Internal Use Software) remaining in use are in SFFAS No. 44, Accounting for
Impairment of General Property, Plant, and Equipment (G-PP&E) Remaining in Use.
This statement establishes accounting and financial reporting standards for impairment of general property, plant, and
equipment remaining in use, except for internal use software. G-PP&E is considered impaired when there is a
significant and permanent decline in the service utility of G-PP&E or expected service utility for construction work in
progress. A decline is permanent when management has no reasonable expectation that the lost service utility will be
replaced or restored.
This statement does not anticipate that entities will have to establish additional or separate procedures beyond those
that may already exist, such as those related to deferred maintenance and repairs, to search for impairments.
Impairments can be identified and brought to management's attention in a variety of ways. Although a presumption
exists that there are existing processes and internal controls in place to reasonably assure identification and
communication of potential material impairments, this statement does not require entities to conduct an annual or
other periodic survey solely for the purpose of applying these standards.
Management may determine that existing processes and internal controls are not sufficient to reasonably assure
identification of potential material impairments and impairments and implement appropriate additional processes and
internal controls.
83
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Supplemental Combined Statement of Budgetary Resources (Unaudited)
United States Environmental Protection Agency
For the Fiscal Year Ending September 30, 2020
(Dollars in Thousands)
BUDGETARY RESOURCES
Unobligated Balance From Prior Year Budget Authority, Net
Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and mandatory)
Spending Authority From Offsetting Collection
Total Budgetary Resources
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward adjustments (total)
Unobligated Balance, End of Year:
Apportioned, Unexpired Accounts
Unapportioned, Unexpired accounts
Expired Unobligated Balance, End of Year
Unobligated Balance, End of Year (total):
Total Status of Budgetary Resources
OUTLAYS, NET
Outlays, Net (total) (discretionary and mandatory)
Distributed Offsetting Receipts (-)
Agency Outlays, Net (discretionary and mandatory)
Disbursements, Net (total) (mandatory)
Leaking
Environmental
Underground
State Tribal
Programs &
Storage
Science &
Assistance
Manaeement
Tanks
Technoloev
Suoerfiind
Aereements
Other
Totals
$ 579,104
$
9,283
$ 168,700
$ 3,717,494
$ 944,436
$410,087
$5,829,104
2,676,794
91,941
718,699
1,452,372
4,546,232
1,251,912
10,737,950
-
-
-
-
-
3,576,684
3,576,684
3.570
-
37.849
16.968
-
345.925
404.312
S 3.259.468
S 101.224
$ 925.248
$ 5,186,834
$ 5.490.668
$ 5.584.608
$ 20.548.050
$ 2,768,443
$
95,806
$781,408
$ 1,582,736
$4,446,151
$4,617,999
$ 14,292,543
322,580
5,418
126,459
3,603,662
1,044,517
959,305
6,061,941
-
-
-
436
-
4,126
4,562
168.445
-
17.381
-
-
3.178
189.004
491.025
5.418
143.840
3.604.098
1.044.517
966.609
6.255.507
S 3.259.468
S 101.224
$ 925.248
$ 5,186,834
$ 5.490.668
$ 5.584.608
$ 20.548.050
$ 2,530,374
$
97,583 $ 715,669 $ 1,477,163 $4,019,331 $1,252,683 $ 10,092,803
-
-
-
(1.314.314)
-
(55.082) (1.369.396)
S 2.530.374
$
97.583
$ 715.669
$ 162.849 $ 4.019.331 $ 1.197.601 $8
1.723.407
$ 221.381
84
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AUDIT OF EPA'S FISCAL YEARS 2020
AND 2019 CONSOLIDATED FINANCIAL
STATEMENTS
85
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^tDsr^
$ O
® J
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Operating efficiently and effectively
EPA's Fiscal Years 2020
and 2019 (Restated)
Consolidated Financial
Statements
Report No. 21-F-0014
November 16, 2020
-------
Abbreviations
EPA
U.S. Environmental Protection Agency
FFMIA
Federal Financial Management Improvement Act of 1996
FMFIA
Federal Managers' Financial Integrity Act of 1982
FY
Fiscal Year
GAO
U.S. Government Accountability Office
OCFO
Office of the Chief Financial Officer
OIG
Office of Inspector General
OMB
Office of Management and Budget
U.S.C.
United States Code
Are you aware of fraud, waste, or abuse in an
EPA program?
EPA Inspector General Hotline
1200 Pennsylvania Avenue. NW (2431T)
Washington. D.C. 20460
(888) 546-8740
(202) 566-2599 (fax)
OIG Hotline@epa.gov
Learn more about our OIG Hotline.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW(2410T)
Washington, D.C. 20460
(202) 566-2391
www.epa.gov/oiq
Subscribe to our Email Updates
Follow us on Twitter @EPAoig
Send us your Project Suggestions
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At a Glance
Why We Did This Audit
We performed this audit in
accordance with the Government
Management Reform Act of
1994, which requires the
U.S. Environmental Protection
Agency's Office of Inspector
General to audit the financial
statements prepared by the
Agency each year. Our primary
objectives were to determine
whether:
• The EPA's consolidated
financial statements were
fairly stated in all material
respects.
• The EPA's internal controls
over financial reporting were
in place.
• EPA management complied
with applicable laws,
regulations, contracts, and
grant agreements.
The requirement for audited
financial statements was enacted
to help bring about improvements
in agencies' financial
management practices, systems,
and control so that timely,
reliable information is available
for managing federal programs.
This report addresses the
following:
• Operating efficiently and
effectively.
This report addresses a top EPA
management challenge:
• Fulfilling mandated reporting
requirements.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBCOMMENTS@epa.gov.
EPA's Fiscal Years 2020 and 2019 (Restated)
Consolidated Financial Statements
EPA Receives an Unmodified Opinion for FYs 2020 and 2019
We rendered an unmodified opinion on the
EPA's consolidated financial statements for
fiscal years 2020 and 2019 (restated), meaning
they were fairly presented and free of material
misstatement.
We found the EPA's
financial statements to be
fairly presented and free
of material misstatement.
Significant Deficiencies Noted
We noted the following significant deficiencies:
• The EPA continues to make misstatements and adjustment errors during its
consolidated financial statement and component financial statement
preparation processes.
• The EPA improperly recorded adjustments totaling over $141 million of
unearned revenue.
Compliance with Laws, Regulations, Contracts, and Grant
Agreements
We did not note any significant noncompliance with laws, regulations, contracts,
and grant agreements.
Recommendations and Planned Agency Corrective Actions
The EPA agreed with our recommendations but disagreed with some of the OIG
statements made about the first significant deficiency listed above. The EPA
disagreed that it was unable to detect errors and did not exercise due diligence.
The Agency also disagreed that it did not properly detect a $4 billion error. We
stand by our position that the lack of due diligence is evidenced by the errors
we found during this audit and that if the EPA had adequately prepared and
reviewed the adjustment, the error would not have been entered into the EPA's
accounting system.
List of OIG reports.
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
November 16, 2020
MEMORANDUM
SUBJECT: EPA's Fiscal Years 2020 and 2019 (Restated) Consolidated Financial Statements
Report No. 21-F-0014
Attached is our report on the U.S. Environmental Protection Agency's fiscal years 2020 and 2019
(restated) consolidated financial statements. The project number for this audit was OA&E-FY20-0206.
We are reporting two significant deficiencies. Attachment 1 contains details on the significant
deficiencies. We did not note any instances of noncompliance. EPA managers, in accordance with
established EPA audit resolution procedures, will make final determinations on the findings in this audit
report.
The Agency agreed with the recommendations in this report. All recommendations are resolved, and no
final response to this report is required. If you submit a response, however, it will be posted on the OIG's
public 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. The final response should not contain data that you do not want
to be released to the public; if your response contains such data, you should identify the data for redaction
or removal along with corresponding justification.
The report will be available at www.epa.gov/oig.
FROM:
Paul C. Curtis, Director
Financial Directorate
TO:
Office of Audit
David Bloom, Deputy Chief Financial Officer
Attachments
1. Significant Deficiencies
2. Status of Prior Audit Report Recommendations
3. Status of Current Recommendations and Potential Monetary Benefits
-------
EPA's Fiscal Years 2020 and 2019 (Restated)
Consolidated Financial Statements
21-F-0014
Table of C
Inspector General's Report on EPA's Fiscal Years 2020
and 2019 (Restated) Consolidated Financial Statements
Report on the Financial Statements 1
Required Supplementary Information 2
Report on Internal Control over Financial Reporting 3
Tests of Compliance with Laws, Regulations, Contracts, and Grant Agreements 5
Prior Audit Coverage 6
Agency Response and OIG Assessment 6
Attachments
1. Significant Deficiencies 8
FINANCIAL STATEMENT PREPARATION
EPA Needs to Improve Its Financial Statement Preparation Processes 9
REVENUE
EPA Recorded Improper Adjustments to Superfund Special Account Unearned
Revenue in FYs 2020 and 2019 12
2. Status of Prior Audit Report Recommendations 14
3. Status of Current Recommendations and Potential Monetary Benefits 17
Appendices
I. EPA's FYs 2020 and 2019 (Restated) Consolidated Financial Statements 18
II. Agency Response to Draft Report 74
III. Distribution 80
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Inspector General's Report on
EPA's Fiscal Years 2020 and 2019 (Restated)
Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of the
U.S. Environmental Protection Agency, which comprise the consolidated balance sheets,
as of September 30, 2020, and September 30, 2019 (restated), and the related
consolidated statements of net cost, net cost by major program, changes in net position,
and custodial activity; the combined statement of budgetary resources for the years then
ended; and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in the
United States; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements
based upon our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States; the standards applicable to financial statements
contained in Government Auditing Standards issued by the comptroller general of the
United States; and Office of Management and Budget Bulletin 19-03, Audit Requirements
for Federal Financial Statements. These standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the
financial statements to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
21-F-0014
1
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We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
The financial statements include expenses of grantees, contractors, and other federal
agencies. Our audit work pertaining to these expenses included testing only within the
EPA. The U.S. Department of the Treasury collects and accounts for excise taxes that are
deposited into the Leaking Underground Storage Tank Trust Fund. The Treasury is also
responsible for investing amounts not needed for current disbursements and transferring
funds to the EPA as authorized in legislation. Since the Treasury, and not the EPA, is
responsible for these activities, our audit work did not cover these activities.
The Office of Inspector General is not independent with respect to amounts pertaining to
OIG operations that are presented in the financial statements. The amounts included for
the OIG are not material to the EPA's financial statements. The OIG is organizationally
independent with respect to all other aspects of the Agency's activities.
Opinion
In our opinion, the consolidated financial statements, including the accompanying notes,
present fairly, in all material respects, the consolidated assets, liabilities, net position, net
cost, net cost by major program, changes in net position, custodial activity, and combined
budgetary resources of the EPA as of and for the years ended September 30, 2020 and
2019, in conformity with accounting principles generally accepted in the United States.
Emphasis of Matter—Restatement Fiscal Year 2019
As described in Note 37, the EPA made certain restatements in its fiscal year 2019
financial statements to correct misstatements for Superfund cashout advances. Our
opinion is not modified with respect to these corrections.
Required Supplementary Information
Accounting principles generally accepted in the United States require that the information in
the Required Supplementary Information, Supplemental Information, and Management's
Discussion and Analysis sections be presented to supplemental EPAs financial statements.
Such information, although not a part of the basic consolidated financial statements, is
required by the OMB and the Federal Accounting Standards Advisory Board, which
consider it to be an essential part of the financial reporting that places the basic consolidated
financial statements in an appropriate operational, economic, or historical context.
We have applied certain limited procedures to the Required Supplementary Information,
Supplemental Information, and Management's Discussion and Analysis, in accordance with
auditing standards generally accepted in the United States, which consisted of inquiries of
management about the methods of preparing the information and comparing it for
consistency with management's responses to our inquiries, the basic consolidated financial
21-F-0014
2
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statements, and other knowledge we obtained during the audit of the basic consolidated
financial statements. We do not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to
express an opinion or provide any assurance.
Report on Internal Control over Financial Reporting
Opinion on Internal Control. In planning and performing our audit, we considered the
EPA's internal control over financial reporting by obtaining an understanding of the
Agency's internal control, determining whether internal control had been placed in
operation, assessing control risk, and performing tests of controls. We did this as a basis
for designing our audit procedures that are appropriate in the circumstances for the
purpose of expressing an opinion on the financial statements and complying with OMB
audit guidance, but not for the purpose of expressing an opinion on effectiveness of
EPAs' internal control. Accordingly, we do not express an opinion on internal control
over financial reporting nor on management's assertion on internal control included in
Management's Discussion and Analysis. We limited our internal control testing to those
controls necessary to achieve the objectives described in OMB Bulletin 19-03. We did
not test all internal controls relevant to operating objectives as broadly defined by the
Federal Managers' Financial Integrity Act of 1982, or FMFIA.
Material Weakness and Significant Deficiencies. Our consideration of the internal
control over financial reporting would not necessarily disclose all matters in the internal
control over financial reporting that might be significant deficiencies. A deficiency in
internal control over financial reporting exists when the design or operation of a control
does not allow management or employees, in the normal course of performing their
assigned functions, to prevent or detect and correct misstatements on a timely basis. A
material weakness is a deficiency or combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement
of the entity's financial statements will not be prevented or detected and corrected on a
timely basis. A significant deficiency is a deficiency or a combination of deficiencies in
internal control over financial reporting that is less severe than a material weakness yet is
important enough to merit attention by those charged with governance.
Because of inherent limitations in internal control, misstatements, losses, or
noncompliance may nevertheless occur and not be detected. We noted certain matters,
which we discuss below, involving the internal control and its operation that we consider
to be significant deficiencies. These issues are summarized below and detailed in
Attachment 1.
21-F-0014
3
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Significant Deficiencies
FINANCIAL STATEMENT PREPARATION
EPA Needs to Improve Its Financial Statement Preparation Processes
We found that the EPA continues to make misstatements and adjustment errors during its
consolidated financial statement and component financial statement preparation
processes. The OMB requires that information in the financial statements be presented in
accordance with generally accepted accounting principles. During its financial statement
preparation process, however, the EPA did not detect and correct multiple misstatements
and adjustment errors before they were entered into the EPA's accounting system or
statements. Not properly recording financial adjustments and not exercising due diligence
in the preparation of the financial statements compromise the accuracy of the financial
statements and the reliance on them to be free of material misstatement.
REVENUE
EPA Recorded Improper Adjustments to Superfund Special Account
Unearned Revenue in FYs 2020 and 2019
During our audit of the EPA's FYs 2020 and 2019 financial statements, we found that the
EPA improperly recorded adjustments totaling over $141 million of unearned revenue.
The U.S. Government Accountability Office's Standards for Internal Control in the
Federal Government requires accurate and timely recording of transactions and events. A
$120 million error, which impacted both the FYs 2020 and 2019 financial statements,
occurred because the Agency omitted relevant data in its analysis of its FY 2019
Superfund oversight accrual. A $21.5 million error, which impacted unearned revenue in
the FY 2020 financial statement, occurred because the Agency posted the adjustment to a
wrong account and incorrectly impacted unearned revenue. The EPA did not adequately
consider the effect that the adjustments would have on the FY 2020 financial statements.
Both errors could have been found and corrected if the Agency performed a more
complete analysis of its financial statement adjustments. When the EPA does not
properly analyze the effect of adjustments, it could materially misstate its financial
position and impact the reliability of its financial statements.
Attachment 2 contains the status of issues reported in prior years' reports on the EPA's
consolidated financial statements. The issues included in Attachment 2 should be
considered among the EPA's significant deficiencies for FY 2020. We reported less
significant internal control matters to the Agency during the course of the audit. We will
not issue a separate management letter.
21-F-0014
4
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Comparison of EPA's FMFIA Report with Our Evaluation of Internal Control
OMB Bulletin 19-03 requires the OIG to compare material weaknesses disclosed during
the audit with those material weaknesses reported in the Agency's FMFIA report that
relate to the financial statements. The OIG is also required to identify material
weaknesses disclosed by the audit that were not reported in the Agency's FMFIA report.
For financial statement audit and financial reporting purposes, OMB Bulletin 19-03
defines material weaknesses in internal control as a deficiency or combination of
deficiencies in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be
prevented or detected and corrected on a timely basis.
Details concerning our findings on significant deficiencies can be found in Attachment 1.
Tests of Compliance with Laws, Regulations, Contracts, and
Grant Agreements
EPA management is responsible for complying with laws, regulations, contracts, and
grant agreements applicable to the Agency. As part of obtaining reasonable assurance
about whether the Agency's financial statements are free of material misstatement, we
performed tests of the Agency's compliance with certain provisions of laws, including
those governing the use of budgetary authority, regulations, contracts, and grant
agreements that have a direct effect on the determination of material amounts and
disclosures in the financial statements. We also performed certain other limited
procedures as described in Codification of Statements on Auditing Standards,
AU-C 250.14-16, "Consideration of Laws and Regulations in an Audit of Financial
Statements." OMB Bulletin 19-03 requires that we evaluate compliance with federal
financial statement system requirements, including the requirements referred to in the
Federal Financial Management Improvement Act of 1996, or FFMIA. We limited our
tests of compliance to these provisions and did not test compliance with all laws and
regulations applicable to the EPA.
Opinion on Compliance with Laws, Regulations, Contracts, and Grant Agreements
Providing an opinion on compliance with certain provisions of laws, regulations,
contracts, and grant agreements was not an objective of our audit and, accordingly, we do
not express such an opinion.
We did not identify any significant matters involving compliance with laws, regulations,
contracts, and grant agreements that came to our attention during the course of the audit.
Federal Financial Management Improvement Act Noncompliance
Under FFMIA, we are required to report whether the Agency's financial management
systems substantially comply with the federal financial management systems
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requirements, applicable federal accounting standards, and the United States Government
Standard General Ledger at the transaction level. To meet the FFMIA requirement, we
performed tests of compliance with FFMIA Section 803(a) requirements and used
OMB Memorandum M-09-06, Implementation Guidance for the Federal Financial
Management Improvement Act, dated January 9, 2009, to determine whether there was
any substantial noncompliance with FFMIA.
The results of our tests did not disclose any instances of noncompliance with FFMIA
requirements, including where the Agency's financial management systems did not
substantially comply with the applicable federal accounting standard.
We did not identify any significant matters involving compliance with laws, regulations,
contracts, or grant agreements related to the Agency's financial management systems that
came to our attention during the course of the audit.
Audit Work Required Under the Hazardous Substance Superfund Trust Fund
We also performed audit work to meet the requirements found in 42 U.S.C. § 961 l(k)
with respect to the Hazardous Substance Superfund Trust Fund and the stipulation to
conduct an annual audit of payments, obligations, reimbursements, or other uses of the
fund. The significant deficiencies reported above also relate to Superfund.
Prior Audit Coverage
During previous financial or financial-related audits, we reported weaknesses, as detailed
in Attachment 2, that impacted our audit objectives in the following areas:
• The EPA did not capitalize lab renovation costs.
• The EPA's internal controls over the accountable personal property inventory
process need improvement.
• Originating offices did not forward accounts receivable source documents in a
timely manner to the finance center.
• The EPA materially overstated earned revenue.
• The EPA should improve its efforts to resolve its long-standing cash differences
with the U.S. Treasury.
• The EPA improperly recorded e-Manifest receivables and earned revenue.
• The EPA needs to improve its financial statement preparation process.
Agency Response and OIG Assessment
The EPA agreed with our recommendations but disagreed with some of the OIG
statements made about the first significant deficiency discussed above and in
Attachment 1. The EPA disagreed that it was unable to detect errors and did not exercise
due diligence. The Agency also disagreed that it did not properly detect a $4 billion error.
We stand by our position that the lack of due diligence is evidenced by the errors we
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found during this audit and that if the EPA had adequately prepared and reviewed the
adjustment, the error would not have been entered into the EPA's accounting system.
This report is intended solely for the information and use of the management of the EPA,
the OMB, and Congress, and it is not intended to be and should not be used by anyone
other than these specified parties.
Paul C. Curtis
Certified Public Accountant
Director, Financial Directorate
Office of Audit
Office of Inspector General
U.S. Environmental Protection Agency
November 9, 2020
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Attachment 1
Significant Deficiencies
Table of Contents
FINANCIAL STATEMENT PREPARATION
1 EPA Needs to Improve Its Financial Statement Preparation Processes 9
REVENUE
2 EPA Recorded Improper Adjustments to Superfund Special Account Unearned
Revenue in FYs 2020 and 2019 12
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1—EPA Needs to Improve Its Financial Statement
Preparation Processes
We found that the EPA continues to make misstatements and adjustment errors during its
consolidated financial statement and component financial statement preparation processes. The
OMB requires that information in the financial statements be presented in accordance with
generally accepted accounting principles. During its financial statement preparation process,
however, the EPA did not detect and correct multiple misstatements and adjustment errors before
they were entered into the EPA's accounting system or statements. Not properly recording
financial adjustments and not exercising due diligence in the preparation of the financial
statements compromise the accuracy of the financial statements and the reliance on them to be
free of material misstatement.
OMB Circular A-136, Financial Reporting Requirements, Section II.3, requires that information
in the financial statements be presented in accordance with the generally accepted accounting
principles for federal entities issued by the Federal Accounting Standards Advisory Board's
Statement of Federal Financial Accounting Standards. In addition, the GAO's Standards for
Internal Control in the Federal Government defines the five components of internal control in
government, one of which is the standard for control activities. Under this standard, management
should design control activities to achieve objectives and respond to risks. The standard for
control activities requires appropriate documentation of transactions and internal controls.
Management is to clearly document internal control, all transactions, and other significant events
in a manner that allows the documentation to be readily available for examination. The standard
for control activities additionally requires accurate and timely recording of transactions and
events.
We reported in previous audits the need for the EPA to improve its financial statement
preparation process, as detailed in Attachment 2. However, we continue to find misstatements
and adjustment errors in the EPA's financial statement preparation processes. During our audit of
the EPA's FY 2020 consolidated financial statements, we found the following misstatements and
adjustment errors:
• Incorrect adjustments. The EPA incorrectly recorded an adjustment totaling
approximately $4 billion in its accounting system. The error occurred because the EPA's
preparation, analysis, and review of the adjustment before it was entered into the EPA's
accounting system did not detect or prevent the adjustment from being entered
incorrectly. The Agency subsequently recorded a financial statement adjustment to
mitigate the impact of the error.
• Misstated unearned revenue. The EPA misstated Superfund special account unearned
revenue balances by $120 million. The EPA made incorrect entries related to the removal
of the Superfund special account oversight accrual from its FY 2019 financial statements.
• Negative unexpended appropriations. The EPA made errors totaling approximately
$1.3 million that caused a negative balance in the "Unexpended Appropriations - Funds
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from Dedicated Collections" line item in its FY 2020 balance sheet. The negative
amounts were the result of uncorrected errors that affect the equity accounts.
• Financial statement preparation errors. We found 26 errors in the EPA's FY 2020
draft financial statements. On multiple occasions, the EPA did not assign the correct
accounts to line items in the footnote disclosures, reported incorrect amounts, omitted
account activity, and was not consistent with prior year audited financial statements.
During audits of the EPA's component financial statements, we found the following
misstatements and errors:
• Toxic Substances Control Act Service Fee Fund financial statements for the period
from inception (June 22, 2016) through September 30, 2018. We found that the EPA
overstated its expenses from other appropriations by $8.4 million. The EPA made errors
in multiple iterations of its calculation for expenses from other appropriations.
Management did not have an adequate review process in place to ensure proper reporting
of costs incurred against other appropriations to support Toxic Substances Control Act
Service Fee Fund activities.
• FY 2019 Pesticide Registration Improvement Act Fund financial statements. We
found multiple instances where the EPA misstated its adjustments and financial
statements. We found that the Agency misreported contract expenses by approximately
$156,000, and statement of budgetary resources by approximately $48,000. We also
found that the EPA incorrectly calculated its payroll accrual.
• FY 2019 Hazardous Waste Electronic Manifest System Fund financial statements.
We found that the EPA misreported accounts receivable and earned revenue by
approximately $151,000, and accrued liabilities by approximately $183,000. We also
found various errors totaling at least $110,000.
The EPA did not detect and correct, during its financial statement preparation processes, the
errors and misstatements stated above. After we conducted account analyses of the activity and
questioned the Agency, staff stated that the EPA will prepare additional adjustments and revise
the current adjustments to correct the errors and misstatements we found. These issues highlight
the need for the EPA to strengthen its processes so that amounts and accounts are accurate and
properly posted in its accounting system, as well as to comply with federal accounting standards.
Failure to properly record financial adjustments and exercise due diligence in the preparation and
management review of the financial statements compromises the accuracy of the financial
statements and the reliance on them to be free of material misstatement.
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Recommendation
We recommend that the chief financial officer:
1. Develop a plan to strengthen and improve the preparation and management review of the
financial statements and adjustments entered into the accounting system so that errors and
misstatements are detected and corrected in a timely manner.
Agency Response and OIG Assessment
The EPA agreed with our recommendation; however, the EPA disagreed that it was unable to
detect errors and did not exercise due diligence. The Agency also disagreed that it did not
properly detect a $4 billion error. We stand by our position that the lack of due diligence is
evidenced by the errors we found during this audit and that if the EPA had adequately prepared
and reviewed the adjustment, the error would not have been entered into the EPA's accounting
system.
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2—EPA Recorded Improper Adjustments to Superfund Special
Account Unearned Revenue in FYs 2020 and 2019
During our audit of the EPA's FYs 2020 and 2019 financial statements, we found that the EPA
improperly recorded adjustments totaling over $141 million of unearned revenue. The GAO's
Standards for Internal Control in the Federal Government requires accurate and timely
recording of transactions and events. A $120 million error, which impacted both the FYs 2020
and 2019 financial statements, occurred because the Agency omitted relevant data in its analysis
of its FY 2019 Superfund oversight accrual. A $21.5 million error, which impacted unearned
revenue in the FY 2020 financial statements, occurred because the Agency posted the adjustment
to a wrong account and incorrectly impacted unearned revenue. The EPA did not adequately
consider the effect that the adjustments would have on the FY 2020 financial statements. Both
errors could have been found and corrected if the Agency performed a more complete analysis of
its financial statement adjustments. When the EPA does not properly analyze the effect of
adjustments, it could materially misstate its financial position and impact the reliability of its
financial statements.
OMB Circular A-136, Financial Reporting Requirements, Section II.3, requires that information
in the financial statements be presented in accordance with the generally accepted accounting
principles for federal entities issued by the Federal Accounting Standards Advisory Board's
Statement of Federal Financial Accounting Standards. In addition, the GAO's Standards for
Internal Control in the Federal Government defines the five components of internal control in
government, one of which is the standard for control activities. Under this standard, management
should design control activities to achieve objectives and respond to risks. The standard for
control activities requires appropriate documentation of transactions and internal controls.
Management is to clearly document internal control, all transactions, and other significant events
in a manner that allows the documentation to be readily available for examination. The standard
for control activities additionally requires accurate and timely recording of transactions and
events.
We found that the EPA improperly recorded adjustments in its FY 2020 draft financial
statements and its FY 2019 financial statements, as summarized in Table 1.
Table 1: Adjustments incorrectly affecting unearned revenue in fiscal year 2020 draft
financial statements
Fiscal year
affected
Description of error
Dollar amount
2019 and 2020
The Agency incorrectly impacted unearned revenue while removing the
Superfund oversight accrual in FY 2019. The issue carried over into
FY 2020.
$119,923,132.53
2020
The Agency made a FY 2020 draft financial statement adjustment as a
result of an OIG FY 2019 finding. The adjustment improperly impacted
unearned revenue when it should have impacted a receivable account.
21,498,292.10
TOTAL
$141,421,424.63
Source: OIG analysis of EPA data. (EPA OIG table)
In FY 2019, the Agency changed the way it accounted for Superfund special account activity.
Following the Agency's accounting change, it decided to remove the Superfund oversight
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accrual from its financial system. However, the FY 2019 adjustments of approximately
$120 million to remove the Superfund oversight accrual were not accurate.
In FY 2020, the EPA recorded two improper adjustments totaling over $141 million:
• A repeat of the approximately $120 million error from the incorrect Superfund
oversight accrual prior year adjustments in FY 2019. Since the Agency was no longer
posting the Superfund special account oversight accrual, this adjustment was incorrect.
• An approximately $21.5 million receivable adjustment in the unearned revenue
account. The adjustment resulted from an incomplete accounting entry that the OIG
identified in FY 2019. The Agency did not make the adjustment in FY 2019 and then
recorded an incorrect adjustment in its FY 2020 draft financial statements, decreasing
unearned revenue when it should have decreased a receivable account to eliminate
intragovernmental activity.
The EPA did not detect the $120 million or the $21.5 million error during its financial statement
preparation processes. These errors occurred because the Agency performed incomplete analyses
of the Superfund oversight accrual and other financial statement adjustments. When the EPA
does not properly analyze the effect of adjustments, it could materially misstate its financial
position and impact the reliability of its financial statements.
Recommendation
We recommend that the chief financial officer:
2. Develop a plan to evaluate and improve the EPA's process for preparing adjustments,
including an analysis of the impact of adjustments on general ledger accounts, and
improve the management review process to ensure general ledger impact is proper in the
financial statements.
Agency Response and OIG Assessment
The EPA agreed with our findings and recommendation and has completed corrective actions.
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Attachment 2
Status of Prior Audit Report Recommendations
The EPA explained to us that it continued to strengthen its audit and evaluation management
practices and procedures to address the OIG's audit and evaluation findings in a timely manner
and to complete corrective actions expeditiously and effectively. In FY 2020, the EPA's chief
financial officer, as the Agency follow-up official, continued to encourage senior managers to
evaluate the OIG's recommendations thoroughly, develop suitable and attainable corrective
actions, and implement the corrective actions in the agreed-upon time frame. The EPA also
accomplished other notable actions to strengthen its audit and evaluation management procedures:
• Worked closely with Agency audit follow-up coordinators during FY 2020 to ensure that
estimated milestone dates for planned corrective actions were being met and the required
certification memorandums were being submitted. Efforts by the Office of the Chief
Financial Officer were critical, significantly helping the OIG to accurately portray the
status of recommendations and associated corrective actions in our spring and fall
Semiannual Report to Congress.
• Continuously provides monthly reporting for the agencywide metric on the number of
planned corrective actions that were not completed by their estimated milestone date. The
intended purpose is to facilitate the implementation of Agency corrective actions to OIG
recommendations and decrease the number of late corrective actions.
• Developed an OIG and GAO tracker intended to provide Agency senior management
with visibility on OIG and GAO audits and evaluations. The tracker includes the most
recent audit and evaluation information. It is updated by the OCFO and distributed by the
Office of the Administrator monthly.
• Established the OIG GAO Audit Community SharePoint site that serves as a "one-stop-
shop" resource for the Agency's audit follow-up coordinators and liaisons. This
collaborative site includes audit and evaluation resources and reference materials, such as
standard operating procedures, audit templates, frequently asked questions, reporting
links and deadlines, and other useful information.
• Provided training during the OCFO Technical Series on the Agency's audit and
evaluation processes. The training included an update on existing and new processes for
OIG audit and evaluation work, specifically work completed under the Quality Standards
for Inspection and Evaluation, also called the "Blue Book."
• Held periodic meetings with Agency audit follow-up coordinators and liaisons to discuss
issues and concerns, emphasize adherence to corrective action milestone dates, and
reaffirm the need to keep the Management Audit Tracking System current.
• Began establishing a new tracking tool, called the Enterprise Audit Management System,
that will enable the Agency to track active OIG and GAO audits and evaluations and to
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post information about audit and evaluation follow-up activities. This new tool will
accommodate data entry, tracking, and reporting for all phases of the audit and evaluation
life cycles.
The OCFO continues its commitment to improve the Agency's audit and evaluation management
practices and to engage early with the OIG on audit and evaluation findings to develop effective
corrective actions that address OIG recommendations; however, we continue to identify
significant deficiencies that remain outstanding in our financial statement audits. The table below
describes the recommendations from previous financial statement audits that remain either
unresolved or unimplemented.
Significant deficiency issues not fully resolved or implemented
EPA Did Not Capitalize Lab Renovation Costs
In our FY 2014 audit, we found that the EPA did not capitalize approximately $8 million of Research
Triangle Park lab renovations. As a result, the EPA did not properly classify the lab renovations as a
capital improvement. The Agency capitalized and booked the Research Triangle Park lab renovation
costs and related depreciation. One corrective action was partially completed: the EPA's Office of
General Counsel indicated continued agreement with its 1999 legal opinion regarding EPA construction
accounting but did not provide examples to guide the Agency's determinations of when renovation work
should be funded from Agency program appropriations or Building and Facilities funds. Corrective
actions for other recommendations related to this finding were initially due in September 2017; however,
the Agency revised the estimated milestone date to February 28, 2018. On July 18, 2018, the Office of
General Counsel stated that determining whether renovation work should be funded out of program
Agency dollars or Buildings and Facilities funds is very fact-specific; therefore, providing global
examples was not feasible. The Office of General Counsel has no further information to provide and
believes its review is complete. The OIG will continue to report the issue as not fully resolved.
EPA's Internal Controls Over Accountable Personal Property Inventory Process Need
Improvement
In our FY 2014 audit, we noted that the EPA reported a $2.6 million difference between the amount of
accountable personal property recorded in the property management system (Maximo) and the amount
of physical inventory for FY 2014. The EPA also identified 573 property items not recorded in Maximo.
During our FY 2019 audit, we found that the Agency made significant progress to correct the differences
between the amount of personal property recorded in the Agency's property management system
(Sunflower) and the amount of physical inventory. While the Agency has taken steps to correct
weaknesses, not all corrective actions implemented were completely effective. For example, the Agency
was unable to provide supporting documentation for the investigations conducted by the Board of
Survey, which is part of the EPA's Facilities Management and Services Division that serves as a fact-
finding body to determine the circumstances and conditions of EPA property that is declared lost,
damaged, or destroyed. Because of the FY 2020 coronavirus pandemic, the Agency was unable to
physically access and provide us with supporting documentation related to the Board of Survey
investigations. As a result, we are unable to assess the effectiveness of the Agency's corrective actions.
Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the
Finance Center
In FY 2014, we found that the EPA and the U.S. Department of Justice did not forward accounts
receivable source documents to the Cincinnati Finance Center in a timely manner. During FY 2015, the
EPA's Office of Enforcement and Compliance Assurance issued a memorandum reminding the regions
to provide accounts receivable enforcement documentation to the finance center in a timely manner.
While we have noted some improvements in the finance center's timely receipt of legal documents, we
still identified instances of untimely receipt in FYs 2015 through 2020. Therefore, the Agency's
corrective actions are not completely effective, and we will continue to evaluate whether the finance
center receives legal source documents in a timely manner in FY 2021.
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EPA Materially Overstated Earned Revenue
During FY 2018, the EPA did not properly eliminate internal Working Capital Fund earned revenue of
$147 million. Based on our findings, we recommended that the chief financial officer update the EPA's
standard operating procedures for Working Capital Fund elimination entries to include verification of
entries and proper ending balances. During FY 2019, we found that the EPA updated its standard
operating procedures to include verification of entries and proper ending balances; however, the EPA's
FY 2019 Working Capital Fund elimination entry did not properly eliminate Working Capital Fund earned
revenue balances. During FY 2020, we found again that the EPA's Working Capital Fund elimination
entry did not properly eliminate Working Capital Fund earned revenue balances. Therefore, the EPA's
corrective action was not completely effective.
EPA Should Improve Its Efforts to Resolve Long-Standing Cash Differences with Treasury
During our FY 2018 audit, we found that the EPA had not resolved $2.2 million in long-standing cash
differences between the EPA and Treasury balances. Based on our finding, we recommended that the
chief financial officer require the Accounting and Cost Analysis Division and the Las Vegas and
Cincinnati finance centers to research and resolve cash differences. The Agency agreed with our finding
and recommendation. According to the Agency, corrective action was completed on September 13,
2019. During our FY 2020 audit, the EPA provided supporting documentation related to its corrective
actions. The support provided was not sufficient to show that the EPA cleared the FY 2018
long-standing differences. We also continue to find recurring differences in FY 2020. Therefore, we do
not consider the corrective actions complete.
EPA Improperly Recorded e-Manifest Receivables and Earned Revenue
During our FY 2019 audit, we found that the EPA did not properly record $15,682,808 of e-Manifest
receivables in FY 2019. The EPA did not establish proper accounting models to record account
receivables for e-Manifest fees, interest, and penalties or to recognize earned revenue from federal
versus nonfederal sources at the transaction level. As a result, the EPA is noncompliant with accounting
standards because account receivables and earned revenue are understated during the year.
Consequently, interest, penalties, and federal revenue are misstated in the financial statements.
Furthermore, the EPA is not in compliance with either Statement of Federal Financial Accounting
Standards 1, which requires the recognition of a receivable when a legal claim exists, or Statement of
Federal Financial Accounting System 7, which requires revenue recognition when the goods or services
were provided. We recommended that the chief financial officer update the accounting models to
properly record collections and not reduce an account receivable account; establish accounting models
to properly record e-Manifest accounts receivable and recognize earned revenue at the transaction
level; establish accounting models to properly classify and record interest, fines, penalties, and fees;
and establish accounting models to properly record receivables, collections, and earned revenue from
federal versus nonfederal vendors. The EPA agreed with our findings and recommendations. The
Agency's estimated completion date for corrective actions is September 30, 2021.
EPA Needs to Improve Its Financial Statement Preparation Process
During our FY 2019 audit, we found multiple instances whereby the Agency had major misstatements of
its financial transactions and financial statements. We recommended that the chief financial officer
evaluate and improve the EPA's process for preparing financial statements and provide accurate and
reliable supporting documentation for adjustments and corrections to the financial statements. The EPA
agreed with our findings and recommendations. The Agency's estimated completion date for corrective
actions was July 31, 2020, for Recommendation 1 and February 29, 2020, for Recommendation 2.
During FY 2020, we identified multiple instances in other FY 2019 financial statement audits whereby
the Agency had major misstatements of its financial transactions and financial statements. Therefore,
we do not consider these corrective actions complete.
Source: OIG analysis.
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Attachment 3
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Rec.
No.
Page
No.
Subject
Status*
Action Official
Planned
Completion
Date
11 Develop a plan to strengthen and improve the preparation and
management review of the financial statements and adjustments
entered into the accounting system so that errors and
misstatements are detected and corrected in a timely manner.
13 Develop a plan to evaluate and improve the EPA's process for
preparing adjustments, including an analysis of the impact of
adjustments on general ledger accounts, and improve the
management review process to ensure general ledger impact is
proper in the financial statements.
Chief Financial Officer
Chief Financial Officer
7/31/21
11/9/20
Potential
Monetary
Benefits
(in $000s)
" $1,072
$141,421
* C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
"The negative unexpended appropriations consists of approximately $1,072 million from Federal Insecticide, Fungicide, and Rodenticide Act funds and $199,450
from Hazardous Waste Electronic Manifest System funds. We are reporting monetary benefits for the Federal Insecticide, Fungicide, and Rodenticide Act funds
in this report, and the Hazardous Waste Electronic Manifest System amount will be reported separately in the fiscal year 2019 e-Manifest component financial
statement audit.
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EPA's FYs 2020 and 2019 (Restated)
Consolidated Financial Statements
Appendix I
EPA's Fiscal Year 2020 and 2019
Consolidated Financial Statements (With Restatement)
Financial Section
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Appendix II
Agency Response to Draft Report
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
November 13, 2020
OFFICE OF THE
CHIEF FINANCIAL OFFICER
MEMORANDUM
SUBJECT: Response to the Office of Inspector General Draft Audit Report, Project No. OA&E-
FY20-0206, "EPA's Fiscal Years 2020 and 2019 (Restated) Consolidated Financial
Statements, " dated November 10, 2020
FROM: David A. Bloom, Deputy Chief Financial Officer DAVID
Office of the Chief Financial Officer BLOOM
TO: Paul C. Curtis, Director
Financial Directorate
Office of Audit
Digitally signed by DAVID
BLOOM
Date: 2020.11.13 15:03:47
-05W
Thank you for the opportunity to respond to the issues and recommendations in the subject draft audit
report. The following is a summaiy of the U.S. Environmental Protection Agency's overall position,
along with its position on each of the report recommendations. We have provided high-level intended
corrective actions and estimated completion dates to the extent possible.
AGENCY'S OVERALL POSITION
The EPA concurs with the Office of Inspector General's recommendations but disagrees with some of
the OIG statements made.
AGENCY RESPONSE TO PIG STATEMENTS
OIG STATEMENT
During its financial statement preparation process, however, the EPA did not detect and correct multiple
misstatements and adjustment errors before they were entered into the EPA's accounting system or
statements. Not properly recording financial adjustments and not exercising due diligence in the
preparation of the financial statements compromise the accuracy of the financial statements and the
reliance on them to be free of material misstatement.
AGENCY RESPONSE
The agency disagrees that it was unable to detect errors and did not exercise due diligence in the
preparation of the financial statements. Considering the hundreds of adjustments that are
required for the financial statements eveiy fiscal year, occasional errors are an expected risk, and
that is why the agency has internal controls in place to mitigate that risk. Due diligence and
1
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application of existing internal controls led to the discovery and correction of errors and
prevented any misrepresentation of the agency's financial position.
OIG STATEMENT
The EPA incorrectly recorded an adjustment totaling approximately $4 billion in its accounting system.
The error occurred because the EPA's preparation, analysis, and review of the material adjustment
before it was entered into the EPA's accounting system did not detect or prevent the material adjustment
from being entered incorrectly. After being informed of the error, the Agency subsequently recorded a
financial statement adjustment to mitigate the impact of the error.
AGENCY RESPONSE
As the agency stated in its response to a previous finding on this adjustment, agency staff
independently detected and quickly corrected this error, which was due to a transposition of
debits and credits. While we did make the error, staff followed procedures in checking work and
that allowed the error to be properly detected and corrected prior to the issuance of the first draft
of the financi al statements. Therefore, there was 110 impact to the financial statements.
OIG STATEMENT
During audits of the EPA's component financial statements, we found the following misstatements and
errors:
• Toxic Substances Control Act Service Fee Fund financial statements for the period from
inception (June 22, 2016) through September 30, 2018. We found that the EPA overstated its
expenses from other appropriations by $8.4 million. The EPA made errors in multiple iterations of its
calculation for expenses from other appropriations. Management did not have an adequate review
process in place to ensure proper reporting of costs incurred against other appropriations to support
Toxic Substances Control Act Service Fee Fund activities.
• FY 2019 Pesticide Registration Improvement Act Fund financial statements. We found multiple
instances where the EPA misstated its adjustments and financial statements. We found that the Agency
misreported contract expenses by approximately $156,000, and statement of budgetary resources by
approximately $48,000. We also found that the EPA incorrectly calculated its payroll accrual.
• FY 2019 Hazardous Waste Electronic Manifest System Fund financial statements. We found that
the EPA misreported accounts receivable and earned revenue by approximately $151,000, and accrued
liabilities by approximately $183,000. We also found various errors totaling at least $110,000.
AGENCY RESPONSE
The agency concurs with the misstatements identified in the component financial statements and
is working on implementing stronger internal control over the component financial statement
preparation process. Having said that, the overall impact of the identified misstatements total
$9,048 million which is not material to the consolidated financial statements of the EPA.
2
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Component
Dollar Amount of
Misstatement
Material, to EPA Financial.
Statements
Toxic Substances Control Act
Service Fee Fund
$8.4 M
No
FY 2019 Pesticide Registration
Improvement Act Fund
$0,156 M
$0,048 M
No
FY 2019 Hazardous Waste
Electronic Manifest System
Fund
$0,151 M
$0,183 M
S0.110M
No
Total
$9,048 M
OIG STATEMENT
The EPA did not detect and correct, during its financial statement preparation processes, the errors and
misstatements stated above. After w e conducted account analyses of the activity and questioned the
Agency, staff stated that the EPA will prepare additional adjustments and revise the current adjustments
to correct the errors and misstatements we found. Had it not been for the intensh e inquiry by our
auditors, material errors would have impacted the financial statements.
AGENCY RESPONSE
There was one material error cited by the OIG, a Si 20 million misstated Superfund special
account unearned revenue balance. To prevent this t\ pe of error, in addition to the improvements
and updates to "Standard Procedures for the Processing of Vouchers in Compass" described
below, the review process for adjustments will now include analysis of the complete general
ledger impact of adjustments to ensure the proper genera! ledger impact in the financial
statements is achieved.
AGENCY'S RESPONSE TO DRAFT AUDIT RECOMMENDATIONS
No.
Recommendation
High-Level Intended Corrective
Aetion(s)
Estimated
Completion Date
1
Develop a plan to strengthen
and improve the preparation
and management review of the
financial statements and
adjustments entered into the
accounting system so that errors
and misstatements are detected
and corrected in a timely
manner.
Concur. The agency agrees that it will
strengthen and improve the preparation
and management review of the financial
statements and adjustments and has
already developed and implemented a
plan to do so. The following corrective
actions have been completed or are in
progress:
• Updated the "Standard Procedures for
the Processing of Vouchers in
Compass" to improve the process for
My 31, 2021
3
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No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
preparing adjustments, Adjustments
over $10 million will now require an
additional level of management
rev iew. On top adjustments to the
financial statements will require
review and approval by management
before being processed. (Completed
November 2020)
• Review ed w ith staff the need to
include more of the supporting
analysis and rationale behind the
adjustments made and the accounting
basis for them, (CompletedFebruary
2020)
• Regular review s of journal \ ouchers to
ensure they are clearh and sufficiently
supported, / On-gut rig)
• Regular financial statements team
meetings to cross train and resolve
potential issues. {On-going)
• Full implementation of Case Ware
financial statement preparation
software which increases efficiency
and provides additional format
controls and footnote cross checks that
were not available previously.
(Completed A larch 2020)
• Annual staff training on CaseWare.
{Completed July 2020)
• Annual project plan for financial
statement preparation process.
{Completed July 2<>20)
• Developed Standard Operating
Procedures for financial statement
preparation and review er checklist.
{Completed July 2020)
• Established a senior level call bi-
weekly between the DCFO, Controller
and OICt senior management to
address concents early in the audit
process. {On-going)
• Lessons learned to be discussed at
conclusion of audit and process
improvement plans developed.
(Janttarv February 2021)
4
21-F-0014
77
-------
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
• Off cycle A-123 review of SOPs.
(January/February 2021)
2
Develop a plan to evaluate and
improve the EPA's process for
preparing adjustments,
including an analysis of the
impact of adjustments on
general ledger accounts, and
improve the management
review process to ensure
general ledger impact is proper
in the financial statements.
Concur. The agency has already
developed and implemented a plan to
improve the process as stated above. In
addition, the agency updated the
"Standard Procedures for the Processing
of Vouchers in Compass" as a process
improvement for preparing adjustments.
Adjustments over $10 million will now
require an additional level of management
review. Additionally, on top adjustments
to the financial statements will require
review and approval by management
before being processed. Any adjustment
materially affecting accounts and/or
balances of the finance centers will be
coordinated for review. The review
process for adjustments will now include
analysis of the complete general ledger
impact of adjustments.
November 9,
2020
CONTACT INFORMATION
If you have any questions regarding this response, please contact the OCFO's Audit Follow-up
Coordinator, Andrew LeBlanc, at (202) 564-1761.
cc: Donna J. Vizian
Carol Terris
C. Paige Hanson
Charlie Dankert
Lek Kadeli
Katherine Trimble
Charles Sheehan
Edward Shields
James Hatfield
Jeanne Conklin
Christine El-Zoghbi
Meshell Jones-Peeler
Richard Gray
OCFO-OC-MANAGERS
Paul Curtis
Rudy Brevard
Richard Eyermann
Wanda Arrington
21-F-0014
78
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Demetrios Papakonstantinou
Mairim Lopez
Oabrielle Hanson
Andrew Sheeran
Andrew LeBlanc
Jose Kercado
6
21-F-0014
79
-------
Appendix III
Distribution
The Administrator
Assistant Deputy Administrator
Associate Deputy Administrator
Chief of Staff
Deputy Chief of Staff/Operations
Chief Financial Officer
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Director, Office of Continuous Improvement, Office of the Administrator
Deputy Chief Financial Officer
Associate Chief Financial Officer
Associate Chief Financial Officer for Policy
Controller
Deputy Controller
Associate Deputy Controller
Director, Office of Budget, Office of the Chief Financial Officer
Director, Office of Planning, Analysis and Accountability, Office of the Chief Financial Officer
Director, Office of Resource and Information Management, Office of the Chief Financial Officer
Director, Office of Technology Solutions, Office of the Chief Financial Officer
Director, Accounting and Cost Analysis Division, Office of the Controller
Director, Policy, Training, and Accountability Division, Office of the Controller
Branch Chief, Management, Integrity, and Accountability Branch, Policy, Training, and
Accountability Division, Office of the Controller
Director, Research Triangle Park Finance Center, Office of the Chief Financial Officer
Director, Cincinnati Finance Center, 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 Budget, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Controller, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of Technology Solutions, Office of the Chief Financial Officer
Backup Audit Follow-Up Coordinator, Office of the Chief Financial Officer
21-F-0014
80
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SI*
Progress lor o Stronger Future
-------
MANAGEMENT INTEGRITY AND
CHALLENGES
Overview of EPA's Efforts
Management challenges and internal control weaknesses represent vulnerabilities in program
operations that may impair the EPA's ability to achieve its mission and threaten the agency's
safeguards against fraud, waste, abuse and mismanagement. These areas are identified through
internal agency reviews and independent reviews by the EPA's external evaluators, such as the Office
of Management and Budget, the Government Accountability Office and the EPA's Office of Inspector
General. This section of the AFR discusses in detail two components related to challenges and
weaknesses: 1) key management challenges identified by EPA's OIG, followed by the agency's response
and 2) a brief discussion of the EPA's progress in addressing its FY 2020 material weaknesses.
Under the FMFIA, all federal agencies must provide reasonable assurance that internal controls are
adequate to support the achievement of their intended mission, goals and objectives. (See Section I,
"Management Discussion and Analysis," for the Administrator's Statement of Assurance.) Additionally,
agencies must report any material weaknesses identified through internal and/or external reviews
and their strategies to remedy the problems. Material weaknesses are vulnerabilities that could
significantly impair or threaten fulfillment of the agency's programs or mission. In FY 2020, no new
material weaknesses were identified by OIG or the agency. (See following subsection for a discussion
of the EPA's progress in addressing its material weakness.)
The agency's senior managers remain committed to maintaining effective and efficient internal
controls to ensure that program activities are carried out in accordance with applicable laws and
agency policy and procedures. The agency will continue to address its remaining weaknesses and
report on its progress.
117
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2020 KEY MANAGEMENT CHALLENGES
Office of Inspector General-Identified Key Management Challenges
The Reports Consolidation Act of 2000 requires the OIG to report on the agency's most serious
management and performance challenges, known as the key management challenges. Management
challenges represent vulnerabilities in program operations and their susceptibility to fraud, waste,
abuse or mismanagement For FY 2020, the OIG identified eight challenges. The table below includes
issues the OIG identified as key management challenges facing the EPA, the years in which the OIG
identified the challenge, and the relationship of the challenge to the agency's goals in its strategic plan.
fhttp://epa.gov/planandbudget/strategicplan.htmD.
OIG-idontifiod key management challenges Tor the lll'A
FY
2019
FY
2020
Oversight of States, Territories, and Tribes Authorized to Accomplish
Environmental Goals: The EPA has made important progress, but OIG's work continues
to identify challenges throughout agency programs and regions, and many of OIG's
recommendations to establish consistent baselines and monitor programs are still not
fully implemented.
•
•
Enhancing Information Technology Security to Combat Cyber Threats
(formerly Limited Capability to Respond to Cyber Security Attacks'): Though the EPA
continues to initiate actions to further strengthen or improve its information security
program, the agency lacks a holistic approach to managing accountability over its
contractors and lacks follow-up on corrective actions taken.
•
•
Workforce Planning/Workload Analysis: The EPA needs to identify its workload
needs so that it can more effectively prioritize and allocate limited resources to
accomplish its work.
•
•
Mandated Reporting Requirements: The agency faces challenges in tracking and
submitting reports mandated by law that contain key program information for Congress,
the EPA Administrator and the public.
•
•
Data Quality for Program Performance and Decision-Making: Poor data quality
negatively impacts the EPA's effectiveness in overseeing programs that directly impact
public health.
•
The EPA Needs to Improve Risk Communication to Provide Individuals and
Communities with Sufficient Information to Make Informed Decisions to Protect
Their Health and the Environment: In 2018, the EPA Administrator identified Risk
Communication as a top priority. Our recent reports indicate risk communication
challenges across many EPA programs.
•
•
Maintaining Operations During Pandemic and Natural Disaster Responses. The EPA
needs to maintain human health and environmental protections, business operations,
and employee safety during the coronavirus pandemic and future natural disasters
•
Complying with Key Internal Control Requirements. The EPA faces the following
overarching challenges in implementing and operating internal controls that establish
and maintain an effective work environment
•
Integrating and Leading Environmental Justice Across the Agency and
Government. The EPA needs to enhance its consideration of environmental justice
across programs and regions and provide leadership in this area
•
118
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^£Dsrx
* £k \
V PR0^O<9
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
FYi minimi
U.S. Environmental
Protection Agency
Top Management Challenges
AITERNAi a
ONTROL »
Report No. 20-N-0231
July 21, 2020
-------
Abbreviations
C.F.R. Code of Federal Regulations
CARES Act Coronavirus Aid, Relief, and Economic Security Act
EPA U.S. Environmental Protection Agency
FY Fiscal Year
GAO U.S. Government Accountability Office
IT Information Technology
OIG Office of Inspector General
OPM U.S. Office of Personnel Management
U.S.C. United States Code
Are you aware of fraud, waste or abuse in an
EPA program?
EPA Inspector General Hotline
1200 Pennsylvania Avenue. NW (2431T)
Washington. D.C. 20460
(888) 546-8740
(202) 566-2599 (fax)
OIG Hotline@epa.gov
Learn more about our OIG Hotline.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (2410T)
Washington, D.C. 20460
(202) 566-2391
www.epa.aov/oia
Subscribe to our Email Updates
Follow us on Twitter @EPAoig
Send us your Project Suggestions
-------
.tftt) ST/tf. ,, _ _ , , _ , . 20-N-0231
o* _ U.S. Environmental Protection Agency juiv2i 2020
July 21, 2020
| ------
I*/
\ Office of Inspector General
® J
At a Glance
What Are Management
Challenges?
According to the GPRA
Modernization Act of 2010
(GPRA stands for Government
Performance and Results Act),
"major management
challenges'—hereafter referred
to as top management
challenges are programs or
management functions within or
across agencies that have
greater vulnerability to waste,
fraud, abuse, and
mismanagement, and where a
failure to perform well could
seriously affect the ability of an
agency or the federal
government to achieve its
mission or goals.
Per the Reports Consolidation
Act of 2000, each fiscal year the
Office of Inspector General
identifies top management
challenges for the
U.S. Environmental Protection
Agency.
In each of our audit and
evaluation reports, we will note
in the "At a Glance" page, as
well as on the first page of the
report, which management
challenges the report
addresses, if applicable.
EPA's FYs 2020-2021 Top Management Challenges
What We Found
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBCOMMENTS@epa.gov.
List of OIG reports.
Identifying and resolving top management challenges is essential to the
EPA's protection of human health and the environment.
The EPA faces significant challenges in accomplishing its mission in FYs 2020
and 2021, and perhaps beyond. The challenges that we previously identified in
the FY 2019 management challenges report (Report No. 19-N-0235. issued
July 15, 2019) remain, but new circumstances have created additional challenges
that may prevent the Agency from fulfilling its responsibilities and meeting its
goals. Our work, the work of the U.S. Government Accountability Office, and
Agency documents and statements point to eight categories of challenges:
1. Maintaining Operations During Pandemic and Natural Disaster
Responses. The EPA needs to maintain human health and environmental
protections, business operations, and employee safety during the
coronavirus pandemic and future natural disasters.
2. Complying with Key Internal Control Requirements. The EPA faces the
following overarching challenges in implementing and operating internal
controls that establish and maintain an effective work environment:
a. Developing internal control risk assessments.
b. Ensuring quality data.
c. Creating effective operational policies and procedures.
3. Overseeing States, Territories, and Tribes Responsible for
Implementing EPA Programs. The EPA faces a challenge in improving its
oversight of and the results received from state, territory, and tribal
environmental programs.
4. Improving Workforce/Workload Analyses to Accomplish EPA's Mission
Efficiently and Effectively. The EPA needs ongoing and comprehensive
workload analyses to adequately respond to and prepare for future staffing
gaps and shortages in essential positions.
5. Enhancing Information Technology Security to Combat Cyberthreats.
Without enhanced information technology security, the EPA remains
vulnerable to existing and emerging cyberthreats.
6. Communicating Risks to Allow the Public to Make Informed Decisions
About Its Health and the Environment. The EPA needs to provide
individuals and communities with sufficient information to make informed
decisions to protect their health and the environment.
7. Fulfilling Mandated Reporting Requirements. The EPA must meet its
congressionally mandated report requirements.
8. Integrating and Leading Environmental Justice Across the Agency and
Government. The EPA needs to enhance its consideration of environmental
justice across programs and regions and provide leadership in this area.
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
July 21, 2020
MEMORANDUM
SUBJECT: EPA's FYs 2020-2021 Top Management Challenges
Report No. 20-N-0231
FROM: Sean W. O'Donnell
TO:
Andrew Wheeler, Administrator
As required by the Reports Consolidation Act of 2000, the Office of Inspector General is providing the
issues we consider to be the U.S. Environmental Protection Agency's top management challenges.
The Inspector General Act of 1978, as amended, directs inspectors general to provide leadership to
agencies through audits, evaluations, and investigations, as well as additional analyses of agency
operations. According to the GPRA Modernization Act of 2010 (GPRA stands for Government
Performance and Results Act), "major management challenges"—which we refer to as top management
challenges—are programs or management functions within or across agencies that have greater
vulnerability to waste, fraud, abuse, and mismanagement, where a failure to perform well could seriously
affect the ability of an agency or the federal government to achieve its mission or goals.
Annually, our office publicly reports on top management challenges, whereby we reassess the major
challenges that affect and influence EPA operations. The enclosed management challenges report reflects
findings and themes resulting from many such efforts conducted by the EPA OIG this past year. Drawing
high-level EPA attention to these key issues is an essential component of the OIG's mission. This report
summarizes what we consider to be the most serious management and performance challenges facing the
Agency. It also assesses the Agency's progress in addressing those challenges. This report and its findings
will be an important foundation for charting the path of future OIG audits and investigations.
For this report, the OIG conducted a survey of all EPA headquarters offices and discussed management
challenges in outreach meetings with Agency offices to request feedback on how these challenges affect
the EPA's business and operations. To develop this year's management challenges, we considered, among
other sources, information provided by the EPA in addition to the work of the OIG, the U.S. Government
Accountability Office, and public statements by EPA leaders to the press and Congress. These challenges
will guide our future assignments as we work to assist the EPA in achieving its goals to protect human
health and the environment.
In this report, we retained the management challenges that we identified in fiscal year 2019. We introduced
the challenge of responding to the coronavirus pandemic and other disasters, as well as an overarching
internal control challenge that encompasses program and regional office risk assessments, data quality,
and policies and procedures. We also introduced as a top management challenge the integration and
enhancement of environmental justice issues across the Agency and government. We would be pleased to
discuss these matters with you and address any questions you may have.
-------
EPA's FYs 2020-2021
Top Management Challenges
20-N-0231
Table of C
Challenges
1 Maintaining Operations During Pandemic and
Natural Disaster Responses 1
2 Complying with Key Internal Control Requirements 9
3 Overseeing States, Territories, and Tribes Responsible for
Implementing EPA Programs 15
4 Improving Workforce/Workload Analyses to Accomplish
EPA's Mission Efficiently and Effectively 20
5 Enhancing Information Technology Security to
Combat Cyberthreats 24
6 Communicating Risks to Allow the Public to Make
Informed Decisions About Its Health and the Environment 27
7 Fulfilling Mandated Reporting Requirements 32
8 Integrating and Leading Environmental Justice
Across the Agency and Government 34
-------
CHALLENGE: Maintaining Operations During Pandemic
and Natural Disaster Responses
CHALLENGE FOR THE AGENCY
The U.S. Environmental Protection Agency must adapt to protect human health and
the environment amid the coronavirus pandemic and natural disasters. The Agency's
mission to protect human health and the environment comes into sharp focus as the Agency continues
to respond to the 2020 coronavirus pandemic—that is,
the SARS-CoV-2 virus and resultant COVID-19 disease. At
the same time, EPA response and support capabilities
need to be available to support natural disaster response
during the 2020 hurricane and wildfire seasons. The
Agency's responsibilities for implementing federal
environmental laws also continue, even as resources and
capabilities shift throughout these overlapping events.
This cross-cutting challenge touches on other EPA management challenges, such as the EPA's oversight
of states, territories, and tribes; risk communication; and workforce analyses. This challenge also raises
new risks in monitoring preexisting contracting and grant funds, as well as those funds directly helping
to alleviate the crises.
Risk to EPA's Mission Achievement: Successful Implementation of Programs
Achieving the EPA's mission relies on effective implementation of federal environmental laws and
regulations, which are designed to protect human health and the environment. Appropriate
regulations and effective enforcement are key to combating and deterring violations of law, including
fraud.
Fraud Identification. Inspections of recent imports have identified products marketed with
unsubstantiated and dangerous claims of being able to protect against the SARS-CoV-2 virus.
Companies are also fraudulently claiming that their products are approved or endorsed by the EPA or
contain EPA-approved disinfectants for use against the SARS-CoV-2 virus. The prevalence of fraud
related to EPA programs and operations will most likely increase as fraudsters identify new ways to
exploit consumers frightened by the coronavirus pandemic. In an April 2020 news release, EPA
Administrator Andrew Wheeler stated that the EPA takes seriously its responsibility to protect
Americans from fraudulent surface disinfectants and that he has met with online retailers and others
to ask for their help in preventing imposter products from coming to market. The Office of Inspector
General's Office of Investigations has opened many cases involving fraudulent disinfectant products to
protect the integrity of the EPA's programs and the American people.
(Centers for Disease Control and Prevention image)
20-N-0231
1
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Disinfectant Approval. One of the EPA's most immediate responses to the coronavirus pandemic has
involved approving disinfectants that can kill the SARS-CoV-2 virus on surfaces. The EPA has also
developed a list of products that are registered to destroy viruses known to be as difficult—if not more
difficult—to kill than the SARS-CoV-2 virus. In addition, to address pesticide supply chain shortages, the
EPA is temporarily allowing companies to change—without prior EPA approval, as is typically
required—the suppliers of certain active ingredients in approved products.
Regulatory Program Implementation. During the coronavirus pandemic, the EPA has made many
adjustments to programs and operations by, for example, issuing regulatory waivers and making
exceptions to regulatory requirements, policy, and internal controls. However, these adjustments
create new risks that the Agency will not identify or address noncompliance. The EPA has implemented
a temporary enforcement policy that curtails several routine regulatory monitoring and enforcement
activities during the coronavirus pandemic. In the face of these adaptations, the EPA must maintain a
robust regulatory and enforcement program to ensure environmentally protective practices and to
address environmental violations and deter noncompliance. Reduction in regulatory and enforcement
activity places the EPA's mission at greater risk and threatens the Agency's overall mission to protect
human health and the environment.
On May 20, 2020, Administrator Wheeler
testified before Congress that, since March
16, 2020, the Agency has opened 52
criminal enforcement cases, charged ten
defendants, concluded 122 civil
enforcement actions, initiated another 115
civil enforcement actions, secured $21.5
million in Superfund response
commitments, billed more than $20 million
in Superfund oversight costs, and attained
commitments from parties for cleanup of
68,000 cubic yards of contaminated soil
and water.1 However, we observed in a
March 31, 2020 interim report that the
EPA's enforcement activities and its resources for conducting routine regulatory enforcement work
have declined over time.2 In fact, based on our analysis of the information available in the Agency's
database, the number of civil administrative cases the EPA initiated continued the downward trend
that we observed in our interim report.
Program Oversight. As described in the management challenge "Overseeing States, Territories, and
Tribes Responsible for Implementing EPA Programs," states, territories, and tribes often act as the
1 Oversight of the Environmental Protection Agency, before the Senate Committee on Environment and Public Works,
116th Congress (2020) (statement of Andrew Wheeier, EPA administrator).
2 OIG, EPA's Compliance Monitoring Activities, Enforcement Actions, and Enforcement Results Generally Declined from Fiscal
Years 2006 Through 2018, Report No. 20-P-0131. March 31, 2020.
ENFORCEMENT MEASURE DECREASE
• INSPECTIONS -|33%-«
• - ENFORCEMENT CASES INITIATED
15 2% «
• ENFORCEMENT CASES CONCLUDED |51% •
• ENFORCEMENT ACTIONS WITH INJUNCTIVE RELIEF - - 158% •
• ENFORCEMENT ACTIONS WITH PENALTIES-- —153% •
• SUPPLEMENTAL ENVIRONMENTAL PROJECTS 148% •
The EPA's enforcement measures decreased when comparing
FYs 2007 and 2018. (OIG graphic)
20-N-0231
2
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frontline implementers of federal environmental laws on the EPA's behalf. As a result of the
coronavirus pandemic and natural disasters, these entities face financial and personnel challenges that
may limit their ability to adequately implement federal requirements. The OIG is reviewing the EPA's
ability to conduct emergency response during the coronavirus pandemic.3
In addition, during responses to natural disasters, the EPA and the Federal Emergency Management
Agency encounter not only personnel shortages, but also utility and infrastructure damage that may
render drinking water and wastewater treatment inoperable for a period of time.4 Infrastructure
damage inhibits the federal government's
ability to assess environmental conditions
and accurately communicate those
conditions to the public in a timely fashion.
The EPA has recognized this challenge,
emphasizing the additional pressure placed
on drinking water utilities during the
coronavirus pandemic. In a March 27, 2020
press release, Administrator Wheeler said,
"Having fully operational drinking water and
wastewater services is critical to containing
COVID-19 and protecting Americans from
other public health risks. Our nation's water
and wastewater employees are everyday
heroes who are on the frontline of
protecting human health and the An EPA response team meets for a safety briefing before
,,c ... . assessing sites in Tampa. Florida. (EPA photo)
environment every single day. 3 Additional
planning, assistance, and oversight by the EPA is necessary to support states, territories, tribes, and
local utilities that are facing a strain on their resources amid the coronavirus pandemic and when
natural disasters hit. The OIG will review the EPA's assistance to tribal drinking water facilities in the
face of the coronavirus pandemic.6
Environmental Justice Considerations. Data from the Centers for Disease Control and Prevention show
higher rates of hospitalization or death among non-Hispanic Black persons, Hispanics and Latinos, and
American Indians/Alaska Natives. On June 9, 2020, the House Energy and Commerce Subcommittee on
Environment and Climate Change held a hearing titled "Pollution and Pandemics: COVID-19's
Disproportionate Impact on Environmental Justice Communities." The subcommittee agreed that
3 OIG Notification Memorandum, Survey of EPA On-Scene Coordinators and Managers Regarding COVID-19, Project
No. OA&E-FY20-024Q, June 15, 2020.
4 OIG, EPA Region 6 Quickly Assessed Water Infrastructure after Hurricane Harvey but Can Improve Emergency Outreach to
Disadvantaged Communities, Report No. 19-P-0236, July 16, 2019; and OIG, Region 4 Quickly Assessed Water Systems After
Hurricane Irma but Can Improve Emergency Preparedness, Report No, 20-P-0001, October 7, 2019.
5 EPA, "EPA Urges States to Support Drinking Water and Wastewater Operations during COVID-19," News Release.
March 27, 2020.
6 OIG Notification Memorandum, EPA's Oversight of Tribal Drinking Water Systems, Project No, QA&E-FY20-Q044. May 29,
2020.
20-N-0231
3
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environmental justice is a priority highlighted by the coronavirus pandemic. One representative stated
that the EPA's deregulatory actions have left many communities wondering who will protect their
health and safety. Another representative added that pollution burdens can also have a
disproportionate impact on people with chronic underlying health problems and on disadvantaged
communities.
In April 2020, the EPA made grants available for public education, training, and emergency planning for
environmental justice communities—which are communities that can be disproportionately impacted
by negative environmental factors—across the country that have been impacted by the COVID-19
disease. Currently, the OIG is tracking environmental justice issues on several ongoing projects,
including our review of the EPA's implementation of Title VI, which prohibits recipients of federal
financial assistance from discriminating on the basis of race, color, or national origin when
implementing programs and activities.7 More information can be found under the management
challenge "Integrating and Leading Environmental Justice Across the Agency and Government."
Contract Oversight The OIG has consistently raised concerns about the EPA's oversight of contracts.
This oversight responsibility is complicated by new funds and requirements associated with the
government's response to the coronavirus pandemic. For example, the EPA faces a new challenge in
contract management as a result of Section 3610 of the Coronavirus Aid, Relief, and Economic Security
Act, known as the CARES Act. This Act authorizes—but does not require—agencies to reimburse
contractors the cost of paid leave for their personnel who are unable to access a government-
approved facility or telework because their jobs cannot be performed remotely. Our review of the
EPA's plans for implementation of Section 3610 found that the Office of Acquisition Solutions created
and provided detailed guidance to EPA contracting personnel and contractors related to
reimbursements under Section 3610. Two Office of Acquisition Solutions-issued guidance
documents—the Implementation Plan and the Contractor Supplemental Invoice Instructions—
specifically capture the purpose of and implementation steps for Section 3610. We did not find any
evidence that the EPA's guidance, as revised, was inconsistent with the statute.8
Paying contractors under the CARES Act may benefit the economy by keeping contractors and their
staff financially solvent. However, if the EPA makes the payments, it risks falling short of funds to meet
its mission requirements. The EPA has advised that funds for Section 3610 will come from program
offices, which impacts the current fiscal year's program funding. According to the EPA, no additional
funds have been provided by Congress to the Agency to reimburse contractors under the Act. Senior
resource officials for EPA program offices must therefore determine whether funds are available and
whether it is in the best interest of the government to reimburse contractors under a particular
contract.
7 OIG Notification Memorandum, Effectiveness of EPA's External Civil Rights Compliance Office in Determining Title VI
Compliance in Organizations Receiving EPA Funding (2nd notification), Project No. OA&E-FY19-Q357, February 13, 2020.
8 OIG, EPA's Initial Implementation of CARES Act Section 3610, Report No. 20-N-0202, June 29, 2020.
20-N-0231
4
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Risk Communication. We have
previously found that the EPA faces
challenges in communicating risks
to the public during natural
disasters. For example, despite
concerns about air quality and
other issues in the area of Houston,
Texas, after Hurricane Harvey, the
EPA did not adequately
communicate important
information so that all impacted
communities received it.9 In the
aftermath of Hurricane Harvey, the
EPA's emergency response staff
stationed in Houston handed out pamphlets and responded to telephone calls; informed non-English-
speaking communities about issues including disposing of hazardous waste; and disinfected drinking
water and worked with septic systems after flooding. However, the regional staff did not provide all
residents in Houston-area communities sufficient quantities of translated pamphlets, including those in
Spanish.10
Other OIG reports have also identified risk communication as an Agency challenge, including a
March 2020 management alert on ethylene oxide-emitting facilities.11 The issues we identified in that
alert may persist or increase in severity as
some of these facilities—particularly those
that provide medical sterilization services-
are further strained to address coronavirus
pandemic-related issues. The lessened
regulatory oversight noted above may
produce environmental or public health risks,
which may warrant additional communication
to affected communities. The continuing
challenge of communicating risk is described
more broadly in this report under the
management challenge "Communicating Risks
to Allow the Public to Make Informed
Decisions About Its Health and the
Environment."
9 OIG, EPA Needs to Improve Its Emergency Planning to Better Address Air Quality Concerns During Future Disasters, Report
No. 2Q-P-QQ62, December 16, 2019.
10 OIG, EPA Region 6 Quickly Assessed Water Infrastructure after Hurricane Harvey but Can Improve Emergency Outreach to
Disadvantaged Communities, Report No. 19-P-0236, July 16, 2019.
11 OIG, Management Alert: Prompt Action Needed to Inform Residents Living Near Ethylene Oxide-Emitting Facilities About
Health Concerns and Actions to Address Those Concerns, Report No. 20-N-0128, March 31, 2020.
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From left: English, Spanish, and Vietnamese versions of EPA flyers regarding
debris management. (EPA images)
Metropolitan areas in the United States where there is at least one
census tract in which ethylene oxide is a significant risk driver for
cancer. (OIG-developed image based on the 2014 National Air
Toxics Assessment and information from the EPA)
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Video providing background and findings regarding air quality and other issues in the Houston area after Hurricane Harvey.
(OIG video and imagery)
Risks to EPA's Operations: Maintaining a Safe and Productive Workforce
When executed, Continuity of Operations plans allow organizations to maintain required business
practices when normal operations are not prudent or possible. Including telework in the plan allows a
greater number of employees to continue working in those situations. However, navigating a new
environment where Continuity of Operations plans are implemented continuously for several months
creates new technological and operational challenges to achieve the EPA's mission and to keep its
workforce safe and productive.
Personal Protective Equipment Procurement and
Provision. As the Agency continues its work during the
coronavirus pandemic, it must ensure that its field
employees—inspectors, educators, on-scene coordinators,
and others—can protect their own safety and the safety of
those with whom they interact. This requires the EPA to
procure additional personal protective equipment and
adapt existing protocols. The OIG will review the EPA's
ability to coordinate emergency response during this time,
including whether equipment and other resources were
available for on-scene coordinators.12
Cybersecurity Enhancement Cybersecurity is a continuing
EPA management challenge that has become more critical
during the coronavirus pandemic. Continuing EPA
12OIG Notification Memorandum, Survey of EPA On-Scene Coordinators and Managers Regarding COVID-19, Project
No. OA&E-FY2Q-Q24Q. June 16, 2020.
Personal protective equipment at the National
Vehicle and Fuel Emissions Laboratory in Ann
Arbor, Michigan. (EPA photo)
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operations in the face of the coronavirus pandemic has required the Agency to adapt its network to
support a primarily virtual workforce and provide an unprecedented number of remote employees
with a reliable, stable means to communicate and access critical applications and data. Information
technology help-desk functions can be delayed by an overtaxed IT staff, who must now also deploy and
manage new tools and technology.
Unprecedented levels of remote access also increase the risk of security breaches of remotely stored
and transmitted data, as well as the introduction of malicious software to the Agency network. In
addition, the number of remote employees working at the same time may overtax the information
system capacity levels. OIG reviews of the Agency's compliance with the Federal Information Security
Modernization Act of 2014 and with the Federal System Security Plan requirements will include
determinations of how the Agency's activities have accounted for the challenges raised by the
coronavirus pandemic.13The continuing challenge of communicating this risk is described more broadly
in this report under the management challenge "Enhancing Information Technology Security to
Combat Cyberthreats."
Safe Return to Facilities. The EPA will need to keep its facilities clean, promote social distancing, and
follow protection protocols so that its workforce is safe. Per the associate deputy administrator in a
July 16, 2020 email, the EPA has 125 EPA facilities across the country. The federal government has
established requirements for returning the federal workforce to its facilities safely, and the EPA began
implementing these practices in some locations as early as late May 2020. The OIG will review the
EPA's plans for personnel reentering office buildings.14
Left to right: EPA office door. Employees gathered outside an EPA headquarters building entrance. (EPA photos)
13 OIG Notification Memorandum, FY2020 EPA's Compliance with the Federal Information Security Modernization Act of
2014, Project No, QA&E-FY20-0033. May 5, 2020; OIG, Evaluation of EPA's Information Systems' Compliance with Federal
System Security Plans Requirements (2ndnotification), Project No. QA&E-FY20-0176. May 6, 2020.
14QIG Notification Memorandum, EPA's Strategies to Comply with Federal Guidelines for Reopening Facilities Closed Due to
the Coronavirus Pandemic, Project No. QA&E-FY20-0241. July 1, 2020,
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THE AGENCY'S ACTIV
The EPA is addressing each challenge described above. To determine the effectiveness of the EPA's
activities, the OIG is tracking and reviewing EPA responses to the coronavirus pandemic and assessing
the risks of the EPA's emerging and existing activities to address the pandemic. For example, we
initiated a broad research project to assess the EPA's activities across the country, and we began a
project designed to broadly review the Agency's internal control activities under the CARES Act.15
15 OIG Notification Memorandum, Research for Future Audits and Evaluations Regarding Effects of Coronavirus Pandemic
(SARS-CoV-2 Virus and COVID-19 Disease) on EPA Programs and Operations, Project No. QA&E-FY20-0212. May 7, 2020;
OIG Notification Memorandum, Internal Controls Established to Implement Programs and Activities Funded under the CARES
Act, Project No. QA&E-FY20-0234. June 10, 2020.
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INTERNAL
CONTROLS^
CHALLENGE: Complying with Key Internal Control
Requirements
CHALLENGE FOR THE AGENCY
Effective internal controls are needed to achieve the Agency's mission and goals. The
EPA's mission is to protect human health and the environment. To achieve that mission, the EPA
established three goals:
1. A cleaner, healthier environment.
2. More effective partnerships with EPA stakeholders.
3. Greater certainty, compliance, and effectiveness.16
The road to achieving these goals requires effective and efficient implementation of hundreds of EPA
programs, projects, and laws. The federal government has rules in place designed to give programs the
best chance to achieve their objectives.17The establishment and review of internal controls enable the
Agency to continuously improve programs and
achieve program outcomes for the good of the
American public.
Agencies are expected to comply with internal
control standards, which are designed to help
A
A
°o
Si
Objective
Controls
Controls
Objective
identified
designed
in place
achieved
Source: GAO.
them achieve their goals. Robust internal controls provide reasonable assurance that (1) programs
achieve their intended results; (2) resources are used in a manner consistent with the Agency's
mission; (3) programs and resources are protected from waste, fraud, and mismanagement; (4) laws
and regulations are followed; and (5) reliable and timely information is obtained, maintained,
reported, and used for decision-making.
To improve agency internal controls, the Federal Managers' Financial Integrity Act of 1982 requires the
comptroller general to issue Standards for Internal Control in the Federal Government.18These
standards establish five components that provide the overall
framework for establishing and maintaining an effective internal
control system. These five components cover all aspects of an
entity's objectives. Annually, in conformance with the Act, EPA
program offices and regions issue statements of assurance that
indicate compliance with the requirements.19 However, the EPA's
Five Components of Internal Control
1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
5. Monitoring
16 EPA, Working Together: FY2018-2022 U.S. EPA Strategic Plan. February 2018 (Updated September 2019).
17 Office of Management and Budget Circular No. A-123, Management's Responsibility for Enterprise Risk Management and
Internal Controls, July 16, 2016.
1831U.S.C. § 3512(c).
19 The U.S. Government Accountability Office's Standards for Internal Control in the Federal Government, also referred to as
the Green Book, is constructed around Office of Management and Budget Circular A-123.
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programs lack key elements in three out of the five key internal controls: risk assessment, control
activities, and information and communication. Without these key components, the EPA risks falling
short of achieving Agency and program goals.
Consistently Assessing Program Risks
In its FY 2019 statements of assurance, the EPA stated that it had complied with the risk assessment
requirements; however, our recent work shows that those statements are inaccurate. In a May 2020
OIG report, we found that the EPA was not conducting risk assessments for 20 programs that
collectively cost over $5.7 billion in FY 2018. Without these risk assessments, the EPA cannot be certain
it has the proper procedures in place to address internal and external risks to these programs.20
Internal Control Component 2:
Risk Assessment
The agency is better able to protect
operations from fraud, waste,
abuse, and mismanagement when
it knows the risks and develops plan
to mitigate those risks.
This component of internal control provides the basis for
developing appropriate risk responses. Management assesses the
risks the entity faces from both external and internal sources.
Federal agencies are better able to protect operations from fraud,
waste, abuse, and mismanagement when it knows the risks and
develops plans to mitigate those risks. Specifically, when agency
risks are not disclosed, other components of internal control may
falter. Without adequate risk assessments, agencies cannot:
• Clearly plan and execute the oversight and management of the control environment.
• Determine whether control activities are appropriate and sufficient.
• Determine whether the information and communication are accurate.
• Determine whether adequate monitoring is taking place.
Improving Controls Over Policies and Procedures
The EPA lacks a systematic process for regularly assessing the need for policy and procedure updates.
In its 2019 Federal Managers' Financial Integrity Act letter, the EPA's Office of the Chief Financial
Officer stated, "Many of the Agency's policies, procedures, and
internal controls which cut across payroll, time and attendance,
and human resources functions are in need of review and
revision." The EPA strategic plan—specifically Objective 3.5,
"Improve Efficiency and Effectiveness" under the goal of
"Greater Certainty, Compliance, and Effectiveness"—discusses
how the EPA will work to alleviate challenges associated with
outdated or nonexistent policies. To ensure that the EPA is
achieving its goals and objectives and to prevent fraud, waste,
and abuse, the process of updating policies and procedures must evolve for the EPA to improve upon
business processes and operations to promote transparency, efficiency, and effectiveness.
Internal Control Component 3:
Control Activities
Control activities establish the
policies, procedures, and practices
required to respond to risks in agency
programs. Policies and procedures
should be based on agency risks and
include steps to mitigate those risks.
20 OIG, EPA Needs to Conduct Risk Assessments When Designing and Implementing Programs, Report No. 20-P-0170,
May 18, 2020.
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Our work continues to identify weaknesses in the Agency's updating of policies and procedures.21 In
2019, we recommended updating the travel policy, the Freedom of Information Act policy, and the EPA
Leave Manual. We also recommended that the EPA revise the Recognition Policy and Procedures
Manual. Our 2018 reports recommended that the Agency update human resources policies and
develop an accurate and consistent policy and procedure for its debt waiver process. A 2020 report
reiterated issues with the Agency's ability to address debt waivers.22
The Agency also continues to face challenges with time-and-attendance processes. To properly
administer and report time-and-attendance data, agencies should have internal controls in place that
provide reasonable assurance that transactions are accurate and properly approved. Proper recording
of time-and-attendance information refers to whether the information is complete, accurate, valid,
and in compliance with applicable requirements. While the EPA has implemented corrective actions to
improve those processes, our ongoing audit and investigative work continues to highlight such Agency
weaknesses and vulnerabilities. These vulnerabilities stem from ineffective and outdated internal
controls that allow employees to input—and managers to approve—time-and-attendance data that
are incorrect or contrary to Agency policy. Subsequently, some employees have received improper
payments, made untimely corrections to time-and-attendance data, or inappropriately charged the
wrong leave category. We have identified unauthorized overtime charges, salary overpayments, and
individual abuses related to employee time-and-attendance through our audit and investigative work.
In December 2019, we issued an internal control deficiency memorandum, Time and Attendance
Records Not Updated Prior to Payroll Certification Causing Salary Overpayments, to the Office of the
Controller. We identified 13 employees who received debt notices because their timekeepers and
supervisors were not adjusting the employees' time-and-attendance data prior to payroll certification
when the employees' were absent or unable to do so. In all cases, the 13 employees originally
submitted their time-and-attendance data for the pay period as being in a paid status; however, the
employees did not work their complete schedule and their time-and-attendance data were not
updated or corrected prior to payroll certification. As a result, the employees received salary
overpayments.
21 This applies to the following OIG reports:
• EPA Needs to Improve Management and Monitoring of Time-Off Awards, Report No. 20-P-0065, December 30,2019.
• Outdated EPA Leave Manual and Control Weaknesses Caused Irregularities in the Office of Air and Radiation's
Timekeeping Practices, Report No. 20-P-0063. December 19, 2019.
• Follow-Up Audit: EPA Took Steps to Improve Records Management, Report No. 19-P-0283, August 27,2019.
• Actions Needed to Strengthen Controls over the EPA Administrator's and Associated Staff's Travel, Report
No. 19-P-0155, May 16, 2019.
• Management Alert: EPA Oversight of Employee Debt Waiver Process Needs Immediate Attention, Report
No. 18-P-0250. September 12, 2018.
• Operational Efficiencies of EPA's Human Resources Shared Service Centers Not Measured, Report No. 18-P-0207,
May 31, 2018.
22 OIG, EPA's Office of the Chief Financial Officer Lacks Authority to Make Decisions on Employee-Debt Waiver Requests,
Report No. 20-P-0194. June 15, 2020.
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Internal Control Component 4:
Information and Communication
Management needs quality data to
make program decisions and
measure progress. Effective
information and communication are
vital for an entity to achieve its goals.
It is critical that the EPA establishes and follows up-to-date policies and procedures to mitigate Agency
risks. Not doing so may lead managers to implement individual interpretations of federal guidance and
policies, thereby creating inefficiencies and increasing the opportunity for fraud, waste, abuse, or
mismanagement. Operating with outdated policies and procedures can lead to Agency efforts that are
not aligned with its mission and goals.
Improving the Quality of Data Collected and Used for Program Decision-Making
We found that the EPA has not fully implemented internal controls for the mandatory EPA Quality
Program.23The primary goal of the program is to ensure that the Agency's environmental decisions are
supported by data of known and documented quality. The lack
of controls within the Quality Program reduces the EPA's
effectiveness in overseeing programs, making needed
management decisions that directly impact public health,
preventing significant financial and legal risks, and ultimately
achieving its strategic goals. Per the GPRA Modernization Act of
2010,24 agencies must describe how they will ensure the
accuracy and reliability of data used to measure progress toward
performance goals. To this end, the EPA has implemented policy and procedural guidance titled
Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility, and Integrity, of Information
Disseminated by the Environmental Protection Agency.
The EPA's strategic plan Goal 3, "Greater Certainty, Compliance, and Effectiveness," recognizes that
"Environmental decision making across media programs requires access to high-quality data and
analytics." To accomplish this, the EPA plans to reduce reporting burden for submitting entities and
improve data quality by having Agency programs, states, and tribes establish shared information
services and agree to common standards and practices. Without these standardized business
processes, the EPA concedes that it cannot achieve its goals.
OIG reports show that poor data quality and data gaps negatively impact
the EPA's effectiveness in overseeing programs that directly impact public
health, such as managing air quality, drinking water, toxic releases to
surface waters, Superfund sites, and environmental education. Dataquality
issues and data gaps also subject the EPA to significant financial risks and
delayed cleanups, while the public sustains prolonged exposure to unsafe °rapf ^
substances and restrictions on the use of natural resources. Specifically:
• We found that the EPA's Regions did not correctly track responsible parties for cleanups,
compliance, or significant noncompliance with enforcement agreements or orders at Superfund
hazardous waste cleanup sites. As a result, EPA headquarters could not consistentlyenforce
23 OIG, EPA Needs to Address Internal Control Deficiencies in the Agencywide Quality System, Report No. 20-P-0200, June 22,
2020.
24 "GPRA" stands for Government Performance and Results Act.
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requirements for cleanup parties across the nation, nor could the EPA create or maintain a level
playing field. Further, headquarters could not assess the adequacy of regional actions against
noncompliant cleanup parties and assist when appropriate.25
• In a 2017 audit, we found that the Toxics Release Inventory and
the Discharge Monitoring Report Comparison Dashboard had
limited utility for identifying possible surface water dischargers.
Without this information, the EPA's ability to regulate facilities is
limited. Further, the EPA's Pollutant Loading Tool could not
identify unpermitted dischargers to surface water based on
Toxics Release Inventory data, which means that the EPA and
public cannot know when or how much pollution occurs from
those dischargers.26
Image of a 2005 fire at EQ
Resource Recovery Inc. in
Romulus, Michigan. (EPA photo)
• In a 2018 audit, we found that the EPA lacked data to determine
the effectiveness of state-enhanced vehicle inspection and
maintenance programs. Nine states operating enhanced
programs did not conduct the required biennial program
evaluations to assess the effectiveness of their programs in
reducing vehicle emissions. Another four states did not conduct
required on-road testing to obtain information on performance
of in-use vehicles, and three states did not conduct required
reviews and tests due to a lack of clarity in EPA guidance."
Vehicles idled in dense traffic.
(EPA photo)
• The EPA's Office of Pesticide Programs did not have outcome measures to determine how well
the emergency exemption process maintains human health and environmental safeguards. The
office also did not have comprehensive internal controls to manage the emergency exemption
data that it collects or consistently communicate that data with its stakeholders. Although the
office collected human health and environmental data through its emergency exemption
application process, it did not make those data available in its publicly accessible database or
use the data to support outcome-based performance measures that capture the scope of each
exemption or measure benefits or risks.28
25 OIG, While EPA Regions Enforce at Six Superfund Sites Reviewed, Four of Those Sites Remain in Significant Noncompliance,
and Nationwide Reporting and Tracking Can Be Improved, Report No. 2Q-P-Q011. October 24, 2019.
26 OIG, Analysis of Toxics Release Inventory Data Identifies Few Noncompliant Facilities, Report No. 18-P-0001, October 5,
2017.
27 OIG, Collecting Additional Performance Data from States Would Help EPA Better Assess the Effectiveness of Vehicle
Inspection and Maintenance Programs, Report No. 18-P-0283. September 25, 2018.
28OIG, Measures and Management Controls Needed to Improve EPA's Pesticide Emergency Exemption Process, Report
No. 18-P-Q2.81. September 25, 2018.
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THE AGENCY'S ACTIV
Risk Assessment In response to our May 2020 report on risk assessments (Report No. 20-P-0170). the
OCFO stated that it will revise and update the senior managers' and management integrity advisors'
online training courses to include relevant information on the GAO's Green Book by December 30,
2020. The OCFO also stated that it will require assistant administrators and regional administrators to
certify in their annual assurance letters by August 30, 2021, that all appropriate staff have taken the
training. As the EPA risk assessment process matures, it will be better able to identify and mitigate risks
to operations. The OIG will monitor the EPA's implementation of the risk assessment process. The
annual EPA risk assessments should also consider the risks posed by the OIG-identified management
challenges.
Control Environment The Office of Mission Support's Office of Human Resources develops an annual
policy agenda based on several factors: (1) changes to law, regulations, and other authorities; (2)
senior management decisions; (3) OIG recommendations; and (4) customer feedback. Per the Office of
Human Resources, the policies are prioritized, progress on each policy is tracked, and senior
management is briefed on a regular basis.
While the EPA continues to implement OIG recommendations to update and improve its processes, our
audit and evaluation program continues to highlight Agency weaknesses and vulnerabilities in this
area. These vulnerabilities stem from existing policies and procedures that do not reflect current
operations or needs and that allow for activities that are incorrect or contrary to other Agency policies.
The EPA has been implementing some corrective actions in response to our recommendations.
However, many corrective actions are still pending. In response to our audits, the EPA stated that it has
an established process in place to identify priorities and updates pertaining to its policies and
procedures. Although progress has been made, updating existing policies remains an important
challenge. Agency management needs to commit to correcting ongoing problems with the EPA's
policies and procedures, including streamlining and formalizing the process, dedicating resources, and
making this management challenge a priority.
Information and Communication. EPA leadership needs to demonstrate commitment to verify the
quality of data and adequately fill data gaps. To demonstrate this commitment, the Agency should
have the people and processes in place to deploy Agency data policies and procedures across all
programs and to actively manage data to improve quality and completeness. While a move to
electronic reporting should ease the Agency's access to data and simplify reporting, the EPA still needs
to verify and validate electronically reported data to ensure accuracy, timeliness, and proper format.
Neither the EPA nor the OIG can fully assess the data quality or data gaps issues until the EPA executes
its shared information services and develops common standards and practices with its partners.
Ongoing and future OIG audits and evaluations will continue to review this issue and how it impacts
the EPA's strategic goals and issues, specifically as they relate to air, water, cleanup of hazardous waste
sites, and chemicals. These areas and others rely on quality data to achieve Agency objectives.
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CHALLENGE: Overseeing States, Territories,
and Tribes Responsible for Implementing
EPA Programs
CHALLENGE FOR THE AGENCY
States, territories, and tribes are key partners in
executing the EPA's mission to protect human
health and the environment. The epa authorizes
states and certain other entities like territories and tribal governments, collectively referred to as
"states," to implement many environmental laws—such as the Clean Air Act, Clean Water Act, Safe
Drinking Water Act, and the Resource Conservation and Recovery Act—if they show that they have the
capacity to operate programs consistent with national standards. According to the EPA, states have
assumed more than 96 percent of the delegable authorities
under federal law.
When the EPA delegates authority for a program to a state,
the Agency retains oversight responsibility to provide
reasonable assurance that states continue to protect human
health and the environment. The EPA must monitor delegated
programs to ensure that state implementation meets
minimum federal standards. The EPA also retains authority to
enforce environmental laws when states do not take
appropriate enforcement. EPA headquarters and regional staff
perform a variety of formal and informal oversight activities;
however, there have been disparities in the effectiveness of
delegated programs.
States, territories, and
tribes have assumed
of the delegable
environmental
authorities under
federal law.
Source: OIG graphic.
Strategic Planning Emphasizes Effective EPA Oversight
The EPA's oversight of delegated programs is vital to ensure nationwide protection of human health
and the environment. Oversight of delegated programs is thus a key tenet of the FY2018-2022
U.S. EPA Strategic Plan. The plan highlights ways in which the EPA is improving oversight of state
environmental programs, including:
• Approving local solutions such as implementation plans and emissions certification applications.
• Restating its oversight role as a coregulator.
• Working with local entities to ensure compliance with the law and establish consistency and
certainty for the regulated community.
The EPA updated the FY2018-2022 U.S. EPA Strategic Plan in September 2019. As it pertains to
oversight, the most significant change was to Goal 2, as shown in Table 1.
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Table 1: Change in Goal 2 of FY 2018-2022 U.S. EPA Strategic Plan
Original issuance
September 2019 update
Title
Cooperative federalism
More effective partnerships
Purpose
Rebalance the power between Washington
[D.C.] and the states to create tangible
environmental results for the American people.
Provide certainty to states, localities, tribal
nations, and the regulated community in
carrying out shared responsibilities and
communicating results to all Americans.
Source: EPA OIG analysis of original and revised versions of the FY 2018-2022 U.S. EPA Strategic Plan.
In addition, Administrator Wheeler issued an oversight memorandum titled Principles and Best
Practices for Oversight of Federal Environmental Programs Implemented by States and Tribes on
October 30, 2018. The memorandum aims to "provide certainty by setting expectations for state, tribal
and federal roles and responsibilities and ensuring decisions are made in a timely fashion."
External organizations and members of Congress have questioned the effectiveness of the
administrator's strategy based on declining state resources and examples of strained relationships
between the EPA and the states, and our audits and evaluations have shown that much remains to be
done to support effective implementation. The EPA's Office of Enforcement and Compliance Assurance
Assistant Administrator Susan Parker Bodine has said, "Our goal is to eliminate inefficient duplication
with state programs, and to direct federal resources to help achieve the Agency's core mission of
improving air quality, providing for clean and safe water, revitalizing land and preventing
contamination, and ensuring the safety of chemicals in the marketplace."29
Oversight Concerns Persist Across Programs
Overseeing delegated environmental programs is central to the EPA's core functions. Congress
designed most environmental statutes to be administered by state programs with robust federal
oversight. Both states and the EPA make difficult decisions to prioritize limited resources. The OIG and
the GAO continue to uncover issues with the EPA's oversight of state environmental programs. From
FYs 2016 through 2020, we have collectively issued at least 19 reports that show the continued
prevalence of the issue and the actions the EPA has taken or plans to take.
Safe Drinking Water Act Implementation. In 2018 and 2019, we identified multiple issues with state
implementation and oversight of drinking water programs. In a 2019 report, we found that the EPA
does not have complete and nationally consistent information from states about public water systems'
compliance with public notice requirements.30 As a result, the EPA cannot fully monitor compliance
and oversee the implementation of this program. In July 2018, we concluded that the circumstances
and response to the City of Flint, Michigan's drinking water contamination involved implementation
and oversight lapses at the EPA as well as at the state and city levels. Specifically, EPA Region 5 did not
29 EPA, "EPA Announces 2019 Annual Environmental Enforcement Results," News Release, February 13, 2020.
30 OIG, EPA Must Improve Oversight of Notice to the Public on Drinking Water Risks to Better Protect Human Health, Report
No. 19-P-0318, September 25, 2019.
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implement proper management controls that could have facilitated more informed and proactive
decisions regarding the city's and state's implementation of the Safe Drinking Water Act requirements,
such as the Lead and Copper Rule. Additionally, we found that the EPA did not fully employ its
authorities under the Safe Drinking Water Act to require compliance in Flint. As such, our 2018 report
recommended that the Agency implement a system for regional drinking water staff, managers, and
senior leaders that would incentivize staff to elevate and managers to address important and emerging
issues, in accordance with the EPA's January 2016 Policy on Elevation of Critical Environmental and
Public Health Issues.31
Flint River in Flint. Image links to "Further Insight on Flint" video. (OIG imagery and video)
in September 2018, the GAO also issued a report on state implementation and oversight of the
drinking water requirements surrounding lead and copper. The GAO reported that few of the largest
water systems had publicized inventories of lead services lines. Approximately 43 states informed the
EPA that they intend to fulfill the Agency's request to work with water systems to publicize inventories
of lead service lines. However, 39 states reported challenges in doing so. The GAO's review found that,
as of January 2018, only 12 of the 100 largest water systems had publicized information on the
inventory of lead service lines. The Agency had not followed up with all states since 2016 to share
information about how to address these challenges. The EPA told the GAO that it was focused on state
compliance with drinking water rules and not on following up with information on how states could
address challenges. To encourage states to be more transparent to the public and support the Agency's
oversight of the Lead and Copper Rule and objectives for safe drinking water, the GAO recommended
that the EPA share information on successful approaches it had used to identify and publicize locations
of lead service lines with all states.32The EPA has since implemented corrective actions and the
recommendation is now closed.
31 OIG, Management Weaknesses Delayed Response to Flint Water Crisis, Report No. 18-P-0221, July 19, 2018;
OIG, Management Alert: Drinking Water Contamination in Flint, Michigan, Demonstrates a Need to Clarify EPA Authority to
Issue Emergency Orders to Protect the Public, Report No. 17-P-0004, October 20, 2016.
32 GAO, DRINKING WATER: Approaches for Identifying Lead Service Lines Should Be Shared with All States, GAQ-18-620.
September 2018.
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Clean Air Act Implementation. We have identified issues with the
EPA's oversight of state air programs. In a 2019 report, we
concluded that Region 10 should improve its oversight activities to
provide reasonable assurance that air particulate matter emissions
testing programs conducted in the State of Washington meet
federal requirements. Although we only reviewed stack test reports
from Washington in EPA Region 10, EPA managers and staff
responsible for overseeing the Clean Air Act program at the national
level told us that they had observed similar problems in other states
and EPA regions.33
In a September 2018 report, we found that the
EPA should collect additional program
performance data to better assess the
effectiveness of states' enhanced inspection and
maintenance programs for reducing vehicle
emissions. Also, while the Agency strengthened
its oversight of required annual reports from
states about the performance of their vehicle
inspection and maintenance programs, it did not
consistently communicate errors in reports back
to states.34
THE AGENCY'S ACTIVITIES
We first reported this management challenge in FY 2008. Since then, the EPA has reviewed some of the
inconsistencies in its oversight of state programs. The Agency has also used federal enforcement
actions when states did not use their authority to protect human health and the environment. The EPA
continues to develop and implement policies to improve consistency in its oversight of delegated
programs. According to the Agency, the EPA has dedicated resources to address the oversight
management challenge. Actions taken include:
• Implementing a real-time permit review process for the National Pollution Discharge
Elimination System under the Clean Water Act.
• Creating a standard operating procedure for Clean Air Act Title V programmatic reviews.
• Developing a national permitting oversight policy that is expected to be finalized during
FY 2020.
33 QIG, More Effective EPA Oversight is Needed for Particulate Matter Emissions Compliance Testing, Report No. 19-P-0251,
July 30, 2019.
34 OIG, Collecting Additional Performance Data from States Would Help EPA Better Assess the Effectiveness of Vehicle
Inspection and Maintenance Programs, Report No. 18-P-0283. September 25, 2018.
A smokestack. (EPA photo)
Dense vehicular traffic in smog. (EPA photo)
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While the EPA's actions, its Strategic Plan, and policy documents acknowledge state oversight as a
legitimate management challenge, the Agency is not likely to fully meet this challenge in the near-term
because of resource limitations and the complexity of the issue. Oversight of states is central to the
EPA's mission. Our office has nine audits and evaluations related to this management challenge
ongoing in FY 2020, and we anticipate additional assignments in FY 2021 that address the EPA's
oversight of states.
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CHALLENGE: Improving Workforce/Workload Analyses to
Accomplish EPA's Mission Efficiently and Effectively
CHALLENGE FOR THE AGENCY
Workforce planning affects the EPA's capability to achieve strategic goals and
objectives. The EPA has not yet executed the required workforce plan to ensure that the Agency is
well-staffed to achieve its goals and objectives of protecting human health and the environment.
Workforce planning is an essential task of government agencies, designed to systematically identify
and address the gaps between the workforce each agency has today and the one it needs to meet
future needs. Workforce planning requirements are issued by the U.S. Office of Personnel
Management and defined in 5 C.F.R. Part 250, Subpart B, Strategic Human Capital Management,
effective April 11, 2017. The GAO has also identified strategic human capital management as a high-risk
area. The GAO states that agencies need to take action to address mission-critical skills gaps within
their workforces—a significant factor contributing to many high-risk areas.
The OIG and the GAO have both reported that the EPA has not incorporated workload analysis into its
resource allocations. For example, in 2017, the OIG reported that the distribution of Superfund full-
time equivalents among EPA Regions did not support the current regional workload. The GAO also
reported in 2017 on EPA workload concerns.35
Significant EPA Workforce Trends. In its FY 2019 Human Capital Operating Plan, the EPA reports that
workforce levels declined by 2,447 full-time equivalents from FYs 2015 through 2018. In FY 2018, the
percentage of the EPA workforce eligible to retire was 24.1 percent. The EPA states that on average,
4.4 percent of employees retire each year; however, it must be prepared for a large segment of its
workforce to retire. In February 2020 testimony before the House Energy and Commerce Committee,
Environment and Climate Change Subcommittee, Administrator Wheeler articulated some of EPA's
concerns about workforce trends and some of the ways the EPA is responding:
Right now, as of today, 40 percent of our workforce is eligible to retire. That's why I
hired a new human resources director last year. I actually interviewed the candidate for
the human resources position, it was three or four levels below me. I was told that
administrators never interview human resource directors. I want to make sure we got
the hiring right for the EPA of the future.
The EPA can help address this issue through workforce planning and succession management.
35 OIG, EPA's Distribution of Superfund Human Resources Does Not Support Current Regional Workload, Report
No. 17-P-0397, September 19, 2017; GAO, GRANTS MANAGEMENT: EPA Partially Follows Leading Practices of Strategic
Workforce Planning and Could Take Additional Steps, GAO-17-144, January 2017.
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Five Phases of Workforce Planning
The OPM set out five phases to workforce planning:
1. Set strategic direction.
2. Analyze workforce, identify skill gaps, and conduct workforce analysis.
3. Develop an action plan.
4. Implement the action plan.
5. Monitor, evaluate, and revise the action plan.
The EPA has not yet initiated many of these phases for developing a workforce plan. Due to the broad
implications for accomplishing the EPA's mission, we have included this management challenge since
2012.
Strategic human capital management has been on the GAO's High-Risk List since 2001.36Skill gaps
across the federal government exist in areas vital to the EPA, such as science, engineering, acquisitions,
and cybersecurity. The Agency will be competing for talent with other federal agencies as well as the
private sector. This makes it even more critical that the EPA develop and execute workforce plans to
address competency gaps and implement succession plans before problems hinder the Agency's
mission.
Phase 1: Set Strategic Direction
The EPA set a strategy related to workforce planning in its strategic plan, which emphasizes that
sustainable resource levels and a strong workforce are critical to success. Under Objective 3.5,
"Improve Efficiency and Effectiveness," the EPA aims to provide proper leadership and internal
operations management to ensure that the Agency is fulfilling its mission. The Agency does not include
a long-term performance goal for workforce analysis, but it does discuss this important task:
EPA will ensure its workforce is positioned to accomplish the Agency's mission
effectively by providing access to quality training and development opportunities that
will improve staff's and managers' skills, knowledge, and performance, and prepare
them to capitalize on opportunities that advance progress. EPA will improve its
workforce planning and management, strengthen its Senior Executive Service, and focus
on developing and maintaining a highly skilled technical workforce.
The EPA ties this objective to its annual plans through the FY 2021 congressional budget justification. In
FY 2021, the EPA's congressional budget justification describes how the Agency will leverage workforce
planning dashboards to advance human capital priorities by giving managers a strategic view of
retirement eligibility, diversity information, occupational series, and grade levels. The dashboards
36 GAO, HIGH-RISK SERIES: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas, GAO-19-157SP,
March 2019.
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assist the EPA with succession planning by helping to identify workforce gaps due to anticipated
retirements and attrition trends.
The Agency's strategic and annual plans promise to assist the EPA with workforce planning, but they do
not include a comprehensive analysis or identify skills and gaps that would comprise an Agency
workforce analysis. Our work has found that the EPA has not fully implemented controls and a
methodology to determine workforce levels based upon analysis of the Agency's workload.
Phase 2: Analyze Workforce, Identify Skill Gaps, and Conduct Workforce Analysis
In the past, the EPA resisted performing an agencywide
workforce analysis, instead opting to perform targeted
workforce analyses. The OIG did not consider this approach
sufficient because of the limited nature of the analyses. In
2017, 5 C.F.R. Part 250 required agencies to develop a
Human Capital Operating Plan, which includes agencywide
workforce planning.
The EPA is taking steps to comply with the regulation. The
number of EPA employees is declining, with 4.4 percent of
employees retiring each year. The EPA workforce declined by 2,447 full-time equivalents between
2015 and 2018. In addition, more than 42 percent of current employees are eligible to retire by 2023.
According to a June 2018 article in Government Executive, the EPA has the second-greatest number of
federal employees eligible to retire by 2023.37The Department of Housing and Urban Development
was first, with 44.6 percent who could retire in 2023. The EPA has an urgent need to identify skill gaps
that could result from these impending retirements; however, the EPA does not plan to identify the
gaps until FY 2021.
Phase 3: Develop an Action Plan
The Human Capital Operating Plan serves as a tool for
Agency leadership to set a clear path for achieving
stated human capital strategies, identifying and
securing resources, determining time frames and
measures to assess progress, and demonstrating how
each Human Capital Framework system is being
fulfilled. Agencies must update workforce planning and
other elements in their Human Capital Operating Plans
annually.
Phase 2 of workforce planning involves:
• Determining what the current workforce
resources are and how they will evolve
through turnover.
• Developing specifications for the kinds,
numbers, and location of workers and
managers needed to accomplish the
Agency's strategic requirements
• Determining what gaps exist between the
current and projected workforce needs.
Phase 3 of workforce planning involves
identifying strategies to close gaps, plans to
implement the strategies, and measures for
assessing strategic progress. These strategies
could include such things as recruiting, training
and retraining, restructuring organizations,
contracting out, succession planning, and
technological enhancements.
37 Williams, J. Robert, "The Federal Agencies Where the Most Employees are Eligible to Retire," Government Executive,
June 18, 2018.
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In October 2019, the OPM reviewed the EPA's Human Capital Operating Plan and identified both
required and recommended actions to improve the Agency's workforce planning.38 In response to the
OPM's review, the EPA provided a corrective action plan stating that it will finalize a workforce plan by
the fourth quarter of FY 2020. The EPA also plans to update the workforce plan in the second quarter
of FY 2021 to identify skill gaps and closure strategies for mission-critical occupations.
Phases 4 and 5: Implement, Monitor, Evaluate and Revise the Action Plan
In the absence of a current workforce plan, the EPA cannot implement a meaningful monitoring,
evaluation, and revision process. This final step will bring the workforce planning efforts to life and
enable the Agency to meaningfully reduce the risks it currently faces from talent shortfalls or
impending talent gaps. In March 2020, Administrator Wheeler told the House Appropriations
Committee that the EPA "did not receive enough funding from Congress to fully fund our [full-time
equivalent] ceiling of over 14,000 employees." However, without a workforce plan, it is difficult to
determine whether funding is indeed adequate and whether available funding goes to the highest
priority needs.
Phase 4 involves ensuring that human and fiscal
resources are in place, roles are understood, and
the necessary communication, marketing, and
coordination is occurring to execute the plan and
achieve the strategic objectives.
THE AGENCY'S ACTIVITIES
Phase 5 involves monitoring progress against
milestones, assessing for continuous
improvement purposes, and adjusting the plan to
make course corrections and address new
workforce issues.
The EPA stated that it will finalize a workforce plan by the fourth quarter of FY 2020. The EPA also plans
to update the workforce plan in the second quarter of FY 2021 to identify skill gaps and closure
strategies for mission-critical occupations. The EPA is in the early stages of compliance with OPM
requirements, and the OIG will continue to monitor the Agency's progress.
38 OPM, Agency Compliance and Evaluation, Human Capital Management Evaluation of the U.S. Environmental Protection
Agency, Headquarters, July 31-August 15, 2019, October 9, 2019. The OPM required the EPA to perform actions based on
5 C.F.R. Part 250 and recommended that the Agency follow certain best practices related to workforce planning.
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CHALLENGE: Enhancing Information Technology Security
to Combat Cyberthreats
CHALLENGE FOR THE AGENCY
IDENTIFY
WA
PROTECT
Cybersecurity requirements provide essential ,
RESPOND ¦ DETECT
protections for EPA operations. Protecting EPA networks and
data is as important today as it was in 2001 when we first reported this issue as a management
challenge. The EPA's Office of Mission Support is primarily responsible for IT management. Securing
networks that connect to the internet is increasingly more challenging, with sophisticated attacks
taking place that affect all interconnected parties, including federal networks. Federal agencies need to
be vigilant in protecting their networks. Various federal agencies have had numerous attacks on their
systems, impacting at least 21.5 million individuals. To reduce these risks for EPA information systems,
the EPA needs to be vigilant in monitoring, establishing, and developing ways to mitigate long-range
emerging threats.39
The Federal Information Security Modernization Act of 2014 governs cybersecurity for federal
government IT systems. The Act tasks each agency head with the responsibility for protecting agency
information security systems and preventing the unauthorized access, use, disclosure, disruption,
modification, or destruction of information. The five federal agencies with a role in ensuring enterprise
cybersecurity and responding to cyber incidents are the Federal Bureau of Investigation, Federal Trade
Commission, U.S. Department of Homeland Security, U.S. Secret Service, and the National Institute of
Standards and Technology. These agencies play cross-cutting roles to support, monitor, or oversee the
implementation of cybersecurity practices. The Department of Homeland Security has the primary day-
to-day operational role in directing, assisting, and engaging with agencies to implement federal
cybersecurity measures.
Since the Act's standards have been put in place, the OIG has reported that the EPA continues to face a
challenge in implementing a vigorous cybersecurity program that strengthens its network defenses and
data security in a time of ever-increasing threats to federal government networks. Cybersecurity is
defined as the protection of internet-connected systems such as hardware, software, and data from
cyberthreats. Individuals and enterprises practice cybersecurity to protect against unauthorized access
to data centers and other computerized systems. The EPA has not fully implemented information
security. The EPA must achieve a strong baseline protection for its network and must focus on how to
manage evolving threats, increasing volumes of data, and remote access technologies.
39The GAO has designated information security as a governmentwide high-risk area since 1997. It expanded this high-risk
area in 2003 to include protection of critical cyberinfrastructure and in 2015 to include protecting the privacy of personally
identifiable information.
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EPA Needs a Process for Overseeing Information Security Programs
Despite continued progress, the EPA has not fully implemented information security throughout the
Agency. This area requires continued senior-level emphasis. The EPA relies heavily on program and
regional offices and contractor personnel to implement and manage configurations and operations of
Agency networked resources. The Agency needs oversight processes to monitor the performance of its
information security program and contractors. To assist this oversight, the OIG continuously examines
the EPA's use and control of operational resources.
Our audits have noted the need for improvements in many areas, including internal controls to ensure
EPA offices comply with required security requirements to protect system data. We reported that the
EPA needs to improve controls for implementing the Federal Insecticide, Fungicide, and Rodenticide
Act and Pesticide Registration Improvement Act.40 Specifically, the EPA needs to strengthen
(1) automated controls for processing pesticide registration fees, (2) remediation of identified
vulnerabilities that could compromise the systems, and (3) database security controls to remove
unauthorized users of the system and install critical updates to the software to protect data.
Furthermore, our audits and GAO work continue to note that the EPA faces challenges in addressing
outstanding weaknesses within its information security program and in managing contractors that
provide key support in operating or managing Agency systems. In this regard, the EPA lacks controls to
ensure that responsible parties remediate known security weaknesses by Agency deadlines and that
these parties update the Agency's vulnerability management system so senior officials have an
agencywide perspective on threats to the EPA's network. Additionally, EPA senior officials are not
aware whether contractors with significant information security responsibilities are complying with
federal training requirements. Also, the EPA does not have processes to determine which contractors
require training and whether the training was completed.
THE AGENCY'S ACTIVITIES
To address these complex cybersecurity issues, the EPA has made significant strides in developing a
policy framework to enable IT systems to adhere to federal information security requirements. For
example, the EPA has developed extensive policies and procedures, as well as addressed a significant
portion of federal information security requirements and made them available to all headquarters and
regional offices. However, the EPA manages the implementation of this policy framework in a
decentralized manner. Our audit work also indicates that a lack of centralized oversight and reporting
prevents the Agency from realizing a fully implemented information security program capable of
effectively managing the remediation of known and emerging security threats.
In response to the FY 2019 management challenge report, the EPA indicated that the Agency is
committed to protecting its information and technology assets. The EPA reiterated that it recognizes
the prevalence and complexity of the ever-growing cybersecurity attacks and is aware of the impact on
40 OIG, Pesticide Registration Fee, Vulnerability Mitigation and Database Security Controls for EPA's FIFRA and PRIA Systems
Need Improvement, Report No. 19-P-0195, June 21, 2019.
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the Agency's mission if information assets are
compromised. The EPA stated that the Agency has
established and implemented adequate processes
for monitoring and managing contractor support
actions to address concerns associated with this
management challenge. The EPA has taken steps to
address the OIG audit recommendations. However,
actions are still needed to address cybersecurity
challenges, as not ali recommendations were
resolved when we issued the March 2020 report,
EPA Needs to Improve Its Risk Management and
Incident Response Information Security Functions.41
¦ Needs Imnrovement
Risk
Management
Leve 1: Ad hoc
Needs Improvement
Incident
Response
Level 2: Defined
Level 3: Consistently Implemented
Level 4: Managed and Measurable
l Level 5: Optimized j
OIG assessment of the EPA's Federal Information Security
Modernization Act function areas and domains.
(EPA OIG graphic)
The EPA needs to take additional steps to enhance
cybersecurity. This includes consulting with
respective critical infrastructure sector partners, as appropriate, to develop methods for determining
the level and type of cybersecurity framework needed to protect entities within each critical
infrastructure sector. The EPA needs to develop the corrective actions and milestones to complete the
actions identified in the Office of Pesticide Programs' Pesticide Registration Improvement Act
Maintenance Fee Risk Assessment document and associated pian regarding the fee payment and
refund posting processes.
41 OIG, EPA Needs to Improve Its Risk Management and Incident Response Information Security Functions, Report
No. 20-P-0120, March 24, 2020.
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CHALLENGE: Communicating Risks to Allow the
Public to Make Informed Decisions About Its
Health and the Environment
CHALLENGE FOR THE AGENCY
EPA risk communication is a vital component of
the EPA's mission of protecting public health and the environment. The oig has identified
instances across water, air, land, and pesticide programs where the EPA needs more effective risk
communication strategies to guide, coordinate, and evaluate its communication efforts to convey
hazards. Environmental laws and regulations are designed to protect people from excess pollution, but
when the EPA learns that people are at risk of exposure to harmful pollutants, it is essential that the
risks are communicated to the public while they are being remediated. Without effective
communication to the public about risk, the public may not know about risks or may not have high-
quality information about how to protect themselves.
The EPA's mission to protect human
health and the environment includes
work to ensure that "[a]ll parts of
society—communities, individuals,
businesses, and state, local and tribal
governments-have access to accurate
information sufficient to effectively
participate in managing human health
and environmental risks." From
FYs 2013 through 2020, the OIG has
identified issues with the EPA's actions
to inform the public of environmental
dangers. Citizens count on the EPA for
timely and accurate risk
EPA authorized sign warning public of human health dangers. (EPA photo) "Gmmunication messages—from risks
of exposure to ethylene oxide, to unsafe drinking water in Flint, to farmers working near pesticides.
The EPA has not established strategic goals or objectives directly addressing risk communication. The
success of the EPA's goals depends on timely and effective risk communication with the public.
Administrator Wheeler underscored risk communication as one of his top priorities in his July 2018
speech to EPA employees stating, "Risk communication goes to the heart of EPA's mission of protecting
public health and the environment .....We must be able to speak with one voice and clearly explain to
the American people the relevant environmental and health risks that they face, that their families face
and that their children face."
KgripeligroI
[jG /-HI EM -
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Communicating Water Pollution Risks
We have identified challenges that the EPA has in adequately communicating risks in surface and
drinking water to the public. Our audit report on Flint highlighted issues with risk communication
during a drinking water crisis. In April 2014, Flint's water system, which serves drinking water to a
population of nearly 100,000 residents, switched from purchasing treated water from the Detroit
Water and Sewerage Department (now called Great
Lakes Water Authority) to sourcing and treating its own
water supply from the Flint River. After Flint switched its
drinking water supply, inadequate treatment exposed
many of the residents to lead. Emergency authority was
available to the EPA to take actions to protect the public
from contamination. However, the EPA's
communication weaknesses regarding health risks in
Flint contributed to a delayed federal response to the
water contamination.42
We have also reported that the EPA does not have complete and nationally consistent information on
public drinking water systems' compliance with public notice requirement under the Safe Drinking
Water Act. As a result, the EPA does not know whether public water systems appropriately notify
consumers about drinking water problems and consumers do not know whether their drinking water
complies with health-based standards.43
In addition, our audit and evaluation work has found that some
subsistence fishers, including tribes, sport fishers, and other groups,
consumed large amounts of contaminated fish without having access to
adequate health warnings or fish advisories. Although most states and
some tribes had fish advisories in place, this information was often
confusing and complex, and it did not effectively reach the affected
segments of the population. Although the EPA's risk communication
guidance recommends evaluations offish advisories, we found that fewer
than half of states, and no tribes, have evaluated the effectiveness of
their fish advisories. We recommended that the EPA take a stronger
leadership role under the Clean Water Act by working with states and tribes to ensure that effective
fish advisory information reaches all such segments of the population.44
42OIG, Management Weaknesses Delayed Response to Flint Water Crisis, Report No, 18-P-0221. July 19, 2018;
OIG, Management Alert: Drinking Water Contamination in Flint, Michigan, Demonstrates a Need to Clarify EPA Authority to
Issue Emergency Orders to Protect the Public, Report No. 17-P-0004, October 20, 2016.
43 OIG, EPA Must Improve Oversight of Notice to the Public on Drinking Water Risks to Better Protect Human Health,
Report No. 19-P-0318. September 25, 2019,
44 OIG, EPA Needs to Provide Leadership and Better Guidance to Improve Fish Advisory Risk Communications,
Report No. 17-P-0174, April 12, 2017.
Flint Water Plant tower. (OIG photo)
attention
Oo Hot fst ThH FHh
m hwrn
I
Fish advisory sign. (EPA photo)
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Furthermore, our work showed that, in the aftermath of
Hurricane Harvey, the EPA's emergency response staff
stationed in Houston handed out pamphlets, responded
to telephone helpline calls, and informed non-English-
speaking communities about issues related to
disinfecting drinking water and septic systems.
However, the regional staff did not provide all residents
in Houston-area communities sufficient quantities of
translated pamphlets, including those in Spanish.45
. EPA and Texas Commission on Environmental
Communicating Land Contamination Risks Quality command posts in Houston. (EPA photo)
The EPA faces challenges in communicating with residents about contaminated land. We found that
the EPA's Cleanups in My Community website did not contain updated risk information for the
Amphenol/Franklin Power Products site in Franklin, Indiana,46 which means that residents who visited
the website did not have current data about the risks in their communities.47 We identified a case
where bags of contaminated mine slag from the Anaconda Co. Smelter Superfund Site were being sold
or provided as souvenirs; this use of siag had not been approved by the EPA or the Montana
Department of Environmental Quality. Risk communication regarding the bags of slag was needed to
protect human health.48
Amphenol/Franklin Power Products site, Franklin, Indiana,
(OIG photo)
Formation found at Anaconda Co. Smelter Superfund Site,
Anaconda, Montana. (OIG photo)
We also determined that the EPA's risk communication regarding the unknown risks from the 352
identified pollutants in biosolids was not transparent on the EPA's website. The EPA's website, public
documents, and biosolids labels did not explain the full spectrum of pollutants in biosolids and the
45 OIG, EPA Region 6 Quickly Assessed Water Infrastructure after Hurricane Harvey but Can Improve Emergency Outreach to
Disadvantaged Communities, Report No, 19-P-0236, July 16, 2019.
46 EPA website. Cleanups in My Community, last updated June 1, 2020.
47 OIG, Management Alert: Certain Risk Communication Information for Community Not Up to Date for Amphenol/Franklin
Power Products Site in Franklin, Indiana, Report No. 19-N-0217, June 27, 2019.
48 OIG, Management Alert: Unapproved Use of Slag at Anaconda Co. Smelter Superfund Site, Report No. 20-N-0030,
November 18, 2019.
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uncertainty regarding their safety.
Without data to complete risk
assessments, the Agency cannot
determine whether land-applied
biosolids pollutants with incomplete
risk assessments are safe.49
The EPA's challenges in communicating
risk to vulnerable communities extend
to agricultural workers, as well, Over
two million agricultural workers and
pesticide handlers are protected by the
Agricultural Worker Protection
Standard requirements. The Worker
Protection Standard is intended to reduce exposure to pesticides and provide enhanced protection to
agricultural workers, pesticide handlers, and their families. We found that the state-led worker
protection standard outreach to stakeholders, under a cooperative agreement with the EPA, was
incomplete .50
Communicating Air Pollution Risks
^ H 0:00/0:10
Tilling soil and injecting biosolids into a farm field near Madison, Wisconsin.
OIG image and video clip.
In a March 2020 management alert on ethylene oxide-emitting facilities, we identified shortfalls in the
EPA's efforts to inform communities about these facilities. The EPA identified communities where
exposure to ethylene oxide emissions from 25 "high-priority" chemical plants and commercial
sterilizers couid contribute to an elevated estimated lifetime cancer risk equai to or greater than 100 in
one million, a risk level that the EPA generally considers not sufficiently protective of health. While the
EPA or state personnel, or both, had met with residents living near nine of the 25 high-priority
facilities, communities near 16 facilities had yet to
be afforded public meetings or other direct
outreach to learn about the health risks and actions
being taken to address those risks.51
Residential neighborhood in Houston with industrial
facilities in the background. (OIG photo)
In a December 2019 report about the Agency's air
monitoring response to Hurricane Harvey, we found
that despite concerns about air quality and other
issues in the Houston area after the hurricane, the
EPA did not adequately communicate important
information so that all impacted communities
49 OIG, EPA Unable to Assess the Impact of Hundreds of Unregulated Pollutan ts in Land-Applied Biosolids on Human Health
and the Environment, Report No. 19-P-0002. November 15, 2018.
50 OIG, EPA Needs to Evaluate the Impact of the Revised Agricultural Worker Protection Standard on Pesticide Exposure
Incidents, Report No. 18-P-0080, February 15, 2018.
51 OIG, Management Alert: Prompt Action Needed to Inform Residents Living Near Ethylene Oxide-Emitting Facilities About
Health Concerns and Actions to Address Those Concerns, Report No. 20-N-0128. March 31, 202.0.
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received it. A lack of information hindered residents' ability to make informed and independent
decisions to protect their health. Community liaisons and organizations expressed concerns about the
lack of printed materials in languages other than English that are spoken in the Houston area.52
THE AGENCY'S ACTil
This is the second year the OIG has identified risk communication as a management challenge, and the
Agency has taken steps to improve its risk communication efforts:
• In November 2019, the Agency hired a senior risk communications advisor whose role is to
develop and coordinate consistent risk communication activities across the Agency. The advisor
will develop an Agency-level training program on risk communication for project managers, on-
scene coordinators, and community involvement coordinators, who frequently communicate
risk to the public.
• In September 2019, the Superfund program published risk communication guidance
document, titled Getting Risk Communication Right: Helping Communities Plan at Superfund
Sites. This guidance describes how the EPA is working to improve risk communication and
community involvement practices during the post-construction, long-term stewardship phase
of Superfund site remediation.
• The EPA's FYs 2018-2022 strategic plan discusses the importance of risk communication with
respect to radiation and states that the Agency will focus on education—including formal and
informal training—in the areas of health physics, radiation science, radiation risk
communications, and emergency response to fill existing and emerging gaps.
• The EPA hosted a National Leadership Summit to focus on per- and polyfluoroalkyl substances
in May 2018. The summit brought together state, tribal, and federal partners as well as key
stakeholders, including industry, utilities, congressional staff, and nongovernmental
organizations. The summit provided an opportunity to share information on ongoing efforts,
identify specific near-term actions, and address risk communication challenges.
Despite increased awareness of the importance of risk communication strategies, EPA leadership needs
to demonstrate an organizational commitment to correcting problems with such strategies, which are
intended to protect human health and the environment. To demonstrate this commitment, the Agency
should show that it has the proper resources and processes and has developed adequate risk
communication strategies. The EPA cannot fully achieve its mission and fulfill the administrator's priority
until it develops strategic goals, objectives, and management controls that explicitly address risk
communication so that the public can take action to protect itself from hazards.
52 OIG, EPA Needs to Improve Its Emergency Planning to Better Address Air Quality Concerns During Future Disasters,
Report No. 20-P-0062, December 16, 2019.
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CHALLENGE: Fulfilling Mandated Reporting
Requirements
CHALLENGE FOR THE AGENCY
Complying with mandatory reporting requirements is
essential to providing accountability and information about EPA programs to Congress
and the public. The EPA is responsible for submitting reports to Congress under several
environmental statutes. Examples include the quadrennial report to Congress required under the
Beaches Environmental Assessment and Coastal Health Act and the triennial report to Congress about
the renewable fuel standards program required under the Energy Independence and Security Act of
2007. Mandated reports contain key program information for Congress, the administrator, and the
public and can inform future rulemaking and decision-making.
However, the EPA did not issue multiple required congressional reports, as evident in specific OIG
recommendations to fulfill legal reporting requirements. We first introduced this management challenge
in 2018, after we found that the EPA had failed to submit mandated reports to Congress and the public
in five environmental programs between 2010 and 2019. As stated in the GAO's Standards for Internal
Control in the Federal Government, reliable reporting with respect to the agency's programs, objectives,
and performance for both internal and external use is a fundamental component of internal control.
When the EPA does not fulfill requirements for statutorily mandated reports, it creates an
internal control weakness and the Agency is in violation of the law that requires it to
prepare and submit or publish that report. Not submitting required reports also leaves
stakeholders uninformed about the Agency's progress towards achieving specific program
goals, any challenges experienced during program implementation, and progress toward
achieving broader environmental and public health goals.
The Agency has said that it did not fulfill these reporting mandates because it viewed them as not the
best use of scarce resources, leading to specific recommendations from the OIG to fulfill legal reporting
requirements.
THE AGENCY'S ACTIVITIES
Each year, the Agency prepares a list of mandated reports it views as outdated or duplicative as part of
the budget process outlined in Office of Management and Budget Circular A-ll, Preparation,
Submission, and Execution of the Budget.53 In the FY 2021 budget cycle, the EPA identified 13 reports it
53 Office of Management and Budget Circular No. A-ll, Preparation, Submission, and Execution of the Budget,
December 2019.
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considered outdated or duplicative, including the reports about the Beaches Environmental Assessment
and Coastal Health Act and the conditional registration of pesticides required under Section 29 of the
Federal Insecticide, Fungicide, and Rodenticide Act. The EPA informs congressional staff and committees
about these "outdated" or "duplicative" reports, as well as its justification for classifying them as such.
For the conditional registration of pesticides report, the EPA stated in its justification that the Agency
eliminated that report and has not completed such a report in over 20 years. However, absent
Congressional legislation to eliminate these reporting requirements, the EPA remains obligated to
provide them.
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CHALLENGE: Integrating and Leading Environmental Justice
Across the Agency and Government
CHALLENGE FOR THE AGENCY
The EPA needs to enhance its consideration of environmental
justice across programs and regions and provide leadership in
this area for the federal government. Across the country, communities of low-income and
people of color live adjacent to heavily polluted industries or "hot spots" of chemical pollution. For
example, studies show that 70 percent of hazardous waste sites officially listed on the National
Priorities List under Superfund are located within one mile of federally assisted housing.54These
communities bear a disproportionate burden of environmental hazards. In 1994, President Bill Clinton
signed Executive Order 12898 requiring federal agencies to:
[M]ake achieving environmental justice part of its mission by identifying and addressing,
as appropriate, disproportionately high and adverse human health or environmental
effects of its programs, policies, and activities on minority populations and low-income
populations.
On June 30, 2020, Administrator Wheeler reaffirmed the EPA's commitment to environmental justice,
stating that the "EPA works day in and day out to provide clean air, water and land, with a particular
focus on environmental justice."55
The EPA defines environmental justice as "the fair treatment and meaningful involvement of all people
regardless of race, color, national origin, or income, with respect to the development, implementation,
and enforcement of environmental laws, regulations, and policies." Integration of environmental
justice principles into all EPA programs and across all regions is necessary to promote environmental
justice and to achieve environmental equity across all communities.
Over the past ten years, the OIG and the GAO have consistently found that the EPA needs to improve
its execution of environmental laws and regulations in communities that are disproportionately
impacted by negative environmental factors. Environmental justice implementation and oversight
remain a significant management challenge for the Agency's ability to adequately protect human
health.
To effectively integrate environmental justice across EPA programs, the Agency should focus on
strengthening its federal leadership role; continuing to build and employ an environmental justice
strategic plan, measures, and grant outreach programs; ensuring the development and
54Shriver Center on Poverty Law and Earthjustice, Poisonous Homes: The Fight for Environmental Justice in Federally
Assisted Housing, June 2020.
55 EPA, "Two Philadelphia Organizations Receive Funding to Support Environmental Justice Projects," News Release,
June 30, 2020.
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implementation of a comprehensive, nationwide plan; and considering the impact of all activities on
environmental justice communities in actions revoked and taken by the Agency as a whole.
EPA Serves in Federal Leadership Role
The EPA is the chair of the Interagency Working Group on Environmental Justice, established by
Executive Order 12898 to coordinate federal environmental justice efforts. In this role, the Agency has
both the opportunity and the responsibility to lead other federal government entities in their efforts to
fully implement environmental justice requirements.
In 2019, the GAO found that the EPA should strengthen its leadership role in the Interagency Working
Group on Environmental Justice. The GAO reported that, while many federal agencies did not establish
plans, measures, or consistent reports on their environmental justice activities, the EPA has developed
and maintained environmental justice strategic plans, established performance measures to track
progress in implementing those plans, and reported progress toward achieving the measures.56
However, the GAO recommended that the EPA develop or help develop guidance for other federal
agencies on what to include in environmental justice strategic plans and how to assess progress toward
environmental justice goals. It also recommended that the EPA establish strategic goals for the federal
government's environmental justice efforts in its own organizational documents and update a
memorandum of understanding to renew other federal agencies' commitments to the Interagency
Working Group. The EPA agreed to all the recommendations, except for establishing strategic goals for
the federal government in its own organizational documents. The EPA countered that these goals could
be established through other actions.
The EPA's strategic plan for environmental justice, called the EJ 2020 Action Agenda, provides plans
and performance measures for attaining its goals and objectives. However, the strategic plan does not
always provide specific goals for its measures. For example, one of the measures in the EJ 2020 Action
Agenda states that the "EPA will offer [environmental justice] training to all state and local agencies
that are delegated/authorized to implement federal environmental laws," but it does not provide
details on how many trainings will be conducted.57 Further, the EPA's environmental justice annual
progress reports do not clearly convey the performance measures indicated in the strategic plan,
making it difficult to measure progress over time. The EPA is identified as the leader in environmental
justice across the government, but there are several critical ways it can improve its leadership and set
an example among its peers.
Strategic Plan, Measures, and Grant Outreach
The EPA created the Office of Environmental Equity within the Office of the Administrator in 1992 to
help integrate environmental justice into the EPA's work, cultivate strong partnerships to improve on-
56 GAO, Environmental Justice: Federal Efforts Need Better Planning, Coordination, and Methods to Assess Progress,
GAO-19-543. September 16, 2019.
57 EPA, EJ 2020 Action Agenda: The U.S. EPA's Environmental Justice Strategic Plan for 2016-2020, October 2016.
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the-ground results, and chart a path forward to achieve better environmental outcomes and reduce
disparities in the nation's most overburdened communities. This office was subsequently renamed the
Office of Environmental Justice and, as of 2017, is housed in the EPA's Office of Policy within the Office
of the Administrator. The Office of Environmental Justice provides financial and technical assistance to
communities working constructively and collaboratively to address environmental justice issues. It also
works with local, state, and federal governments; tribal governments; community organizations;
business and industry; and academia to establish partnerships designed to protect all people from
environmental and health hazards, regardless of race, color, national origin, or income.
To accomplish its mission, the Office of Environmental Justice creates programs, policies, and activities
to assist communities in building their capacity to address environmental justice issues. These include
helping communities to engage federal agencies, so that the agencies understand environmental
justice issues and incorporate the communities' views into agency decisions, as well as providing tools
and resources to promote the principles of environmental justice. EPA Regions and the Office of
Enforcement and Compliance Assurance use several tools to identify which large facilities should be
inspected for air toxics, including EJSCREEN, which is an online mapping and analysis too! developed by
the Office of Environmental Justice to help integrate environmental justice into the Agency's work.58
PM2S
Ozorit
MAT* Diesel PM
• NATACancwRis*
© NAT A Metifo HI
NATAResptrator.HI
Traffic PronmSy
Leso Pairtf macabx
RMP Pfommtt,
NPL Prorimtf,
TSOF Prculm#)
Water OtKtiwgar Protim#,
Source: EJSCREEN v. 2.0 analysis conducted by the OIG.
Lack of Integration Across Programs and Regions
Despite being a federal leader in establishing plans and measures and in reporting on its environmental
justice efforts, the EPA has additional progress to make in integrating environmental justice concerns
across all programs and Regions. The Office of Environmental Justice is not alone in addressing
environmental justice in the Agency. The EPA's environmental justice mandate extends to Agency work
across all program and regional offices, including:
58 EPA, ERA Regions Have Considered Environmental Justice When Targeting Facilities for Air Toxics Inspections, Report
No. 15-P-0101. February 26, 2015.
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• Setting standards and regulations.
• Facility permitting decisions.
• Grant awards.
• Reviews of proposed federal agency actions.
• Enforcement decisions.
Working to address environmental justice is also a key component of the "Overseeing States,
Territories, and Tribes Responsible for Implementing EPA Programs" management challenge.
Partnerships are an integral piece of the Agency's environmental justice program, particularly the
efforts of state, tribal, and local governments to advance environmental justice. Environmental justice
is also a key component of the FY 2020 management challenge "Maintaining Operations During
Pandemic and Natural Disaster Responses." For example, data from the Centers for Disease Control
and Prevention show that the COVID-19 disease has disproportionately impacted African American
mortality in many states.
OIG reports show that, with respect to environmental justice, gaps exist in almost all of the EPA's
activities, such as managing air quality, drinking water, toxic releases to surface waters, Superfund
sites, emergency response, and environmental education. These reports point to a systemic problem
with the Agency's ability to address environmental justice across all program offices. For the EPA to
effectively address environmental justice challenges nationwide, the Agency will need to develop
comprehensive environmental justice performance measures for all policies and programs.
In September 2015, we examined the content and implementation of the Agency's Guidance on
Considering Environmental Justice During the Development of Regulatory Actions, dated May 2015, and
identified deficiencies.59 Given that regulations carry the force and effect of law, they can have
substantial implications for policy implementation. Because of this, environmental justice should be a
key consideration in devising and promulgating regulations. Our 2015 report found that adherence to
the guidance was inconsistent and voluntary. In addition, we found that the guidance lacked measures
and controls to assess when and how it is used in rulemaking, limiting the EPA's ability to encourage
broad, consistent use throughout the Agency and to evaluate the guidance's impact on rulemaking.
Our work has indicated that the EPA continues to struggle with integrating environmental justice across
all programs and Regions. This struggle is particularly evident in the EPA's emergency response efforts
and in its oversight of delegated state programs. Several OIG reports have found that EPA regions
struggle with incorporating and considering environmental justice communities when identifying and
communicating risk. For example, in July 2018, we found that the residents of Flint were exposed to
lead in drinking water due to a delayed and inadequate federal response that failed to identify drinking
water risks.60 We recommended that the EPA implement a system to identify management risks in state
drinking water programs that includes environmental justice concerns, among other elements.
59 OIG, EPA Can Increase impact of En vironmental Justice on Agency Rulemaking by Meeting Commitments and Measuring
Adherence to Guidance, Report No. 15-P-0274, September 3, 2015.
60OIG, Management Weaknesses Delayed Response to Flint Water Crisis, Report No. 18-P-0221, July 19, 2018.
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We also issued two reports following Hurricane Harvey
that demonstrated weaknesses in Region 6's ability to
properly inform environmental justice communities of
air, floodwater, and drinking water risks.61 We found that
health risks to fenceline communities from emission
spikes related to Hurricane Harvey were unknown and
that public communication of air monitoring results after
Hurricane Harvey was limited. As a result, communities—
particularly fenceline and environmental justice
communities—were unaware of the health risks and data
results related to multiple facility startups and shutdowns
before, during, and after the hurricane. We
recommended that the EPA develop and implement a
plan to inform residents in fenceline and nearby
communities about adverse health risks resulting from
these activities and to limit their exposure to airtoxics.
We also recommended environmental justice training be
conducted for staff who interact with the community, as
well as for those who lead the response efforts.
We found similar limitations with respect to the risks of
floodwater and drinking water after Hurricane Harvey.
Some affected communities did not receive some storm-
related human health and environmental information, or some of this information was not presented
in relevant languages, or both. This could have resulted in citizens lacking essential public safety
information. We found that improved outreach to these communities could improve the public health
of communities impacted by hurricanes and other disasters and enhance Region 6's emergency
response capabilities. We recommended that Region 6 personnel gather data on the population and
unique challenges of vulnerable communities, revise the pre-landfa 11 hurricane plan to incorporate
environmental justice outreach, and provide outreach materials in all prevalent languages.
The OIG continues to assess the Agency's environmental justice activities across programs and Regions.
Three in-progress OIG projects will contribute to this work:
• Our civil rights work will address whether the EPA's External Civil Rights Compliance Office has
implemented an oversight system to provide reasonable assurance that organizations receiving
EPA funds comply with Title VI requirements, which prohibit discrimination on the basis of race,
color, or national origin. This work will also address Title VI compliance for all EPA
61 OIG, EPA Region 6 Quickly Assessed Water Infrastructure after Hurricane Harvey but Can Improve Emergency Outreach to
Disadvantaged Communities, Report No. 19-P-0236, July 16, 2019; OIG, EPA Needs to Improve Its Emergency Planning to
Better Address Air Quality Concerns During Future Disasters, Report No. 20-P-0062, December 16, 2019.
Total Air Toxics Emitted:
0 tons
Total Incidents
0 incidents
Legend
Air MonMof Mothod
Known Air Toxic Releases Over Time
(a/20/2017 through 9/20/2017)
Video illustrating air toxic releases in geographic
areas and monitor methods used overtime.
(OIG video)
An aerial view of the flooding caused by Hurricane
Harvey in Houston on August 31, 2017.
(U.S. Department of Defense photo)
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environmental programs, as requested by 22 U.S. senators in a November 22, 2019
congressional request.62
• As part of our ongoing work on the EPA's risk communication efforts, we held listening sessions
for community members near the USS Lead Superfund site in East Chicago, Indiana; theCoakley
Landfill Superfund site in North Hampton, New Hampshire; and the Amphenol Superfund site in
Franklin, Indiana. About 70 percent of the more than 1,300 Superfund sites across the country
are within one mile of public housing.63
• We are also evaluating the EPA's oversight of public water systems in Indian Country, including
how the Agency is providing safe drinking water to customers during the coronavirus
pandemic.64
THE AGENCY'S ACTIVITIES
The EPA has taken several actions over the past couple of years that threaten to reverse course on its
prior environmental justice efforts. Since 2017, the EPA's budget requests for its environmental justice
efforts have been significantly reduced from the $13.97 million requested in FY 2016 (Table 2).
Congress rejected the EPA's requests to defund the program and continued to provide funding to this
effort.
Table 2: Environmental justice budgets
FY
President's
budget
Enacted
budget
2016
$13.97 million
$6.74 million
2017
$0
$6.72 million
2018
$0
$6.69 million
\
2019
$2 million
$6.74 million
\ —¦—¦
2020
$2.74 million
$9.55 million*
\ ^
2021
$2.73 million
Not available
2016 2017 2018 2019 2020 2021
Source: OIG analysis and image.
*Reflects estimated enacted budget.
62OIG Notification Memorandum, Effectiveness of EPA's External Civil Rights Compliance Office in Determining Title VI
Compliance in Organizations Receiving EPA Funding (2ndnotification), Project No. OA&E-FY19-Q357, February 13, 2020.
63 OIG Notification Memorandum, Communication of Human Health Risks Posed by Sites in the Office of Land and
Emergency Management's Programs (2nd notification), Project No. OA&E-FY19-OQ31, February 4, 2019.
64OIG Notification Memorandum, EPA's Oversight of Tribal Drinking Water Systems, Project No. QA&E-FY20-0044, May 29,
2020.
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As demonstrated in Table 2, the EPA requested $2.73 million in environmental justice funding in the FY
2021 President's Budget, a $6.82 million reduction compared to the $9.55 million provided in the FY
2020 Enacted Budget. According to the FY 2021 Justification of Appropriation, the reduction:
[R]eflects a focus on providing financial assistance grants to community-based
organizations and technical assistance to low income, minority, and tribal/indigenous
populations. This change proposes to eliminate support for the EJ hotline, engagements
with vulnerable and overburdened communities, and EJ trainings.
A former EPA assistant associate administrator for environmental justice warned that budget cuts to
EPA's flagship environmental programs "will increase the public health impacts and decrease the
economic opportunities" in communities disproportionately affected by pollution and other
environmental harms.
According to the EPA's website, "Environmental justice will be achieved when everyone enjoys the
same degree of protection from environmental and health hazards and equal access to the decision-
making process to have a healthy environment in which to live, learn, and work."65 EPA leadership
needs to reaffirm its commitment to Executive Order 12898 by ensuring that environmental justice is
integrated into every program and regional office across the Agency. The EPA can make progress
toward implementing this Executive Order by proposing budgets that can obtain adequate resources
for its environmental justice and civil rights efforts, consistently integrating these principles into all
Agency activities, and providing leadership in its role as chair of the Interagency Working Group on
Environmental Justice.
65 EPA website. Learn about Environmental Justice, last updated on November 7, 2018.
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Agency Response to Office of Inspector General-Identified Management Challenges
Challenge #1 - Maintaining Operations During Pandemic and Natural Disaster Responses
Agency Response: In testimony before the Senate Environment and Public works Committee,
Administrator Wheeler stated that "EPA is rising to the challenge before us regarding the COVID-19
pandemic. EPA is open for business and is at work meeting our mission of protecting human
health and the environment." During this time of COVID-19, the agency continued to carry out
management, operational, and statutory responsibilities in the face of the unprecedented challenge
represented by the pandemic. The EPA worked with its partners and maintained a robust posture for
its Response Support Corps and several Special Teams ready to respond to local and national
emergencies and time-critical removals. Through innovation, flexibility where appropriate to allow for
easier adaptation to the evolving circumstances posed by the virus, and ongoing systematic
implementation of performance management and evaluation, the agency has continued its important
work. The EPA recognizes the current COVID-19 pandemic does create new challenges for the agency
to successfully respond to its primary mission essential functions and ensure that its employees are
able to operate in a safe manner. The agency resilience, robust management systems and a committed
workforce ensures the EPA continues to perform its work at a high level.
The EPA will rely on its performance management and evaluation system to monitor progress towards
outcomes. The agency established a variety of organizational goals to drive progress toward key
mission outcomes. These long-term performance goals articulate clear statements of what the agency
wants to achieve to advance its mission and address relevant national problems, needs, challenges, and
opportunities. Strategic objectives define the outcome or management impact the agency is trying to
achieve. Each strategic objective is tracked through performance goals, indicators, and other evidence.
The EPA's FY 2020 Annual Performance Report will describe progress towards the strategic goals and
objectives outlined in the FY 2018-2022 EPA Strategic Plan, available at
https: //www.epa.gov/planandbudget/strategicplan. This APR will present results against the annual
performance goals and targets in the agency's FY 2020 Annual Performance Plan and Congressional
Justification as updated in the FY 2021 APP and CJ.
The EPA is making significant progress toward a broad range of policy outcomes including significant
improvements in performance over recent years. The agency will continue progress toward its
performance targets through the ongoing application of the EPA Lean Management System to improve
the efficiency and cost effectiveness of its operations. ELMS is designed to visualize, examine, and
understand factors influencing the agency's ability to sustain its work across offices and programs. The
agency leadership is building on ongoing ELMS implementation efforts by working with programs and
regional offices to look more comprehensively across agency FTE allocations and identify
opportunities to standardize work where possible. Related Kaizen projects include state oversight, the
EPA's field presence, state and tribal assistance flexibility, community and infrastructure investments,
Freedom of information Act responses, reporting requirements, the EPA laboratories, environmental
permitting, and acquisitions.
The agency expects that there will be missed targets for some of the annual performance goals. While a
number of likely reasons will be identified including delays in program implementation, the
complexity of the environmental challenge, resource/staffing challenges, timing of government
appropriations and other factors outside of the agency's control, any impacts associated with the
pandemic will be assessed. The agency Chief Operating Officer will engage in discussions with program
and regional office leadership on COVID-19 and anticipated potential risks associated with achieving
strategic objectives based on performance data for the current year and any anticipated future issues.
In parallel, each regional emergency response program is continuously evaluating the availability of
On-Scene Coordinators and Special Teams in light of the COVID-19 pandemic to inform decision-
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making of future deployments as necessary. The emergency response program leadership team will,
prior to significant personnel deployments, discuss steps which the agency can take to mitigate risk
and adhere to the latest field activities guidelines.
The Office of Mission Support continues providing leadership on agency operations in the face of the
COVID-19 pandemic: ensuring continuity of operations; ensuring the safety of the workplace through
enhanced cleaning and safety protocols; implementing CARES Act Section 3610 contracting provisions;
supporting the workforce through implementation of workforce flexibilities; and supporting the
agency leadership on the Return to Facilities Plan. OMS' goal and focus are to prevent and/or limit
COVID-19 from impeding the mission of the agency despite the significant and far-reaching impacts of
the pandemic on the agency and workforce.
Additionally, actions the agency has adapted to continue to protect human health and the environment
amid the pandemic are highlighted below:
Ensuring that all Americans have safe water by working closely with the water sector and the
agency's federal and state partners to support drinking water and wastewater services that are
essential to helping reduce the spread of COVID-19. The agency focused its efforts on critical
threats such as water sector worker absenteeism, supply chain disruptions, and financial
impacts - both immediate and long-term.
Working closely with Centers for Disease Control to jointly develop for cleaning and
disinfecting public spaces, workplaces, businesses, and homes.
Expanded work under the Emerging Viral Pathogens Guidance for Anti-microbial Pesticides
program, where the EPA deployed, for the first time against SARS-CoV-2, expedited review of
submissions from companies requesting to add emerging viral pathogen claims to their already
registered surface disinfectant labels.
Working with the Federal Tribal Infrastructure Task Force to identify available federal
resources, information, and programs to support tribal water systems.
Establishing a variety of compliance monitoring guidance documents and innovative processes
to ensure a continued field presence, albeit virtual.
Developing COVID-19 Interim Guidelines for Inspections for conducting inspections during the
COVID-19 public health emergency.
EPA's criminal enforcement program continues to function at a high level in calendar year
2020 and during the COVID-19 crisis.
Developed key Off-Site Compliance Monitoring Guidance.
The Office of Civil Enforcement continues to initiate and conclude civil administrative and
judicial enforcement actions; issue information requests; conduct settlement discussions and
negotiations; and oversee implementation of consent decrees. National policy development
continues with additional efficiencies.
Issuance of the COVID-19 Temporary Enforcement Policy, balancing public health
considerations while performing mission-critical functions to protect the public from threats to
human health and the environment arising from violations of environmental laws.
Establishment of a framework for addressing the impact of the COVID-19 public health
emergency on site remediation enforcement programs. In April 2020, the Office of Land and
Emergency Management and the Office of Enforcement and Compliance Assurance issued a
joint memorandum titled Interim Guidance on Site Field Work Decisions Due to Impact of COVID-
19. The interim guidance addresses response field activities, non-field activities, and cleanup
enforcement issues at "sites across the country under a range of the EPA authorities including,
but not limited to, the Superfund program, RCRA corrective action, TSCA PCB cleanup
provisions, the Oil Pollution Act, and the Underground Storage Tank program."
Developing a plan to maintain Emergency Radiation Air Monitoring Capabilities during a
pandemic.
Understanding Adaptations to Nuclear Power Plant Public Safety Plans through working with
state partners and the Federal Emergency Management Agency's Radiological Emergency
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Preparedness Program to understand how pandemic considerations were being considered for
public health decision-making for a nuclear power plants.
Responsible Agency Official: David Bloom, Deputy Chief Financial Officer, Office of the Chief
Financial Officer; and Donna Vizian, Principal Deputy Assistant Administrator, Office of Mission
Support
Challenge #2 - Complying with Key Internal Control Requirements
Agency Response: The EPA continues to comply with key internal control requirements to ensure
programs are operating effectively and efficiently. The Government Accountability Office Standards for
Internal Control in the Federal Government (known as the Green Book) serves as the overall framework
for establishing and reporting on the effectiveness of the EPA's internal controls. As outlined in the FY
2020 Guidance for Strategic Reviews and Internal Controls, program and regional offices are required to
develop an Internal Control Matrix for key programs and processes within their respective
organizations. The matrix is based on the Green Book standards and serves as the basis for the
Assistant Administrators' and Regional Administrators' attestation to the soundness of internal
controls for the organization. Additionally, the matrix describes the risks that may impede the
organization from accomplishing its strategic goals and objectives, as outlined in the FY2018-2022 EPA
Strategic Plan, and includes the associated controls in place to address the identified risks. When
developing the matrix, program and regional offices consider all risk factors—strategic, operational,
and fraud—and assess the impact and likelihood to the program if the risk were to occur. Each AA and
RA provides a personal statement of assurance that supports the Administrator's statement of
assurance on the overall effectiveness of internal controls for the agency. In response to the OIG audit,
EPA Needs to Conduct Risk Assessments When Designing and Implementing Programs, Report 2 0-P-
0170, May 18, 2020, the Office of the Chief Financial Officer will require staff and senior managers to
complete annual on-line training. In FY 2021, the AAs/RAs must certify completion of the training for
all appropriate staff in their annual assurance letters.
In reference to improving data quality, under the Clinger Cohen Act (1996), the EPA Chief Information
Officer in the Office of Mission Support has delegated authority for information quality including
oversight responsibility for the agency's Quality Program, as described in the agency's Quality Policy
and Procedure. The agency's Quality Program is decentralized and implemented by the program
offices and regions with specific responsibilities for assuring the quality of data produced and used is
appropriate for their programmatic decisions. OMS has developed a long-term corrective action plan to
address the 15 findings identified in the OIG audit, EPA Needs to Address Internal Control Deficiencies in
the Agencywide Quality System, ReportNo. 20-P-0200, June 22, 2020. The plan includes steps to
increase effective information and communication.
Responsible Agency Officials: Jeanne Conklin, Controller, Office of the Controller; and
Jeff Wells, Director, Office of Enterprise Information Programs
Challenge #3 - EPA Needs to Improve Oversight of States, Territories and Tribes Authorized to
Accomplish Environmental Goals
Agency Response: The EPA continues to make progress in addressing oversight challenges. Since
2017, an EPA workgroup tasked with improving the oversight of state-delegated programs has worked
to address the inconsistent application of oversight activities across the regions or environmental
programs delegated to states.
The EPA continues to emphasize key tenets in the October 2018 memo, Principles and Best Practices for
Oversight of Federal Environmental Programs Implemented bv States and Tribes. Through two pilot
programs, the agency is assessing a method to ensure programmatic reviews adhere to the principles
outlined in the memo and a core set of standardized work elements designed to effectuate a more
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consistent approach to oversight activities. Also, the EPA workgroup continues to collaborate with
states to identify opportunities for additional improvements.
Additional activities to address state oversight issues include the following:
EPA regions continue to organize discussions with states on National Pollution Discharge
Elimination System real-time reviews, and Clean Air Act Title V programmatic reviews through
the implementation of standardized procedures and templates.
The agency worked with states to clarify roles and responsibilities on impaired water listings,
leading to the drafting of an elevation policy which is expected to be finalized in 2020.
EPA's Office of Water issued a memo dated June 3, 2019, Policy for EPA Review and Action on
Clean Water Act Program Submittals, to ensure that regional review of state submittals under
the Clean Water Act adhere to statutory obligations and timelines.
The agency plans to finalize a national permitting oversight policy to standardize the EPA's
process for oversight of permitting programs. The policy, expected to be released this year,
creates a framework to guide oversight responsibilities and identifies opportunities for
program assistance.
EPA regions (e.g., Regions 5 and 10) and program offices (e.g., Office of Air and Radiation)
worked throughout the year to conduct effective oversight responsibilities.
This management challenge is addressed by the EPA Lean Management System, through a
performance metric designed to increase the number of alternative shared governance approaches
used in state reviews.
The EPA has identified grant commitments met as a Learning Priority for the Agency's Learning
Agenda to better understand the relationships between grant funding and environmental and health
outcomes.
In part through the agency's grants and cooperative agreements, the EPA and its partners have made
and will continue to make enormous progress in protecting air, water, and land resources. In FY 2020,
the EPA began piloting a method to capture grantees' progress toward meeting the commitments
established in grant and cooperative agreement workplans. The EPA also has made significant
progress in improving its review and approval response time for eligible state and tribal Quality
Assurance Project Plans. In FY 2022, the EPA is committing to review and take action on all QAPPs,
which are a critical component of certain grants. The long-term performance goal for this Objective has
been updated to reflect this priority. By identifying grant commitments met as a Learning Priority
under the Evidence Act, the EPA will advance its ability to review progress made in protecting human
health and the environment through its grant programs. The agency's evidence-building activities in
FY 2022 will include reviews of select grant programs to learn if the commitments established and met
are achieving the intended environmental results and provide recommendations to inform future
decision-making.
Responsible Agency Official: Robin Richardson, Principal Deputy Associate Administrator,
Office of Congressional and Intergovernmental Relations
Challenge #4 - EPA Needs to Improve Its Workload Analysis to Accomplish Its Mission
Efficiently and Effectively
Agency Response: The EPA has addressed the workforce planning requirements of 5 CFR Part 250,
Subpart B, Strategic Human Capital Management by completing the EPA FY 2019 Human Capital
Operation Plan and updating the plan's activities for FY 2020. Additionally, the EPA is using workload
analyses as one factor in planning workforce levels and examining critical processes.
The EPA's FY 2020-2023 Workforce Plan, which is in the review stage, describes human capital
strategies for full-time and part-time classified, "at will," and wage employees. The agency discusses
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workload planning strategies at senior level management meetings, has begun assessing ongoing
workload efforts, and continues to examine critical work processes through ELMS. ELMS provides a
structured process for examining significant agency work to identify efficiencies and opportunities for
standardization.
The agency identified workforce management as a Learning Priority for the Evidence Act's Learning
Agenda to inform the EPA's ongoing Human Capital Management strategy and plans to conduct
evidence-building activities in FY 2022 to support development of the Learning Agenda in conjunction
with the FY2022-2026 EPA Strategic Plan.
Additional activities to address workforce and workload issues include the following:
Developed a Talent Enterprise Diagnostic Tool to assess skills gaps, especially those among the
EPA's agency-specific Mission Critical Occupations.
Developed, maintained, and enhanced the EPA's Workforce Demographics Dashboard and
Diversity Dashboard.
Began reviewing three ongoing workload projects to gather lessons learned and look for
insights that could potentially apply to broader processes, such as data collection,
methodology, program variability, and implementation strategies.
The agency is in the second phase of implementing recommendations from the Superfund
Remedial and Superfund Technical Enforcement FTE Realignment workload assessment
The agency is working on analyses to support regional laboratory workload considerations and
has launched a review of the emergency response workload.
The EPA's workforce planning performance metrics are tracked through periodic reports, such as HR
Stat The agency's workload strategies have been discussed regularly at senior managers' meetings and
process improvements have been tracked and reported through ELMStar tracking system metrics.
Agencywide metrics are tracked monthly and discussed in senior leader Monthly Business Reviews.
Additionally, Human Capital/Workforce is often discussed at the Administrator's Quarterly
Performance Reviews meeting with all senior leadership.
Responsible Agency Official: Maria Williams, Director, Office of Budget
Challenge #5 - EPA Needs to Enhance Information Technology Security to Combat Cyber Threats
Agency Response: The agency is committed to protecting its information and technology assets. The
EPA understands the prevalence and complexity of the ever-growing cybersecurity attacks and is
aware of the potential impact to the agency's mission if information assets are compromised. The EPA
has established and implemented processes and internal controls for monitoring and managing
contractor support actions to address concerns associated with this management challenge. Specific
actions taken to address the issue include:
Developing and implementing processes within the Office Mission Support operations to
improve management and oversight of audits and corrective actions.
Working with the Office of General Counsel to develop standard security language to include in
the agency's Environmental Protection Agency Acquisitions Guide Section 39.1.2.
Incorporating a verification component for the cybersecurity requirements identified in the
EPAAG 39.1.2 into the Federal Information Technology Acquisition Reform Act process.
Developing training for contract officers and contract officer representatives on their
responsibilities for identifying contracts that require the EPAAG Section 39.1.2 tasks.
Establishing a tracking and reporting process that ensures all contractors with access to the
EPA information systems complete information security awareness training, and that
contractors with significant security responsibilities also complete role-based training.
Ensuring adequate cybersecurity is implemented on contractor operated systems by:
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o Assessing systems for proper implementation and operation of adequate
cybersecurity controls,
o Monitoring for timely completion of corrective actions for identified cybersecurity
weaknesses.
o Managing risks at the tactical, mission, and enterprise levels.
In addition, the EPA has made significant strides addressing other recommendations highlighted in the
OIG report Specific actions the agency has taken include:
Worked with the Department of Homeland Security regarding the risk of the Electronic
Manifest System. As a result, the EPA maintained its original categorization but agreed to
review the system's categorization annually and when significant changes to the system occur.
Replaced the incident tracking system and implemented controls in the new system to protect
the confidentiality and sensitivity of Personal Identifiable Information and enforce password
management requirements according to federal and agency guidance.
Documented the CIO's role in information security through policy and procedures.
Documented and implemented controls to validate plans of action and milestones for
vulnerability testing results.
Established a process to periodically review security settings for the agency's tracking system
to validate whether they meet standards and implemented audit logging capabilities to capture
data changes and a log review process.
The processes implemented to address the OIG recommendations were reviewed by the OIG for the FY
2019 Federal Information Security Management Act report and found to be adequate. Additionally,
agencywide metrics related to IT security are tracked monthly and discussed in senior leader Monthly
Business Reviews.
Responsible Agency Official: Robert McKinney, Director, Office of Information Security and
Privacy
Challenge #6 - EPA Needs to Improve Risk Communication to Provide Individuals and
Communities with Sufficient Information to Make Informed Decisions to Protect their
Health and the Environment
Agency Response: Risk communication goes to the heart of the EPA's mission of protecting human
health and the environment. The agency is committed to ensuring that it carries out effective risk
communication by sharing meaningful, understandable, and actionable information on human health
and environmental risks. The EPA Administrator Andrew Wheeler identified risk communication as
one of his top priorities in a 2018 speech to employees, stating "We must be able to speak with one
voice and clearly explain to the American people the relevant environmental and health risks that they
face, that their families face, and that their children face." Since that time, the Administrator has shown
his commitment to this view by hiring a senior risk communication advisor to strengthen the agency's
work in this area, and by proposing an FY 2022 budget initiative to help the agency face critical risk
communication challenges of the future.
To build a consistent and effective approach to risk communication across the agency, the
Administrator hired a senior risk communication advisor in November 2019 who is responsible for
coordinating risk communication across the agency. With the new advisor now in place, the EPA's
strategy to improve risk communication includes developing a risk communication framework and a
set of robust tools to be used by anyone who communicates risk on behalf of the agency. In addition, a
critical element of this strategy is to provide agencywide training grounded in the science of risk
communication which leverages research across the fields of social, behavioral, and management
science. This training is key to meeting the EPA's risk communication challenges of the future and will
be targeted to a broad spectrum of managers and staff across the EPA's headquarters and regional
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offices, and across job classifications (e.g., environmental engineers, environmental protection
specialists, scientists, public affairs specialists, etc.).
Additional activities to address risk communication include the following:
Increase coordination across the agency by continuing to use the Risk Communications
Workgroup, which now includes over 80 participants, to connect people across the agency who
work in this area and use their programmatic knowledge and expertise in building new risk
communication tools.
Ensure consistency in how the agency conducts risk communication by developing a "SALT"
framework based on a process of Strategy, Action, Learning, and Tools, that together will
provide a research-based approach and best practices for all employees to use in
communicating our work to the American people. The agency also has begun work to develop a
set of risk communication toolkits on emerging and cross-cutting contaminants.
In FY 2020, the EPA provided $230 thousand to COMPASS Science Communication, one of the
Nation's leading organizations in the field of science communication, to provide evidence-
based risk communication training across the agency, and build a network of staff in the EPA
headquarters and regional offices who are well positioned to apply their risk communication
expertise in the agency's day to day work.
Risk communication is integral to most of the work across the agency's offices and regions and is
critical to achieving the mission of protecting human health and the environment While risk
communication does not clearly link to any existing the EPA long-term, priority, or annual
performance goal, it could potentially move the agency forward under Goal 1 of the EPA's Strategic
Plan: A Cleaner¦, Healthier Environment: Deliver a cleaner¦, safer¦, and healthier environment for all
Americans and future generations by carrying out the agency's core mission. Currently, risk
communication is discussed at the Administrator's Quarterly Performance Reviews meeting with all
senior leadership.
Furthermore, the EPA plans to develop metrics which will be used to measure the success of this work
and the value to the American public of implementing an agencywide risk communications approach in
FY 2022.
Responsible Agency Officials: Nancy Grantham, Principal Deputy Associate Administrator, Office of
Public Affairs
Challenge #7 - EPA Needs to Improve on Fulfilling Mandated Reporting Requirements
Agency Response: In 2018, OIG identified an instance where the agency had not fulfilled a mandatory,
statutorily required report to Congress, and has identified other instances where reports were not
issued to Congress. The two reports that OIG identified have since been issued. OIG believes the agency
should make a comprehensive effort to identify the causes for programs not issuing required reports,
implement targeted plans to address the causes, and complete and issue any remaining missing
reports. OIG also believes the agency should continue to work with Congress to eliminate the
requirements of duplicative or unnecessary reports from our authorizing statutes.
The EPA has taken the corrective actions identified in the 2018 OIG Report regarding the BEACH Act
Report, which has since been issued to Congress. The agency continues to implement OIG's
recommendations. For example, the Office of Congressional and Intergovernmental Relations'
Associate Administrator issued a memorandum in March 2018 to remind the EPA's Assistant
Administrators and Associate Administrators that the agency's standard practice is to track reports to
Congress by using the Office of Policy Action Development Process Tracker. OCIR, OP, and OCFO have
recently met to address tracking issues related to the upcoming replacement of the ADP Tracker.
Additionally, the agency continues to provide a list of the unnecessary and duplicative reports that the
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EPA suggests eliminating from its statutes to OMB as part of the budget process, in consultation with
Congress. The agency believes this effort will improve tracking of Reports to Congress so that statutory
requirements are not missed in the future.
Additional activities to address this issue include the following:
Consulted with Congress about eliminating the reporting requirements for the 14 reports to
Congress that the agency had identified as duplicative or unnecessary.
During FYs 2019 and 2020, held internal meetings between OCIR, OP, and OCFO to coordinate
management of the agency's inventory of reports to Congress.
During FYs 2019 and 2020, held internal meetings between OCIR, OP, and OCFO to coordinate
the tracking of reports to Congress, to identify the appropriate tracking system when the ADP
Tracker is replaced, and to discuss the potential for a having a single means of tracking
statutorily mandated reports to Congress and those required by appropriations law.
Began working with program offices to update the list of unnecessary or duplicative reports as
part of the upcoming FY 2022 budget proposal.
Responsible Agency Official: Robin Richardson, Principal Deputy Associate Administrator,
Office of Congressional and Intergovernmental Relations
Challenge #8 - Integrating and Leading Environmental Justice Across the Agency and
Government
Agency Response: The agency continues to address issues and concerns raised by GAO and the EPA's
OIG regarding its leadership of integration of environmental justice. The EPA's Office of Environmental
Justice is currently working with the Environmental Justice Interagency Working Group partners to
address recommendations contained in the GAO report issued October 2019 entitled, Federal Efforts
Need Better Planning, Coordination, and Methods to Assess Programs. Additionally, the agency is
reviewing recommendations made by OIG.
Responsible Agency Official: Helena Wooden-Aguilar, Deputy Associate Administrator, Office of
Policy; and Matthew Tejada, Office Director, Office of Environmental Justice
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PROGRESS IN ADDRESSING FY 2020
WEAKNESSES
In FY 2020, the agency did not identify any new material weaknesses. The EPA continued to make
progress in addressing its one previously identified material weakness related to the financial
statement preparation process. The agency expects to implement and validate all corrective for this
material weakness in FY 2021.
Material Weakness
During the FY 2019 financial statement audit, the OIG stated that failure to properly record accounting
transactions and exercise due diligence in the preparation of the agency's financial statements
compromises the accuracy of the financial statements and the reliance on them to be free of material
misstatement The OIG believes these issues highlight the need for the agency to strengthen its
processes so that data are accurate, compliant with federal accounting standards, and readily available
on a timely basis to prepare the financial statements.
To address this weakness, the EPA established a corrective plan of action to evaluate and improve its
financial statement preparation process and to provide accurate and reliable supporting
documentation for adjustments and corrections. Specifically, the agency has informed staff of the need
to include more supporting analysis and the rationale for the adjustments made and the accounting
basis for determining the adjustments. To increase efficiency, the agency implemented the CaseWare
software that provides format controls and footnote cross checks. The agency developed standing
operating procedures and a reviewer checklist for the preparation of its financial statement audit The
standard operating procedures and the checklist will be reviewed in January 2021, and annually
thereafter, to validate effectiveness. The agency anticipates all corrective actions will be completed and
implemented by the end of FY 2021.
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Summary of Financial Statement Audit
Audit Opinion
Unmodified
Restatement
Yes
Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Ending
Balance
Total Material Weaknesses
0
0
0
0
0
Summary of Management Assurances
Effectiveness of Internal Control Over Financial Reporting (FMFIA § 2)
Statement of Assurance
Modified
Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Financial Statement
Preparation Process
1
0
0
0
0
1
Total Material Weaknesses
1
0
0
0
0
1
Effectiveness of Internal Control Over Operations (FMFIA § 2)
Statement of Assurance
Unmodified
Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Total Material Weaknesses
0
0
0
0
0
0
Conformance With Financial Management System Requirements (FMFIA § 4)
Statement of Assurance
Systems Conform to Financial Management Systems Requirements
Non-Conformances
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Total Non-Conformances
0
0
0
0
0
0
Compliance With FFMIA
Agency
Auditor
1. System Requirement
No lack of compliance
noted.
No lack of compliance noted.
2. Accounting Standards
No lack of compliance
noted.
No lack of compliance noted.
3. USSGL at Transaction Level
No lack of compliance
noted.
No lack of compliance noted.
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REAL PROPERTY
Consistent with Section 3 of the OMB Memorandum-12-12, Promoting Efficient Spending to Support
Agency Operations and OMB Management Procedures Memorandum 2013-02, the "Reduce the
Footprint" (RTF) policy implementing guidance, all CFO Act departments and agencies shall not
increase the total square footage of their domestic office and warehouse inventory compared to the
FY 2015 baseline.
Reduce the Footprint Baseline Comparison
Square Footage
(SF)
FY 2015 Baseline
FY 2019
Change
5,364,495
4,874,512
(489,983)
The EPA's baseline, derived from the agency's FY 2015 Federal Real Property Profile (FRPP)
submission and FY 2015 General Services Administration (GSA) Occupancy Agreement, is 5,364,495
square feet (SF). The EPA's RTF total in FY 2019 was 4,874,512 SF, a reduction of 489,983 SF from the
baseline.
Reporting of Operation & Maintenance Cost owned and Direct Lease Buildings
Operations &
Maintenance Costs
FY 2015 Reported Cost
FY 2019
Change
$1,106,924.21
$6,039,941.62
$4,933,017.41
The EPA remains committed to reducing its environmental footprint through efficient management of
its real property portfolio. The agency will continue to take steps to monitor and assess space
utilization at each of its facilities and will take the appropriate steps to reduce underutilized space.
Additionally, the agency will continue to implement sustainable design, construction, and
operations/maintenance projects. In the coming years, the EPA will continue to explore options for
teleworking, office sharing, and space consolidations, click here for the agency's FY 2019 Reduce the
Footprint results
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PAYMENT INTEGRITY
The Payment Integrity Information Act of 2019 (PIIA)1 requires executive branch agencies to review
all programs and activities annually, identify those that may be susceptible to significant improper
payments and report the results of their improper payment activities to the President and Congress
through their annual Agency Financial Report or Performance and Accountability Report
The EPA is dedicated to reducing fraud, waste, and abuse and presents the following improper
payment information in accordance with PIIA, OMB guidance found in Circular A-12 3, Appendix C,
Requirements for Payment Integrity Improvement, and the reporting requirements contained in OMB
Circular A-13 6, Financial Reporting Requirements.
PIIA and OMB implementing guidance directs federal agencies to take the following steps:
1) Review all programs and activities to identify those that are susceptible to significant improper
payments, defined as gross annual improper payments exceeding (a) both 1.5 percent of
program outlays and $10 million of estimated improper payments or (b) $100 million of
estimated improper payments (regardless of the rate).
2) Obtain a statistically valid estimate of the annual amount of improper payments in programs
identified as susceptible to significant improper payments.
3) Implement a plan to reduce improper payments in these programs.
4) Report annually an estimate of the annual amount and rate of improper payments.
An improper payment is defined as any payment that should not have been made or that was made in
an incorrect amount, including an overpayment or underpayment, under a statutory, contractual,
administrative, or other legally applicable requirements. And It 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 those payments where authorized by law; and any payment
that does not account for credit for applicable discounts. Further, the term "payment for an ineligible
good or service" includes a payment for any good or service that is rejected under any provision of any
contract, grant, lease, cooperative agreement, or other funding mechanism.
The term "payment" means any transfer or commitment for future transfer of federal funds such as
cash, securities, loans, loan guarantees, and insurance subsidies to any non-federal person or entity or
a federal employee, that is made by a federal agency, a federal contractor, a federal grantee, or a
governmental or other organization administering a federal program or activity.
OMB Circular A-12 3, Appendix C, requires that agencies conduct risk assessments of their programs or
activities at least once every three years to determine whether they are susceptible to significant
improper payments. In FY 2018, the EPA updated its improper payment risk assessments using a
systematic approach to determine whether each program or payment stream is susceptible to
significant improper payments. The risk assessments required an evaluation of risk factors that could
contribute to potential for significant improper payments. In completing the risk assessments, each
office addressed risks known at the time of completion. The agency will conduct qualitative risk
assessments for all the low risk programs in FY 2021.
In the Office of Inspector General's annual report of the agency's IPERA compliance, the EPA's OIG
stated that "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
1 The Payment Integrity Information Act of 2019 (PIIA) repeals the Improper Payments Information Act of 2002 (IPIA), and its amendments, the
Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012
(IPERIA) and enacts a new Subchapter in Title 31 of the U.S. Code, containing substantially similar provisions.
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stream". The OIG recommended that the Chief Financial Officer revisit recommendation in the previous
year's compliance report2 to implement internal controls for training reviewers and annual
verification 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 the OIG's recommendation and noted that the corrective action that was
recommended in the prior report was completed in April 2019. Initially OIG countered the
recommendation could not be considered implemented, until they could evaluate the new SOP and
training requirements in next compliance audit. During the 3rd quarter of FY 2020, the EPA provided
additional information to the OIG, allowing the OIG to complete their evaluation prior to FY 2021. As a
result of its review, on September 30, 2020 concluded: "Based on the information and supporting
documentation provided, the planned corrective actions meet the intent of our recommendation, and
we consider the recommendation resolved." The OIG added: "We will confirm completion of this
corrective action during next year's improper payment audit."
The following is a summary of current risk levels in the EPA programs. The EPA has one program, the
grants payment stream, that is considered susceptible to significant improper payments.
In addition, the agency has incorporated a new program, 2018 Disaster Relief funding, into its risk
assessment cycle. A qualitative risk assessment was conducted in FY 2019 and determined that this
program is not susceptible to significant improper payments. None of the agency's programs were
identified as high priority, defined as exceeding $2 billion of annual estimated improper payments.
Table 1 summarizes the risk level for each of the agency's payment streams.
Table 1: Risk Level
Payment Stream
Not Susceptible
to Significant IPs
Susceptible to
Significant IPs
High Priority
Commodities
X
Contracts
X
CWSRF
X
DWSRF
X
Grants
X
Hurricane Sandy
X
Payroll
X
Purchase Cards
X
Travel
X
2018 Disaster Relief
X
2 OIG Report No. 19-P-0163, EPA Complied with Improper Payments Legislation but Stronger Internal Controls Are Needed
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I. Payment Reporting
Table 2 provides information about the EPA's reportable program. The website
https://paymentaccuracv.gov/ contains more detailed information on improper payments and also
includes all of the information reported in prior year AFRs that is not included in the FY 2020 AFR.
Table 2. Improper Payment Reduction Outlook
($ in millions)
Grants
$ Outlays
1,798.34
&
rH
$ Proper
1,775.85
O
$ Improper
22.49
>
h
IP%
1.25%
Proper %
98.75
$ Outlays
1,653.12
$ Proper
1,636.04
$ Improper
17.08
IP%
1.03 %
Proper %
98.97%
o
N
$ Overpay
1.16
o
$ Underpay
0.00
Sx
h
$ Insufficient Documentation
15.92
% Overpaid
2.50%
% Underpaid
0.00%
% Insufficient Documentation
2.92%
Sampling Timeframe Start
Oct 1, 2018
Sampling Timeframe End
Sept 30, 2019
rH
Estimated $ Outlays
1,653.12
o
Estimated $ Improper
20.66
>
h
Estimated IP % Target
1.25%
Based on the challenges grantees encountered having difficulty to obtain documentation for the FY
2020 transaction testing due to the COVID-19 pandemic and the likelihood of this continuing as we
begin the FY 2021 transaction testing, the EPA is maintaining the target IP rate of 1.25%.
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Table 3 provides information on the estimated amount of improper payments made directly by the
federal government and the amount of improper payments made by recipients of federal money.
Table 3: Monetary Loss
($ in millions)
Program
Estimated
Monetary
Monetary
Estimated
Unknown
Total
Loss within
Loss
Non-
(Insufficient
Monetary
the
Outside the
Monetary
Documentation
Loss to the
Agency's
Agency's
Loss to the
to Determine)
Government
Control
Control
Government
Grants
$1.16
$0.00
$1.16
0.00
$15.92
Table 4 identifies the root causes of error.
Table 4: Improper Payment Root Cause Category Matrix (Grants)
($ in millions)
Reason for Improper Payment
Type of Improper Payment
Overpayments
Underpayments
Unknown
T otals
Program Design or Structural Issue
--
--
--
--
Inability to
Authenticate
Eligibility:
Inability to Access Data
--
--
--
--
Data Needed Does Not
Exist
--
--
--
--
Failure to
Verify:
Death Data
--
--
--
--
Financial Data
--
--
--
--
Excluded Party Data
--
--
--
--
Prisoner Data
--
--
--
--
Other Eligibility Data
--
--
--
--
Administrative
or Process
Error Made by:
Federal Agency
--
--
--
--
State or Local Agency
--
--
--
--
Other Party
$1.16
--
--
$1.16
Medical Necessity
--
--
--
--
Insufficient Documentation to Determine
--
--
$15.92
$15.92
Other Reason
--
--
--
--
Totals
$1.16
--
$15.92
$17.08
II. Recapture of Improper Payments Reporting
IPERA requires agencies to conduct payment recapture audit reviews in any program expending more
than $1 million annually. Past experience has demonstrated that the low dollar value of improper
payments recovered by an external payment recapture auditor resulted in an effort that was not cost-
effective for the agency or the contractor. Therefore, the EPA no longer uses a payment recapture audit
firm to conduct formal payment recapture audits.
Nevertheless, the agency performs payment recapture activities internally, leveraging the work of
agency employees and agency resources. As part of this process, each payment stream is routinely
monitored to assure the effectiveness of internal controls and identify issues that could give rise to
overpayments. The agency's payment recapture activities are part of its overall program of internal
control over disbursements, which includes establishing and assessing internal controls to prevent
improper payments, reviewing disbursements, assessing root causes of error, developing corrective
action plans where appropriate, and tracking the recovery of overpayments.
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The following table quantifies the agency's efforts to identify and recapture overpayments across all
payment streams.
Table 5: Overpayments Recaptured Outside of Payment Recapture Audits (i)
($ in millions]
Program
Amount Identified
In FY 2020
Amount Recovered
in FY 2020
Commodities (2)
0.11
0.10
Contracts (2)
1.05
0.52
CWSRF
2.68
2.68
DWSRF
3.29
3.29
Grants
2.53
2.06
Hurricane Sandy
0.00
0.00
Payroll (3)
1.24
1.02
Purchase Cards
0.00
0.00
T ravel
0.018
0.016
2018 Disaster Relief
0.00
0.00
Other (4)
0.42
0.32
Total
11.34
10.01
Recapture Rate - 88 %
(1) EPA does not conduct a formal payment recapture audit, as a formal audit is not cost-effective.
Amounts displayed in this table were identified and recovered using a variety of means available to
the agency.
(2) Amounts for contracts and commodities do not include lost discounts, which are uncollectible.
(3) Payroll consists of salary, benefits, and awards.
(4) "Other" consists of improper payments identified by OIG or GAO audits plus confirmed fraud.
The information provided below summarizes the actions and methods used by the agency to recoup
overpayments, a justification of any overpayments determined not to be collectible, and any conditions
giving rise to improper payments and how those conditions are being resolved.
A) Commodities and Contracts
Given the historically low percentage of improper payments in commodities and contracts, the Agency
relies on its internal review process to detect and recover overpayments. The Agency produces
monthly reports for each payment stream and uses these reports as its primary tool for tracking and
resolving improper payments. These reports identify the number and dollar amount of improper
payments, the source and reason for the improper payment, the number of preventive reviews
conducted, and the value of recoveries.
The commercial payments are subject to financial review, invoice approval, and payment certification.
Since all commercial payments are subject to rigorous internal controls, the Agency relies upon its
system of internal controls to minimize errors. The following is a brief summary of the internal
controls in place over the Agency's commercial invoice payment process.
The payment processing cycle requires that all invoices be subjected to rigorous review and approval
by separate entities. Steps taken to ensure payment accuracy and validity, which serve to prevent
improper payments, include 1) the RTP Finance Center's review for adequate funding and proper
invoice acceptance; 2) comprehensive system edits to guard against duplicate payments, exceeding
ceiling cost and fees, billing against incorrect period of performance dates, and payment to wrong
vendor; 3) electronic submission of the invoice to Project Officers and Approving Officials for
validation of proper receipt of goods and services, period of performance dates, labor rates, and
appropriateness of payment, citing disallowances or disapprovals of costs if appropriate; and 4)
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review by the RTP Finance Center of suspensions and disallowances, if taken, prior to the final
payment certification for Treasury processing. Additional preventive reviews are performed by the
RTP Finance Center on all credit and re-submitted invoices. Additionally, the EPA Contracting Officers
perform annual reviews of invoices on each contract they administer, and DCAA audits are performed
on cost-reimbursable contracts at the request of the Agency.
Vendors doing business with federal agencies occasionally offer discounts when invoices are paid in
full and within the specified discount period (e.g., within 10 days of billing). The EPA makes its best
effort to take all discounts, as they represent a form of savings to the Agency. However, there are valid
reasons for which it is not feasible to take every discount that is offered, including: 1) an insufficient
discount period to process a discount offer, such as a discount offer in which the required processing
time for payment exceeds the number of days of the offer; and 2) a situation in which it is not
economically advantageous to take the discount Specifically, if the discount rate exceeds the
Treasury's current value of funds rate, taking the discount saves the government money, so the
discount is accepted by paying the invoice early. However, if the discount rate is less than the current
value of funds rate, taking the discount is not cost-effective for the government, so the discount is
rejected, and the invoice is paid as close to the payment due date as possible. For FY 2020 reporting,
improper payments stemming from lost discounts totaled $24K for commodities and contracts
combined.
Improper payments can result from typographical errors, payments to incorrect vendors, duplicate
payments, or lost discounts. Numerous training sessions have been conducted, and standard operating
procedures have been reviewed and updated to ensure the most current processes are properly
documented. Any significant changes in policy or procedures are communicated in a timely manner.
Despite the Agency's best efforts to collect all overpayments, some overpayments are not recoverable.
For example, lost discounts can result when the Agency is unable to pay an invoice within the time
period specified by the vendor. While reported as improper payments, lost discounts are not
recoverable and are excluded from the recovery percentage for both contracts and commodities.
B) Clean and Drinking Water State Revolving Funds
The SRFs are not susceptible to significant improper payments. For the SRFs, the agency both identifies
and recovers improper payments during the state review process. The EPA Regions are required to
conduct annual reviews of state SRF programs using checklists developed by Headquarters. Included
in the checklist are questions about potential improper payments which the regions discuss with the
state SRF staff during the reviews. Errors in the SRFs most often arise from duplicate payments, funds
drawn from the wrong account, incorrect proportionality used for drawing federal funds, ineligible
expenses, transcription errors, or inadequate cost documentation. Many of the payment errors are
immediately corrected by the state or are resolved by adjusting a subsequent cash draw. For issues
requiring more detailed analysis, the state provides the agency with a plan for resolving the improper
payments and reaches an agreement on the planned course of action. The agreement is described in
the EPA's Program Evaluation Report, and the Agency follows up with the state to ensure compliance.
C) Grants
For the agency's grants payment stream, overpayments principally consist of unallowable costs or lack
of supporting documentation. When overpayments arise, the EPA seeks to recover them either by
establishing a receivable and collecting money from the recipient or by offsetting future payment
requests. The agency follows established debt collection procedures to recapture overpayments.
The EPA identifies overpayments in grants both through statistical sampling and through non-
statistical means. Recipients selected for non-statistical reviews are chosen based on the results of risk
assessments performed by grants management officers. Using a standard protocol, an onsite or desk
review is performed, and each recipient's administrative and financial management controls are
examined. The reviews include an analysis of the recipient's administrative policies and procedures
and the testing of a judgmental sample of three non-consecutive draws.
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In addition, the agency responds to single audits and audits conducted by the Office of the Inspector
General and uses them as a means of identifying and recovering improper payments. The agency
follows established processes for evaluating questioned costs, validating or disallowing costs where
appropriate, and seeking the recovery of any sustained overpayments. The EPA also identifies
improper payments originating from enforcement actions, grant adjustments, and recipient
overdraws. Grant adjustments arise when a recipient must return any unexpended drawn amounts
prior to close-out of the grant Recipient overdraws occur when funds are erroneously drawn in
advance of immediate cash needs, and the recipient is directed to repay the funds while also being
reminded of the immediate cash needs rule. Depending on the type of error, improper payment
information is tracked by the Office of the Controller and the Office of Grants and Debarment, and the
records of each are reconciled to ensure complete and accurate reporting. The EPA also seeks to
prevent improper payments. Prior to the issuance of a grant award, OGD's Compliance Team conduct
pre-award certification of non-profit recipients that receive awards in excess of $200K to ensure their
written policies and procedures specify acceptable internal controls for safeguarding federal funds. Re-
certifications are conducted every four years. Grants Management Officers (GMOs) concur on all
certifications. GMOs are also required to ensure that recipients are not listed in the Excluded Parties
List System within the System for Award Management. The EPA conducts annual baseline monitoring
reviews of all recipients to ensure overall compliance with assistance agreement terms and conditions,
as well as all applicable federal regulations. If deemed necessary, recipients can be placed on a
reimbursement payment plan which requires submission of cost documentation (receipts, invoices,
etc.) for review and approval prior to receiving reimbursement
D) Hurricane Sandy
Due to several years of sustained low improper payment rates, Hurricane Sandy funding is no longer
considered susceptible to significant improper payments. The EPA continues to conduct oversight of
SRF-related Hurricane Sandy funds through ongoing transaction testing. During FY 2020, no improper
payments were identified.
E) Payroll
The agency's payroll is not susceptible to significant improper payments. Payroll is a largely automated
process driven by the submission of employee time and attendance records and personnel actions. In-
service debt can arise for a variety of reasons during the period of employment When in-service debt
arises, the employee is notified of the debt, given the right to dispute the debt, provided payment
options, and an account receivable is recorded by the agency's shared service payroll provider, the
Interior Business Center. Debts are typically recovered through payroll deductions in subsequent pay
periods.
Out-of-service debt can arise when an employee leaves the agency and owes funds back to the EPA
following separation. The EPA establishes the debt and tracks recovery status. A small portion of the
EPA's out-of-service debt was uncollectible as a result of the separating employee retiring on disability.
For both in-service and out-of-service debt, recoveries are actively pursued by following established
debt collection procedures.
F) Purchase Cards
The purchase card program is not susceptible to significant improper payments, and no improper
payments were identified in FY 2020.
G) Travel
Travel is not susceptible to significant improper payments. For travel, improper payments can include
ineligible expenses and insufficient or missing supporting documentation. When an overpayment is
identified for travel, the agency establishes a receivable, and existing procedures are followed to
ensure prompt recovery.
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III. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative
Initially codified under Enactment of the Improper Payments Elimination and Recovery Improvement
Act of 2012, the Payment Integrity Information Act of 2019 maintains the requirement for federal
agencies to implement the Do Not Pay (DNP) initiative, a government-wide solution designed to
prevent payment errors and detect waste, fraud, and abuse in programs administered by the federal
government.
The EPA's payments are screened by Treasury's DNP working system to detect improper payments.
Treasury analyzes each agency's payments and provides a monthly report itemizing any payments that
were made to potentially ineligible recipients. These potential matches are identified when the name
of an agency's payee matches the name of an individual or entity listed in federal data sources
contained in Treasury's DNP working system.
In FY 2019, Treasury screened the EPA payments against the followingDNP data sources on apost-
payment basis: the Social Security Administration's Death Master File and the General Services
Administration's System for Award Management Exclusion List. Through September 30, 2020,
approximately $1.69 billion of the EPA payments were screened, and no improper payments were
identified. In addition, the EPA screens payments via the Automated Standard Application for
Payments (ASAP), and ASAP's grantee listing is monitored by Treasury. Finally, agency payments are
routinely monitored by the Treasury Offset Program, which offsets federal payments to recipients with
delinquent federal nontax debt These different tools provide a valuable external check of the agency's
payment integrity.
IV. Fraud Reduction
The Payment Integrity Information Act of 2019 requires agencies to improve financial and
administrative controls to identify and assess fraud risks. In accordance with OMB Circular A-123,
"Management's Responsibility for Enterprise Risk Management and Internal Control/' the EPA
incorporated practices, as appropriate, identified in the "GAO Framework for Managing Fraud Risks in
Federal Programs/' to align with the agency's operations.
To increase fraud awareness and create an organizational culture that is committed to combating
fraud, the agency continued to consider all risk factors—strategic, operational, and fraud—when
determining the overall effectiveness of the agency's internal control system. As required in the
agency's FY2020 Guidance for Strategic Reviews and Internal Controls, which integrates strategic
review and internal control processes, national program and regional offices described and
documented the internal controls in place to address risk associated with the strategic goals and
objectives outlined in the FY2018-2022 EPA Strategic Plan, as well as for administrative and financial
processes. The offices conduct reviews and use the Green Book as the basis for determining whether
the organization's system of internal control is designed, implemented, and operating effectively. The
EPA senior management certifies to the soundness of internal controls within the organization and
provides a personal statement of assurance that supports the Administrator's overall statement of
assurance on the agency's internal control system.
As part of its payment integrity program, the EPA regularly identifies and assesses a variety of risk
factors, including fraud risk, in payment streams such as payroll, grants, contracts, travel and purchase
cards. Programs with the potential for elevated fraud risk are evaluated as part of the risk assessment
process under the PIIA. The assessments determined that the level of risk for these payment streams is
low and that the controls were operating effectively. Updated risk assessments are required at least
once every three years. In addition, as part of its payment integrity program, the EPA continues to
work with the OIG to identify as improper payments any confirmed fraud cases resulting in criminal
restitution.
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As outlined in the Statement on Auditing Standards Number 122, Consideration of Fraud in a Financial
Statement Audit, AU-C Section 240, the Chief Financial Officer engaged in a conversation with the
Inspector General on the processes for identifying, responding to and monitoring the risk of fraud in
the agency.
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CIVIL MONETARY PENALTY ADJUSTMENT
FOR INFLATION
Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the EPA
and other federal agencies are required to adjust their maximum and minimum statutory civil penalty
amounts by January 15 each year to account for inflation. In accordance with this requirement, the EPA
promulgated the Civil Monetary Penalty Inflation Adjustment Rule (2020 Rule) on January 13, 2020,
which became effective the same day. For details on the 2020 Rule, see 85 Fed. Reg. 1751-1757,
codified in Table 1 of 40 CFR § 19.4. The EPA will amend 40 CFR § 19.4 in January 2021 to adjust
penalty levels to reflect changes in inflation since the last adjustment
Current Statutory Maximum/Minimum Civil Penalties under
EPA's 2020 Civil Monetary Penalty Inflation Adjustment Rule
U.S. Code Citation
Environmental statute
Year statutory
penalty
authority was
enacted
Latest year of
adjustment
(via statute or
regulation)
Statutory civil penalties
for violations that
occurred after
November 2, 2015,
where penalties are
assessed on or after
January 13, 2020
7 U.S.C. 136/.(a)(1)
FEDERAL INSECTICIDE,
FUNGICIDE, AND
RODENTICIDE ACT (FIFRA)
1972
2020
$20,288
7 U.S.C. 136/.(a)(2)
FIFRA
1972
2020
$2,976
7 U.S.C. 136/.(a)(2)
FIFRA
1978
2020
$2,976/$l,917
15 U.S.C.
TOXIC SUBSTANCES
2016
2020
$40,576
2615(a)(1)
CONTROL ACT (TSCA)
15 U.S.C. 2647(a)
TSCA
1986
2020
$11,665
15 U.S.C. 2647(g)
TSCA
1990
2020
$9,639
31 U.S.C.
PROGRAM FRAUD CIVIL
1986
2020
$11,665
3802(a)(1)
REMEDIES ACT (PFCRA)
31 U.S.C.
PFCRA
1986
2020
$11,665
3802(a)(2)
33 U.S.C. 1319(d)
CLEAN WATER ACT (CWA)
1987
2020
$55,800
33 U.S.C.
CWA
1987
2020
$22,320/$55,800
1319(g)(2)(A)
33 U.S.C.
CWA
1987
2020
$22,320/$278,995
1319(g)(2)(B)
33 U.S.C.
CWA
1990
2020
$19,277/$48,192
1321(b)(6)(B)(i)
33 U.S.C.
CWA
1990
2020
$19,277/$240,960
1321(b)(6)(B)(ii)
33 U.S.C.
CWA
1990
2020
$48,192/$1,928
1321(b)(7)(A)
33 U.S.C.
CWA
1990
2020
$48,192
1321(b)(7)(B)
33 U.S.C.
CWA
1990
2020
$48,192
1321(b)(7)(C)
33 U.S.C.
CWA
1990
2020
$192,768/$5,783
1321(b)(7)(D)
33 U.S.C.
MARINE PROTECTION,
1988
2020
$1,284
1414b(d)(l)
RESEARCH, AND
184
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U.S. Code Citation
Environmental statute
Year statutory
penalty
authority was
enacted
Latest year of
adjustment
(via statute or
regulation]
Statutory civil penalties
for violations that
occurred after
November 2, 2015,
where penalties are
assessed on or after
January 13, 2020
SANCTUARIES ACT
(MPRSA]
33 U.S.C. 1415(a]
MPRSA
1972
2020
$202,878/$267,621
33 U.S.C. 1901 note
CERTAIN ALASKAN CRUISE
2000
2020
$14,791/$36,975
(see
SHIP OPERATIONS (CACSO]
1409 (a] (2] (A]]
33 U.S.C. 1901 note
CACSO
2000
2020
$14,791/$184,874
(see
1409 (a] (2](B]]
33 U.S.C. 1901 note
CACSO
2000
2020
$36,975
(see 1409 (b](l]]
33 U.S.C.
ACT TO PREVENT
1980
2020
$75,867
1908(b](l]
POLLUTION FROM SHIPS
(APPS]
33 U.S.C.
APPS
1980
2020
$15,173
1908(b](2]
42 U.S.C. 300g-3(b]
SAFE DRINKING WATER
ACT (SDWA]
1986
2020
$58,328
42 U.S.C. 300g-
SDWA
1986
2020
$58,328
3(g](3](A]
42 U.S.C. 300g-
3(g](3](B]
SDWA
1986/1996
2020
$ll,665/$40,640
42 U.S.C. 300g-
SDWA
1996
2020
$40,640
3(g](3](C]
42 U.S.C. 300h-
SDWA
1986
2020
$58,328
2(b](l]
42 U.S.C. 300h-
SDWA
1986
2020
$23,331/$291,641
2(c](l]
42 U.S.C. 300h-
SDWA
1986
2020
$11,665/$291,641
2(c](2]
42 U.S.C. 300h-3(c]
SDWA
1974
2020
$20,288/$43,280
42 U.S.C. 300i(b]
SDWA
1996
2020
$24,386
42 U.S.C. 300i-l(c]
SDWA
2002
2020
$141,943/$1,419,442
42 U.S.C. 300j(e](2]
SDWA
1974
2020
$10,143
42 U.S.C. 300j-4(c]
SDWA
1986
2020
$58,328
42 U.S.C. 300j-
SDWA
1996
2020
$40,640
6(b](2]
42 U.S.C. 300j-
SDWA
1988
2020
$10,705/$107,050
23(d]
42 U.S.C.
RESIDENTIAL LEAD-BASED
1992
2020
$18,149
4852d(b](5]
PAINT HAZARD
REDUCTION ACT OF 1992
42 U.S.C.
NOISE CONTROL ACT OF
1978
2020
$38,352
4910(a](2]
1972
42 U.S.C.
RESOURCE
1976
2020
$101,439
6928(a](3]
CONSERVATION AND
RECOVERY ACT (RCRA]
42 U.S.C. 6928(c]
RCRA
1984
2020
$61,098
42 U.S.C. 6928(g]
RCRA
1980
2020
$75,867
42 U.S.C.
RCRA
1984
2020
$61,098
185
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U.S. Code Citation
Environmental statute
Year statutory
penalty
authority was
enacted
Latest year of
adjustment
(via statute or
regulation)
Statutory civil penalties
for violations that
occurred after
November 2, 2015,
where penalties are
assessed on or after
January 13, 2020
6928(h)(2)
42 U.S.C. 6934(e)
RCRA
1980
2020
$15,173
42 U.S.C. 6973(b)
RCRA
1980
2020
$15,173
42 U.S.C.
RCRA
1984
2020
$61,098
6991e(a)(3)
42 U.S.C.
RCRA
1984
2020
$24,441
6991e(d)(l)
42 U.S.C.
RCRA
1984
2020
$24,441
6991e(d)(2)
42 U.S.C. 7413(b)
CLEAN AIR ACT (CAA)
1977
2020
$101,439
42 U.S.C.
CAA
1990
2020
$48,192/$385,535
7413(d)(1)
42 U.S.C.
CAA
1990
2020
$9,639
7413(d)(3)
42 U.S.C. 7524(a)
CAA
1990
2020
$48,192/$4,819
42 U.S.C.
CAA
1990
2020
$385,535
7524(c)(1)
42 U.S.C.
CAA
1990
2020
$48,192
7545(d)(1)
42 U.S.C.
COMPREHENSIVE
1986
2020
$58,328
9604(e)(5)(B)
ENVIRONMENTAL
RESPONSE,
COMPENSATION, AND
LIABILITY ACT (CERCLA)
42 U.S.C.
CERCLA
1986
2020
$58,328
9606(b)(1)
42 U.S.C.
CERCLA
1986
2020
$58,328
9609(a)(1)
42 U.S.C. 9609(b)
CERCLA
1986
2020
$58,328/$174,985
42 U.S.C. 9609(c)
CERCLA
1986
2020
$58,328/$174,985
42 U.S.C. 11045(a)
EMERGENCY PLANNING
AND COMMUNITY RIGHT-
TO-KNOW ACT (EPCRA)
1986
2020
$58,328
42 U.S.C.
EPCRA
1986
2020
$58,328
11045(b)(1)(A)
42 U.S.C.
EPCRA
1986
2020
$58,328/$174,985
11045(b)(2)
42 U.S.C.
EPCRA
1986
2020
$58,328/$174,985
11045(b)(3)
42 U.S.C.
EPCRA
1986
2020
$58,328
11045(c)(1)
42 U.S.C.
EPCRA
1986
2020
$23,331
11045(c)(2)
42 U.S.C.
EPCRA
1986
2020
$58,328
11045(d)(1)
42 U.S.C.
MERCURY-CONTAINING
1996
2020
$16,258
14304(a)(1)
AND RECHARGEABLE
BATTERY MANAGEMENT
ACT (BATTERY ACT)
42 U.S.C. 14304(g)
BATTERY ACT
1996
2020
$16,258
186
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BIENNIAL REVIEW OF USER FEES
The CFO Act of 1990 and OMB Circular No. A-25 Revised, User Charges, directs agencies to biennially
review their fees, royalties, rents, and other charges and to recommend fee adjustments as
appropriate. OMB Circular No. A-25 Revised also directs agencies to review other agency programs
and determine whether fees should be initiated for government services or goods for which fees are
not currently charged.
The EPA's FY 2020 user fee review followed the statutory requirements of each fee program and the
guidelines of OMB Circular A-25 Revised. Our review found the EPA's existing user fee programs
compliant with their statutory requirements regarding the cost recovery of its activities. However, the
agency recommended that the Motor Vehicle and Engine Compliance Fee Program provide additional
information on the program's estimated cost and their allocation methodologies. In FY 2021, the EPA
will review MVECP's additional information and conduct a detailed analysis to ensure fees are aligned
with actual program costs and activities.
In FY 2020, the EPA administered the following user fee programs. The bold-highlighted programs are
statutorily required to recover the full cost of the services provided.
FY 2020 User Fee Programs
Pesticides Registration Service Fees
Pesticides Maintenance Fees
Motor Vehicle and Engine Compliance Fee
Program
Water Infrastructure Finance and
Innovation Act Fees*
e-Manifest Fees*
Toxic Substance Control Act Fees*
Lead-Based Paint Fee Program
Clean Air Part 71 Permit Fees
*New user fee programs
The agency also conducted a review to determine whether fees should be assessed for programs that
provide special benefits to recipients beyond those that accrue to the general public. The review
looked at a subset of the total universe of potential fee programs identified as part of the FY 2018 User
Fee process.
The EPA will be working with OMB in FY 2 021 to determine whether or not exceptions are justified for
each program that was reviewed. For some programs, the cost of collecting fees can often represent an
unduly large part of the fee activity or other conditions may exist that would cause the implementation
of a fee to be inappropriate.
The agency is exploring options and opportunities for programs where collecting fees may be
appropriate, for which the EPA is not recommending an exception to OMB. In the FY 2021 President's
Budget, the agency outlined the following legislative proposals to authorize the EPA to administer (or
adjust existing) fees:
1) The FY 2021 Budget included a proposal to authorize the EPA to establish user fees for entities
that participate in the ENERGY STAR program. By administering the ENERGY STAR program
through the collection of user fees, the EPA would continue to provide a trusted resource for
consumers and businesses who want to purchase products that save them money and help
protect the environment
2) The FY 2021 Budget included a proposal to expand the range of activities thatthe EPA can fund
with existing pesticide registration service fees and maintenance fees.
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The FY 2021 Budget requests authorization for the EPA Administrator to collect and obligate
fees to provide compliance assistance services for owners or operators of a non-transportation
related onshore or offshore facility located landward of the coastline required to prepare and
submit Spill Prevention Control and Countermeasure Plans or Facility Response Plans under
section 311 (j) of the Federal Water Pollution Control Act. Allowing these facilities to
voluntarily request and pay for a service whereby the EPA conducts an on-site, walk-through of
the facility will help expand awareness and understanding of accident prevention processes,
improve the safety of industrial operations, and reduce inadvertent regulatory compliance
violations.
The FY 2021 Budget requests authorization for the Administrator to collect and obligate fees to
provide compliance assistance services for owners or operators of a stationary source required
to prepare and submit a Risk Management Plan under Section 112(r)(7) of the Clean Air Act
Allowing these facilities to voluntarily request and pay for a service whereby the EPA conducts
an on- site, walk-through of the facility will help expand awareness and understanding of
accident prevention processes, improve the safety of industrial operations, and reduce
inadvertent regulatory compliance violations.
The FY 2021 Budget provides language that would appropriate a portion of the Federal Vehicle
and Fuels Standards and Certification program project funds from the Environmental Services
Fund. This change would more directly reflect the relationship between the Program's fee
collections for vehicle and engine certifications and its expenditures as described in the Clean
Air Act (42 USC 7552(b)).
188
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GRANT PROGRAM
The EPA has tracked assistance agreement closeout performance since its first five-year Grants
Management Plan was issued in 2002. The EPA reports in its Annual Financial Report on two
grants closeout performance measures: 90% closure of recently expired grants and 99% closure
of grants that expired in earlier years. The agency has consistently exceeded or met these targets
or, in limited instances, missed them by a few percentage points. Below is a summary table
showing the total number of federal grant and cooperative agreement awards and balances for
which closeout has not yet occurred, but for which the period of performance has elapsed by
more than two years.
CATEGORY
2-3 Years
FY17-18
>3-5 Years
FY15-16
>5 Years
Before FY15
Number of
Grants/Cooperative
Agreements with Zero
Dollar Balances
40
4
9
Number of
Grants/Cooperative
Agreements with
Undisbursed Balances
18
1
5
Total Amount of
Undisbursed Balances
$2,893,044
$241,075
$1,325,430
The EPA has made great progress in reducing the amount of undisbursed balances on expired
grants as well as reducing the number of older grants that have expired but have not been closed
out. The timely closeout of grants can be delayed for a variety of reasons, but generally these
include open audits with unresolved findings and where recipient appeal rights have not yet been
exhausted; or lack of required documentation from the recipient. The EPA monitors unliquidated
obligations (ULOs) on expired assistance agreements as well, requiring an annual review of ULOs
to determine if funds are no longer needed and can be deobligated and the assistance agreement
closed out.
Prior Fiscal Year Submission Updates
A March 2020 EPA Office of Inspector General Report, "EPA Did Not Accurately Report Under the Grants
Oversight and New Efficiency Act and Needs to Improve Timeliness of Expired Grant Closeouts," Report
No. 20-P-0126, found that EPA's 2017 and 2018 GONE Act reporting was incorrect To ensure that
Congress has accurate information regarding EPA's number of open grants at the time of those two
reports, EPA is providing corrected data in the FY 2020 AFR.
Previous FY 2017 Submissions
CATEGORY
2-3 Years
>3-5
>5 Years
Number of
Grants/Cooperative
Agreements with Zero
Dollar Balances
FY 14-15
29
FY12-14
11
Before FY12
3
189
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Number of
Grants/Cooperative
Agreements with
Undisbursed Balances
12
3
0
Total Amount of
Undisbursed Balances
$7,762,717
$1,640,660
0
[FY 2017, pg 154/161]
Corrected FY 2017 Submissions
CATEGORY
2-3 Years
FY17-18
>3-5
FY15-16
>5 Years
Before FY15
Number of
Grants/Cooperative
Agreements with Zero
Dollar Balances
38
13
7
Number of
Grants/Cooperative
Agreements with
Undisbursed Balances
3
2
1
Total Amount of
Undisbursed Balances
$1,146,644
$648,727
$112,410
Previous FY 2018 Submissions
CATEGORY
2-3 Years
FY15-16
>3-5
FY13-15
>5 Years
Before FY13
Number of
Grants/Cooperative
Agreements with Zero
Dollar Balances
29
11
3
Number of
Grants/Cooperative
Agreements with
Undisbursed Balances
12
3
0
Total Amount of
Undisbursed Balances
$7,762,717
$1,640,660
0
[FY 2018, pg 185/195]
190
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Corrected FY 2018 Submissions
CATEGORY
2-3 Years
FY17-18
>3-5
FY15-16
>5 Years
Before FY15
Number of
Grants/Cooperative
Agreements with Zero
Dollar Balances
15
5
6
Number of
Grants/Cooperative
Agreements with
Undisbursed Balances
3
2
1
Total Amount of
Undisbursed Balances
$1,146,644
$648,727
$112,410
191
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Section IV
Appendices
?
i
» sr4
1* PR 0^3
Proofs for o Stronger Future
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APPENDIX A
PUBLIC ACCESS
193
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The EPA invites the public to access its website at www.epa.gov to obtain the latest environmental
news, browse agency topics, learn about environmental conditions in their communities, obtain
information on interest groups, research laws and regulations, search specific program areas, or access
the EPA's historical database.
EPA newsroom: www.epa.gov/newsroom
News releases: www.epa.gov/newsroom/news-releases
Regional newsrooms: https: //www.epa.gOv/newsroom/browse-news-releases#regions
Laws, regulations, guidance and dockets: https://www.epa.gov/laws-regulations
Major environmental laws: https: //www.epa.gov/laws-
regulations/laws-and-executive-orders
EPA's Regulations website: https: //www.epa.gov/laws-regulations/regulations
Where you live: https: //www.epa.gov/children/where-you-live
Community Information: https: //www.epa.gov/nutrientpollution/what-you-can-do-
vour-community
EPA regional offices:
https://www.epa.gov/aboutepa/visi ting-
regional-office
Information sources: https://www.epa.gov/quality/epa-information-
quality- guidelines Hotlines and clearinghouses:
https://www.epa.gov/home/epa-hotlines Publications:
https://nepis.epa.gov/EPA/html/pubindex.html
Education resources: www.epa.gov/students/
Office of Environmental Education: www.epa.gov/education
About EPA: www.epa.gov/aboutepa
EPA organizational structure: www.epa.gov/aboutepa/epa-organizational-structure
EPA programs with a geographic focus: https://www.epa.gov/environmental-
topics/environmental-information-location
EPA for business and nonprofits:
https://www.epa.gov/grants/guidance-non-profit-organizations-
purchasing-supplies-equipment-and-services-under-epa-grants
Small Business Gateway: www.epa.gov/osbp/
Grants, fellowships, and environmental financing: https: //www.epa.gov/grants
Budget and performance: www.epa.gov/planandbudget
Careers: www.epa.gov/careers/
EPA en Espanol: espanol.epa.gov
EPA tieng Viet: https://www.epa.gov/lep/vietnamese
EPA https://www.epa.gov/lep/korean
194
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APPENDIX B
ACRONYMS AND ABBREVIATIONS
195
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ACE Affordable Clean Energy GAAP
ADA Anti-deficiency Act GAO
ADP Action Development Process GMO
AFR Agency Financial Report GSA
AICPA American Institute of Certified Public GTAS
Accountants
APPS Act to Prevent Pollution from Ships HVAC
APR Annual Performance Report IA
ASAP Automated Standard Application for IBC
Payments IPERA
B&F Building and Facilities
BFS Bureau of Fiscal Services IPIA
BP British Petroleum IPP
CAA Clean Air Act LUST
CACSO Certain Alaskan Cruise Ship Operations MOU
CARES Coronavirus Aid, Relief and Economic MPRSA
Security Act
CEC Commission of the North American NEIC
Agreement on Environmental
Cooperation NPL
CERCLA Comprehensive Environmental Response NRDA
Compensation and Liability Act OCE
CDPHE Colorado Department of Public Health OECA
and Environment
CFO Chief Financial Officer OCFO
CO Contracting Officer OFR
CSRS Civil Service Retirement System OGD
CW Clean Water OIG
CWA Clean Water Act OMB
CWSRF Clean Water State Revolving Fund OPA
0PM
Generally Accepted Accounting Principles
Government Accountability Office
Grants Management Office
U.S. General Services Administration
Governmentwide T reasury Accounting
Symbol Adjusted Trial Balance System
Heating, Ventilation, and Air Conditioning
Interagency Agreement
Interior Business Center
Improper Payments Elimination and
Recovery Act
Improper Payments Information Act
Invoice Processing Platform
Leaking Underground Storage Tank
Memorandum of Understanding
Marine, Protection, Research, and
Sanctuaries Act
National Enforcement Investigations
Center
National Priorities List
Natural Resource Damages Assessment
Office of Civil Enforcement
Office of Enforcement and Compliance
Assurance
Office of the Chief Financial Officer
Office of the Federal Register
Office of Grants and Debarment
Office of Inspector General
Office of Management Budget
Oil Pollution Act
Office of Personnel Management
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DATA Data Accountability and Transparency ORD
Act PFCRA
DCAA Defense Contract Audit Agency PMA
DM&R Deferred Maintenance and Repairs PO
DNP Do Not Pay PP&E
DW Drink Water PRASA
DWH Deepwater Horizon
DWSRF Drinking Water State Revolving PRIA
Fund
EPA U.S. Environmental Protection Agency PROMESA
EPCRA Emergency Planning and Community Right-
to-know Act PRP
EPM Environmental Programs and Management RCRA
Federal Acquisition Regulations
Fixed Assets Subsystem
FAS RTF
RTP
FASAB Federal Accounting Standards SARA
Advisory Board
FBWT Fund Balance with Treasury SDWA
FECA Federal Employees Compensation Act SFFAS
FERS Federal Employees Retirement System
FFMIA Federal Financial Management SOP
Improvement Act of 1996 SRF
FIFRA Federal Insecticide, Fungicide and SSC
Rodenticide Act S&T
FMFIA Federal Managers' Financial Integrity Act of STAG
1982 TED
Financial Report Treasury
P^pp Federal Real Property Profile TSCA
Fiscal Year USSGL
WCF
WIFIA
Office of Research and Development
Program Fraud Civil Remedies Act
President's Management Agenda
Project Officer
Plant, Property and Equipment
Puerto Rico Aqueduct and Sewer Authority
Pesticides Registration Improvement Act
Puerto Rico Oversight, Management, and
Economic Stability Act
Potential Responsible Party
Resource Conservation and Recovery Act
Repair and Improvement
Reduce the Footprint
Research Triangle Park
Superfund Amendments and
Reauthorization Act
Safe Drinking Water Act
Statement of Federal Financial Accounting
Standards
Standard Operating Procedures
State Revolving Fund
Superfund State Contracts
Science & Technology
State and Tribal Assistance Grants
Talent Enterprise Diagnostic
U.S. Department of Treasury
Toxic Substance Control Act
U.S. Standard General Ledger
Working Capital Fund
Water Infrastructure Finance and
Innovation Act
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WE WELCOME YOUR COMMENTS!
Thank you for your interest in the U.S. Environmental Protection Agency's Fiscal Year 2020 Agency
Financial Report. We welcome your comments on how we can make this report a more informative
document for our readers. Please send your comments to:
Office of the Chief Financial Officer
Office of Financial Management
Environmental Protection Agency
1200 Pennsylvania Ave., NW
Washington, D.C. 20460
ocfoinfo@epa.gov
This report is available at
http://www.epa.gov/planandbudget
Printed copies of this report are available from EPA's National Service Center for Environmental
Publications at 1-800-490-9198 or by email at nscep@bps-lmit.com.
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U.S. Environmental Protection Agency
Fiscal Year 2020 Agency Financial Report
EPA-190-R-20-001
November 16,2020
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