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ABOUT THIS REPORT
The U.S. Environmental Protection Agency (EPA)
Fiscal Year 2019 Agency Financial Report (AFR)
provides an overview of the financial and
performance results for the fiscal year (FY)
spanning October 1, 2018 through September 30,
2019.
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 2019 AFR includes EPA's FY 2019
Financial Statements Audit Report and the
Agency's FY 2019 Management Integrity Act
Report, including the Administrator's statement
assuring the soundness of the Agency's internal
controls. In compliance with the Inspector
General Act of 1978 as amended, the AFR also
presents EPA's report on FY 2019 progression in
addressing Office of Inspector General (OIG) audit
recommendations.
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
EPA's FY 2019 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 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.
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 EPA's
programmatic and financial activities. The
financial information within the AFR will be
supplemented by EPA's Annual Performance
Report (APR), which will present the Agency's FY
2019 performance results as measured against
the targets established in its FY 2019
Performance Plan and Budget and the goals
established in its FY 2018-2022 Strategic Plan.
EPA's FY 2019 APR will be included with the
Agency's FY 2020 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 EPA's internet at:
http://www.epa.gov/planandbudget/results.
Section II—Financial Section
This section includes the Agency's
independently audited financial statements,
which comply with the CFO Act, and 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
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 2019 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[[[15
Financial Management for the Future[[[19
Limitations of the Principal Financial Statements 19
IMPROVING MANAGEMENT AND RESULTS[[[ 20
Office of Inspector General Audits, Evaluations, and Investigations 20
Grants Management 20
ACCOUNTABILITY: SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE 21
Federal Managers' Financial Integrity Act (FMFIA) 21
The Digital Accountability and Transparency Act 21
Federal Financial Management Improvement Act (FFMIA) 21
FY 2019 Annual Assurance Statement 23
SECTION II - Financial Section 25
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PROGRESS IN ADDRESSING FY 2018 WEAKNESSES [[[ 169
Material Weaknesses[[[ 169
Summary of Financial Statement Audit[[[ 170
Summary of Management Assurances 170
REDUCE THE FOOTPRINT 171
PAYMENT INTEGRITY 172
I. Payment Reporting 173
II. Recapture of Improper Payments Reporting 175
III. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative 179
IV. Sampling and Estimation 179
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Message from the Administrator
November 19, 2019
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
It is my privilege to present you with the U.S. Environmental
Protection Agency's Fiscal Year 2019 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 20th 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. As the EPA approaches its 5G1h year of working
toward our mission of protecting human health and the environment, we have a lot to celebrate.
When you called on me to take the lead as EPA Administrator, you asked me to do three things:
continue to clean up the air, continue to clean up the water, and continue to deregulate to help the economy
thrive and create more jobs for American workers. As you will see, we are doing all of those things, and
more. My vision is that the agency's decisions help bring certainty to those whom they affect. This means
certainty for the states, tribes and local governments that implement the EPA's rules and rely on the EPA's
guidance; certainty within the EPA's programs, such as permitting and enforcement actions; and certainty
in risk communication so that Americans can be better informed of environmental threats.
Through the EPA's Water Infrastructure Finance and Innovation Act Loan program, we are
investing in America's water infrastructure like never before. FY 2019 was only the second year the agency
has issued loans under the new WIFIA program, and the agency has processed approximately $3 billion in
WIFIA loan requests from our state, local and tribal partners. These infrastructure investments help ensure
that communities across the nation have access to clean and safe drinking water by helping communities
replace old, outdated, and often lead-containing drinking water systems. Additionally, the loan program
has already resulted in the creation of more than 12,000 jobs. And the WIFIA program's active pipeline of
pending applications and projects will lead to billions of dollars of future investments and the creation of
thousands of additional jobs.
The EPA is also focused on continuing to reduce carbon dioxide emissions and improve air quality
for all Americans. The agency recently issued the final Affordable Clean Energy rule, which we project
will help reduce U.S. power sector carbon dioxide emissions by as much as 35 percent below 2005 levels
by 2030 - even as the economy improves. The ACE rule operates within the Clean Air Act and establishes
emission guidelines for limiting C02 emissions from the power sector. As a result, the agency anticipates
approximate annual net benefits to the public of $120 to $730 million. These benefits build upon the
amazing clean air results that we have already seen as a nation. Between 1970 and 2018, the combined
emissions of six key pollutants dropped by 74 percent, while the U.S. economy grew 275 percent.
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One of our top priorities remains protecting children's health. I recently reaffirmed the agency's
Policy on Evaluating Health Risks to Children as we work to ensure that all children, especially those in
vulnerable communities, can thrive by living, learning and playing in healthy environments. Under your
tenure, we are doing what previous administrations have failed to do by updating and improving federal
regulations protecting our drinking water from lead and copper. In October, the EPA proposed the first
major overhaul of the Lead and Copper Rule since 1991, marking a critical step in advancing the Trump
Administration's Federal Action Plan to Reduce Childhood Lead Exposures. This includes a focus on
infrastructure improvements, such as lead service line identification and replacement, requiring water
systems to replace their portion of a lead service line when a customer chooses to replace their portion of
the line. The proposal also focuses on five additional areas that would require a community water system
to take new actions, including identifying the most impacted areas by requiring lead service line
inventories; strengthening drinking water treatment by requiring corrosion control treatment; increasing
drinking water sampling reliability; improving risk communication to customers by requiring notifications
within 24 hours if a sample collected in their home is above 15 parts per billion of lead; and requiring water
systems to take drinking water samples from the schools and child care facilities served by the system. The
EPA has also funded our states and tribal governments with approximately $24 million to test for lead in
drinking water in schools and childcare facilities. And we awarded more than $9 million in rebates to
school bus fleets to help replace older, dirtier school buses with newer, cleaner vehicles. In the FY 2020
Budget, the agency also proposed a new EPA program that would provide $50 million to establish a new
Healthy Schools Grant Program. This new program is intended to address gaps in school environmental
health programs by working with and through our state, tribal and community partners to reduce asthma
triggers, promote integrated pest management and reduce or eliminate childhood exposure to lead and
toxics in schools across all environmental media.
The agency has also continued to elevate the Superfund program as a top priority. In FY 2019,
seven additional sites were added to the National Priorities List. By adding these sites, the agency is taking
action to clean up some of the most contaminated sites, protect the health of the local communities and
return sites to safe and productive reuse. While seven sites were added to the NPL, 12 sites were fully
deleted last year. Superfund cleanups provide health and economic benefits to communities. The program
is credited for significant reductions in birth defects and blood-lead levels among children living near sites
as well as leveraging more than $13 billion in economic activity at 529 Superfund sites returned to
productive use.
As envisioned in the Hazardous Waste Electronic Manifest Establishment Act of 2012, the agency
continues to use an e-Manifest system to track hazardous waste. Implemented in late FY 2018, the
system is transitioning paper-based manifests into an electronic tracking system for hazardous waste
shipments, reducing burden for state and industry users. During FY 2019, using the agency' s e-Manifest
system reduced the state and industry burden for processing hazardous waste manifests by over $15
million.
Every year, the EPA responds to damages and contamination resulting from hurricanes, floods,
wildfires and other natural disasters. In FY 2019, the agency entered into a Memorandum of Understanding
to streamline coordination between the EPA's State Revolving Fund programs and the Federal Emergency
Management Agency to respond more quickly to disasters and restore water infrastructure more efficiently.
This first-of-its-kind MOU will have a strong impact on our response efforts in future disasters and delivers
on the Administration's commitment to protect human health and the environment by helping communities
and utilities prepare for and respond to natural disasters and other emergencies. Another aspect of our
emergency response is safeguarding sites during natural disasters or emergencies. When Hurricane Maria
left massive destruction in Puerto Rico, the EPA responded by mobilizing several hundred staff to help
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collect hazardous materials. When wildfires broke out in northern California, the EPA and its federal, state,
and local partners conducted Superfund site assessments, debris removal, and air quality monitoring. And
when Hurricane Florence hit North Carolina's coast, we worked with our partners to ensure that Superfund
sites and other facilities in the storm's path were secured.
The EPA also continues to implement a number of agency reform efforts intended to standardize
and modernize agency operations. We have created an Office of Continuous Improvement and are
implementing an agencywide EPA Lean Management System designed to promote more efficient and
effective operations across the agency. Also, by supporting the President's Management Agenda, the EPA
is advancing process improvements and reducing long-term costs. Our efforts to migrate to shared services
in support of the PMA and the Cross-Agency Priority goals will continue to save taxpayers money as the
agency uses federal solutions such as the General Service Administration's badging program and the
Department of the Interior's training tool. In another example, through our efforts on the Getting Payments
Right CAP goal, the agency is working to improve payment processing and the accuracy of payment
issuance.
I take pride in this report and ensuring the financial and performance data is a reliable, complete
and fully transparent reflection of our efforts to continue improving financial management, performance
and accountability. My assurance statement, as required under the Federal Managers' Financial Integrity
Act, appears in Section I, "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 2019 will be highlighted in the upcoming FY
2021 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 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, EPA has worked for over four decades to identify, evaluate, and execute sustainable solutions to
existing and emerging environmental concerns.
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.
"EPA's nearly $100 million W1FIA loan to Miami-Dade
Co. will help construct advanced wastewater treatment
technologies that will protect our oceans & beaches
while creating valuable jobs."
Since its inception, 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 EPA's work to monitor and regulate
pollutants, evaluate new chemicals, and inspire better decision-
making are helping to safeguard our environmental future.
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, EPA motivates individuals and
organizations to better recognize and engage in environmental protection and develop lasting solutions
domestically and internationally.
Mission
The mission of EPA is to protect human health and the
environment.
To accomplish this mission, EPA depends upon the most accurate
scientific information to identify human health and environmental
concerns that affect policy decisions and enforcement actions. EPA
works to ensure all communities, individuals, businesses, and
state, local and tribal governments have access to accurate
information sufficient to effectively participate in delivering a
cleaner, safer, and healthier environment. 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.
https://www.epa.gov/newsreleases
What EPA Does
¦S Enforce environmental laws
¦S Responds to the release of
hazardo lis substances
¦S Gives grants to states, local
communities, and tribes
S Studies environmental issues
S Sponsors partnerships
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Organization
EPA's headquarters is located in Washington, D.C. Together, 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.
Office of Air and Radiation
Develops national programs,
policies, and regulations for
controlling air pollution and
radiation exposure.
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 Chemical Safety
and Pollution Prevention
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.
Works carry out Agency's mission
while advancingU.S. national
interests through international
environmental collaboration and
strengthening environmental
protection in Indian Country.
Office of International and
Tribal Affairs
Provides legal support for Agency
rules and policies, case-by-case
decisions, defensive litigation,
operations, and legislation.
Office of General Counsel
Office of Inspector General
Conducts independent audits,
evaluations and investigations,
promotes economy, efficiency and
effectiveness; helps to prevent
fraud, waste, abuse,
mismanagement and misconduct.
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
Ensures drinking water issafe,
restores & maintains oceans,
watersheds, and their aquatic
ecosystems protecting human
health, support economic &
recreational activities, & healthy
habitats for fish, plants, & wildlife.
Office of Water
Office of the Chief
Financial Officer
Manages Agency's annual budget
and performance plan,
coordinates EPA's strategic
planning efforts, provides financial
se rvices for the Agency, & makes
all Agency payment transactions.
Region 8
Denver, CO
Region 6
Dallas, TX
Region 7
Kansas City, KS
Region 5
Chicago, IL
Office of the
Administrator
Provides overall supervision of the
Agency and is responsible directly to
the President of the United States.
Office of Land and
Emergency Management
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 Mission Support
Provides national leadership,
policy, & management of many
essential Agency support
functions.
Region 1
Boston, MA
Region 2
New York, NY
Region 3
Philadelphia, PA
Region 4
Atlanta, GA
Region 9
San Francisco, CA
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Region 10
Seattle, WA
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Regional Map
WA
ND
MT
ME
MN
SD
VT
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FY 2019 PROGRAM PERFORMANCE
Detailed FY 2019 performance results will be presented in EPA's FY2019 Annual Performance Report (APR).
EPA will include its FY2019 APR with its FY2021 Annual Performance Plan and Budget. These reports, along
with FY 2019 performance results are posted at http://www.epa.gov/planandbudget concurrent with the
publication of the FY2021 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 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 2019:
• Agency Financial Statements, For the 20th consecutive year, EPA's OIG issued a "clean" audit opinion,
unmodified, in the Agency's financial statements. This accomplishment underlines EPA's consistency in
timely, reliable, and accurate financial information that is reported in all material aspects.
• Anti-Deficiency Act. In FY 2019, EPA reported two sets of Anti-Deficiency Act violations related to the
voluntary services prohibition, which occurred at various points between 2011 and 2016. The agency
began taking corrective actions in July 2017 and has fully corrected these violations.
• Water Infrastructure Finance and Innovation Act. Through ongoing collaboration with states, tribes,
municipalities, and private entities, the EPA was able to issue 9 WIFIA loans nationwide to fund high-
priority infrastructure investments, each of which ensure our mission of protecting human health and
the environment.
• EPA's Lean Management System, EPA implemented an agencywide initiative of continuous
improvement systems to assess and increase efficiency for various financial processes, including
Superfund Billing, Internal Control Reviews, processing Freedom of Information Act requests,
Conference Spending reporting, and the Governmentwide Treasury Account Symbol Submission
process. These lean management approaches, which identify and solve problems as they occur, has
resulted in more streamlined processes and increased transparency.
• Improper Payments Elimination and Recovery Act Reporting, EPA continues to maintain sustained
low improper payment rates across its principal payment streams. The Office of the Inspector General's
auditof EPA's FY 2018 improper payment reporting determined EPA was in full compliance with
IPERA, which marks the sixth consecutive year of compliance for EPA. The agency anticipates achieving
a seventh straightyear of compliance for FY 2019 reporting.
• e-Manifest. During FY 2019, the EPA continued to reduce the burden of costs associated with
hazardous waste manifests through the use of the agency's e-Manifest system, reducing the state
burden for processing manifests by over $15 million.
• Superfund Interagency Agreements. This fiscal year, the Office of the Inspector General's audit of
Superfund Interagency Agreements (IA) identified over $3 billion in EPA active agreements. The audit
noted this success is due to the Agency maintaining an effective system for monitoring IA projects
between other federal agencies for Superfund work.
• G-Invofclng. EPA has begun 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 being able to maintain our core mission in the most effective and efficient
manner.
• E-Invoicing. To maintain financial integrity and accountability the agency is implementing electronic
invoicing through a web-based system, Invoice Processing Platform (IPP), that streamlines invoice
processing into a centralized location. This system has the potential to save taxpayer dollars and
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minimize improper payments.
• 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 FY 2019, the WCF began its twenty-third
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 CPA firm to conduct an annual audit For the 16th 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.
• Financial Management Challenges, During the FY 2019, Financial Statements audit, the Office of
Inspector General identified one new material weakness related to the agency's preparation of the
financial statements. The agency will continue to review its processes for preparing financial statements
and identify process improvements to strengthen the preparation process further.
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Financial Condition and Results
Financial statements are formal financial records that
document 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.
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 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, 2019, and September
30, 2018. The statement of net cost shows EPA's
gross cost to operate, minus exchange revenue
earned from its activities. Together, these two
statements provide information about key
components of 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 2017.
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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)
$20
II
lln
Assets Liabilities Net Position Net Cost of
Operations
12017 H2018 ¦ 2019
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EPA Resources and Spending
The figure below depicts 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)
$18
$16
$14
$12
$10
$8
2015 2016 2017 2018 2019
4 Budgetary Resources ^^—Obligations «^"Total Outlays
Assets—What EPA Owns and Manages
EPA's assets totaled $17.48 billion at the end of FY 2019, an increase of $1.42 billion from the FY 2018
level. In FY 2019, approximately 91 percent of EPA's assets fall into two categories: fund balance with
Treasury and investments. All of EPA's investments are backed by U.S. government securities. The graph
below compares the agency's FY 2019 and FY 2018 assets by major categories.
Receivable (Net) 4%
Other Assets
1%
Investments
FY 2018 COMPOSITION OF ASSETS
FY 2019 COMPOSITION OF ASSETS
Accounts Receivable (Net) 4% _ ,
Fund Balance
with Treasury
57o/o
Property, Plant,
and Equipment
(Net)
4%
34%
Investments
Accounts Receivable (Net) 3%
Property, Plant,
and Equipment
(Net)
4%
Fund Balance
with Treasury
57%
34%
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Liabilities—What EPA Owes
EPA's liabilities were $4.76 billion at the end of FY 2019, a decrease of $238 million from the FY 2018
level. In FY 2019, EPA's largest liability (73 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, EPA's debt due to
Treasury, custodial liabilities that are necessary to maintain assets for which EPA serves as custodian,
environmental cleanup costs, and other miscellaneous liabilities. The graphs compare FY 2019 and
FY 2018 liabilities by major categories.
FY 2019 COMPOSITION OF LIABILITIES
Payroll and Benefits
FY 2018 COMPOSITION OF LIABILITIES
Other
Cashout Advances, Superfund
73%
Accounts Payable
and Accrued
Liabilities
14%
Payroll and Benefits
4%
Other
Cashout Advances, Superfund
74%
Accounts Payable
and Accrued
Liabilities
13%
Net Cost of Operations—How EPA Used Its Funds
The graph that follows show how EPA's funds are expended among five expenditure accounts in FY 2019
and FY 2018.
FY 2019 NET COST BY PROGRAM
FY 2018 NET COST BY PROGRAM
State and Tribal Assistance
Agreements
47% -\
Superfund
13%
Environmental
Programs &
Management
31%
Leaking Underground
Storage Tanks
State and Tribal Assistance
Agreements
45%
Environmental
Programs &
-Management
34%
Science &
Technology
Leaking
Underground
Superfund
Science & Technology
9%
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Stewardship Funds
EPA serves as a steward on behalf of the American people. The chart below presents four categories of
stewardship: land, research and development, infrastructure, and human capital. In FY 2019, EPA
devoted a total of $3.8 billion to its stewardship activities.
FY 2019 STEWARDSHIP FY 2018 STEWARDSHIP
Research &
Development
13%
Human
Research &
Development
16%
Capital
Human
Capital
1%
Infrastructure
83o/o
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. EPA's budget included nearly $3.32 billion in FY 2019 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 enhancement of water infrastructure, allowing
for cleaner water bodies and crucial access to safer drinking water for millions of people.
• Research and development activities enable EPA to identify and assess important risks to human
health and the environment. This critical research investment provides the basis for 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 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, 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
A detailed discussion of this information is available in Section III of this report, under the
Required Supplementary Stewardship Information.
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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: 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. EPA is integrating financial information
into everyday decision-making so that it maximizes the use of its resources.
Systems: 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
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). 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 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 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
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 2019, OIG identified key management challenges and internal control weaknesses. OIG audits,
evaluations, and investigations resulted in:
• 240 recommendations accounting for over $314.0 million in potential savings and recoveries;
• 119 actions taken by the Agency for improvement from OIG recommendations; and
• 384 criminal, civil, or administrative enforcement actions.
Grants Management
EPA has two major grants management metrics, one for grant competition, the other for grants closeout For
FY 2019, the agency exceeded the grant competition metric by 5%, and was just under both the 99% and
90% targets for grant closeouts.
Grants Management Performance Measures for EPA
Performance Measure
Target
Progress in FY 2019
Progress in FY 2018
Percentage of eligible grants
closed out
90%*
87.3% of grants that expired in
2018
83.3 % of grants that expired
in 2017
99%**
97.7% of grants that expired
in 2017 and earlier
99% of grants that expired in
2016 and earlier
Percentage of new grants
subject to the competition
policy that are competed***
90%
95%
93%
*Percentage of open grants that expired in 2018 that were closed in performance year.
**Percentage of open grants that expired in 2017 and earlier that were closed in performance year.
***The Environmental Protection Agency Policy for Competition of Assistance Agreements establishes
requirements for the competition of assistance agreements (grants, cooperative agreements, and
fellowships) to the maximum extent practicable.
20
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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.
During FY 2019, 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 2019, the EPA identified one new material weakness related to the agency's preparation of the
financial statements. The Agency had one existing material weakness related to internal controls over
financial reporting and has completed all corrective actions for this weakness. 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 one new material weaknesses during the FY 2019 financial statement audit
Internal Controls Over Financial Management Systems
The Federal Financial Management Improvement 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 new
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 2019
evaluations, the Administrator can provide reasonable assurance on the adequacy and effectiveness of the
EPA's internal controls over financial management systems.
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 OMB and the Department of
the Treasury, for publication on USASpending.gov.
In FY 2017, the EPA certified compliance with OMB guidance and provided reasonable assurance that
21
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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 that 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, but for what
could not be addressed timely, to fully document the cause of the warnings within the Statement of
Assurance. Therefore, the EPA used the Statement of Assurance as the document to illustrate that even
though our data had flaws, the Agency understood and thought about the issues in the larger context of the
DATA Act submission.
In FY 2019, 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.
Also, in FY 2019, the agency developed its Data Quality Plan, as per Treasury guidance. The goal of this plan
is to look at areas of data quality to help improve the presentation within USASpending.gov. Many of the
issues identified in the plan are long-term and multi-year projects, as they involve improving the integration
between administrative and financial systems. However, the agency also identified some short-term action
items that can be investigated and implemented in FY 2020.
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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.
EPA's FY 2019 assessment included the following:
• A-12 3 review found no significant deficiencies.
• An Office of Inspector General's (OIG) FY 2019 report identified items in the information security
program as a management challenge. The report states:
• The Agency lacks a holistic approach to managing accountability over its contractors and lacks
follow-up on corrective actions taken. The Agency closed one of the two applicable findings in
July 2019 and submitted documentation to close the second in September 2019.
• Agency personnel did not create the required Plan of Action and Milestones (POA&M) to correct
unremediated weaknesses for their respective systems. The Agency subsequently developed and
provided a corrective action plan with a milestone date for implementing a strategy to address
the deficiency. As part of the strategy, the EPA further acknowledged that it would implement an
appropriate control to validate that agency personnel are creating POA&Ms to manage
weaknesses from vulnerability scans.
• The Agency lacks two key management controls over its information security weakness tracking
system: controls that allow only authorized activities to occur and controls that reflect data
modification in audit logs. The Agency established a process to periodically review settings in the
agency's information security weakness tracking system to validate that each setting is
appropriately implemented and compliant with the agency's standards. The Agency is
collaborating with the tracking system vendor and, if possible, will implement system changes to
capture data changes.
• The Agency's annual Federal Information Security Modernization Act Report is not final as of this
draft Several weaknesses have been identified and a complete accounting will be provided in the
final submission.
• The Agency conducted other systems-related activities, including:
o Third-party control assessments
o Network scanning for vulnerabilities
o Annual certification for access to the Agency's accounting system
Based on the assessment described above, the Agency is in compliance with the FFMIA for FY 2019.
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Fiscal Year 2019 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 th q Federal Managers' Financial Integrity
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 controls 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 of1996 requires management to ensure financial
management systems provide reliable, consistent disclosure of financial data. In accordance with Appendix
D of OMB Circular A-123, the agency evaluated whether financial management systems substantially
comply with the FFMI A requirements.
The EPA did not identify any new material weaknesses during FY 2019 and completed corrective
actions for one previously identified material weakness regarding unearned revenue. In FY 2019, the
agency updated, validated and implemented new accounting models in the accounting system. More
information on the previously identified material weakness is provided in Section III, "Other
Accompanying Information," of the Agency Financial Report.
Subsequently, during the FY 2019 Financial Statements audit, the Office of Inspector General
identified one material weakness related to the agency's preparation of the financial statements. The agency
will continue to review its processes for preparing financial statements and identify process improvements
to strengthen the preparation process further.
Based on the results of the EPA's assessments and recent program improvements, I can provide
reasonable assurance that the agency's internal controls over operations were operating effectively and that
financial management systems conform to governmentwide standards as of September 30, 2019. The
agency's internal controls over financial reporting were operating effectively as well.
Act.
NOV 1 I III
Andrew R. Wheeler
Administrator
Date
24
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Section II
Financial Section
KtO »rA
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Message from the Acting Chief Financial Officer
I am pleased to present the U.S. Environmental Protection Agency's FY 2019
Agency Financial Report. This report lays out the EPA's FY 2019
accomplishments and provides transparency into how the agency effectively
uses the resources entrusted to us to protect human health and the environment.
FY 2019 marks the 20th consecutive year that the EPA achieved an unmodified
"clean" audit opinion on its financial statements. It is a milestone that few other
federal agencies have achieved. I am honored to work with the dedicated staff
who have - through their commitment to the agency's mission - maintained the
financial integrity of the organization across administrations while achieving
environmental results that benefit everyone who breathes air and drinks water in
the United States.
The EPA is continuously working to strengthen its internal operations. The agency has one new
material weakness and a corrective action plan has been established to mitigate in FY2020. In addition,
in FY 2019, the EPA implemented corrective actions and issued additional guidance for awarding and
managing Superfund Interagency Agreements which improved the fiscal responsibility for Superfund
activities. This allowed the agency to better use funds in the Superfund program and save approximately
$2.5 million that would have been spent on operational expenditures.
As Acting Chief Financial Officer, I have made it a priority to standardize the agency's financial
business practices and modernize our information technology systems. To support the President
Management Agenda's Cross-Agency Priorities Goals, the EPA is working to increase its use of federal
shared service providers to streamline and standardize internal operational processes. In FY 2019, for
example, the agency introduced a Payment Processing Modernization strategy to improve service
delivery while decreasing redundancies and costs.
During FY 2019, the EPA performed risk management assessments across the agency, including in the
financial management and financial systems areas. These assessments assist the agency in continuing
efforts to strengthen internal controls, mitigate risk, and prevent fraud, waste, and abuse of our
resources. They also serve to help identify potential areas to explore business process improvements,
standardization, and economies of scale.
The agency is dedicated to serving our mission and the public. The Office of the Chief Financial
Officer's continued participation in the EPA's Lean Management System will help us strengthen our
ability to maintain the highest financial management standards. As we embrace a culture of continuous
improvement, I am dedicated to strengthening partnerships with our stakeholders and improving our
processes to enhance operational efficiency. Our financial management team remains committed to our
fiduciary responsibilities and will continue supporting the agency as it delivers real results for the
American people. -—
David A. Bloom
Acting Chief Financial Officer
November 19, 2019
26
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EPA'S FISCAL YEARS 2019 AND 2018
CONSOLIDATED FINANCIAL STATEMENTS
(With Restatements)
27
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Table of Contents
Principal Financial Statements 29
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies 36-45
Note 2. Fund Balance with Treasury (FBWT) 46
Note 3. Cash and Other Monetary Assets 46
Note 4. Investments 47
Note 5. Accounts Receivable, Net 48
Note 6. Other Assets 48
Note 7. Loans Receivable, Net 48 - 51
Note 8. Accounts Payable and Accrued Liabilities (Restated) 51-52
Note 9. General Property Plant and Equipment 52
Note 10. Debt Due to Treasury 52
Note 11. Stewardship Property, Plant and Equipment 52 - 53
Note 12. Custodial Liability 53
Note 13. Other Liabilities (Restated) 53 - 54
Note 14. Leases (Restated) 54-55
Note 15. FECA Actuarial Liabilities 55 - 56
Note 16. Cashout Advances, Superfund 56
Note 17. Commitments and Contingencies 56 - 57
Note 18. Funds from Dedicated Collections (Unaudited) 58 - 61
Note 19. Cost of Stewardship Land 61
Note 20. Environmental Cleanup Costs 61-62
Note 21. State Credits 62
Note 22. Preauthorized Mixed Funding Agreements 62-63
Note 23. Custodial Revenues and Accounts Receivable 63
Note 24. Reconciliation of President's Budget to the Statement ofBudgetary Resources 63
Note 25. Recoveries and Resources Not Available, Statement ofBudgetary Resources 63
Note 26. Unobligated Balances Available 64
Note 27. Undelivered Orders at the End of the Period 64
Note 28. Offsetting Receipts 64
Note 29. Transfers-In and Out, Statement of Changes inNet Position 65
Note 30. Imputed Financing 66
Note 31. Payroll and Benefits Payable 66-67
Note 32. Other Adjustments, Statement of Changes inNet Position 67
Note 33. Non-Exchange Revenue, Statement of Changes inNet Position 67
Note 34. Reconciliation of Net Cost of Operations to Budget 68
Note 35. Amounts Held byTreasury (Unaudited) 69-72
Note 36. Reclassified Financial Statements forGovernment-wide Reporting 72-75
Note 37. Restatements 76
Required Supplementary Information (Unaudited) 77 - 80
Deferred Maintenance 77
Supplemental Statement ofBudgetary Resources 80
Required Supplemental Stewardship Information (Unaudited) 81 - 83
Investment in The Nation's Research and Development: 81
Investment in The Nation's Infrastructure: 82
Human Capital 83
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Principal Financial Statements United States Environmental Protection Agency
Consolidated Balance Sheet
As of September 30, 2019 and 2018 (Restated)
(Dollars in Thousands)
Restated
2019 2018
ASSETS
Intragovernmental:
Fund Balance With Treasury (Note 2)
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Other (Note 6)
Total Intragovernmental
$ 10,056,926
5,997,657
34,802
210.591
16,299,976
9,184,092
5,498,047
17,849
212.509
14,912,497
Cash and Other Monetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivable, Net (Note 7)
Property, Plant and Equipment, Net (Note 9)
Other (Note 6)
Total Assets
10
500,886
263
671,207
7,714
10
458,456
687,393
3,288
X 17.480.056 X 16.061.644
LIABILITIES
Intragovernmental:
Accounts Payable and Accrued Liabilities (Note 8) $ 136,825 $ 130,462
Debt Due to Treasury (Note 10) 266
Custodial Liability (Note 12) 36,494 26,544
Other (Notes 13 and 37) 177.294 125.495
Total Intragovernmental (Note 37) 350,879 282,501
Accounts Payable and Accrued Liabilities (Notes 8 and 37) 540,235 522,989
Pensions and Other Actuarial Liabilities (Note 15) 42,044 43,679
Environmental Cleanup Costs (Note 20) 32,810 32,958
Cashout Advances, Superfund (Notes 16 and 37) 3,453,124 3,305,023
Commitments and Contingencies (Note 17) - -
Payroll and Benefits Payable (Note 31) 203,985 202,019
Other (Notes 13 and 37) 140.549 136.069
Total Liabilities 4.763.626 4.525.238
NET POSITION
Unexpended Appropriations - Funds from Dedicated Collections (Note 18) (1,264) 2,790
Unexpended Appropriations - Other Funds (Note 37) 8,929,585 8,058,744
Cumulative Results of Operations - Funds from Dedicated Collections (Note 18) 3,290,710 2,966,236
Cumulative Results of Operations - Other Funds (Note 37) 497.399 508.636
Total Net Position 12.716.430 11.536.406
Total Liabilities and Net Position S 17.480.056 S 16.061.644
The accompanying notes are an integral part of these financial statements.
29.
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United States Environmental Protection Agency
Consolidated Statement of Net Cost
For the Fiscal Years Ending September 30, 2019 and 2018 (Restated)
(Dollars in Thousands)
Restated
2019 2018
COSTS
Gross Costs (Note 37)
$
8,883,930 $
8,694,112
Earned Revenue
458.873
660.708
NET COST OF OPERATIONS (Notes 34 and 37)
$
8.425.057 S
8.033.404
The accompanying notes are an integral part of these financial statements.
30.
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United States Environmental Protection Agency
Statement of Net Cost by Major Program
for the Fiscal Year Ending September 30, 2019
(Dollars in Thousands)
Costs:
Environmental
Programs &
Leaking
Underground Science &
State Tribal
Assistance
Management Storage Tanks Technology Superfund Agreements Other
Totals
Gross Costs
WCF Elimination
Total Costs
2,650,992 $ 89,019 $709,019 $ 1,392,940 $ 3,876,041 $ 398,223 $9,116,234
- - - - - (232.304) (232.304)
2.650.992 89.019 709.019 1.392.940 3.876.041 165.919 8.883.930
Less:
Earned Revenue
WCF Elimination
Total Earned Revenue
79,874
79.874
5,963
5.963
299,231
299.231
305,887
(232.082)
73.805
690,955
(232.082)
458.873
NET COST OF
OPERATIONS
2.571.118
89.019 $ 703.056 $ 1.093.709 $ 3.876.041 $92.114 $ 8.425.057
United States Environmental Protection Agency
Statement of Net Cost by Major Program
For the Fiscal Year Ending September 30, 2018 (Restated)
(Dollars in Thousands)
Costs:
Gross Costs
WCF Elimination
Total Costs
Environmental Leaking State Tribal
Programs & Underground Science & Assistance
Management Storage Tanks Technology Superfund Agreements
Other
2,859,581
2.859.581
Totals
93,896 $711,350
93.896
$ 1,328,447 $ 3,553,001 $ 359,779 $ 8,906,054
- - (211.942) (211.942)
711.350 1.328.447 3.553.001
147.837
3.694.112
Less:
Earned Revenue
WCF Elimination
Total Earned Revenue
173,244
173,244
5,177
5,177
422,277
422,277
272,396
(212.386)
60,010
873,094
(212.386)
660,708
NET COST OF
OPERATIONS (Note
37)
2.686.337
93.896 S 706.173
906.170
I 3.553.001 S 87.827
I 8.033.404
The accompanying notes are an integral part of these financial statements.
31.
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United States Environmental Protection Agency
Consolidated Statement of Changes in Net Position
For the Fiscal Year Ending September 30, 2019
(Dollars in Thousands)
Cumulative Results of Operations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Appropriations Used (Note 37)
Nonexchange Revenue - Securities Investment (Note 33)
Nonexchange Revenue - Other (Note 33)
Transfers In/Out
Transfers In/Out - Nonmonetary
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 30)
Total Other Financing Sources
Net Cost of Operations
Net Change
Cumulative Results of Operations
Unexpended Appropriations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Appropriations Received
Appropriation Transfers-In/Out
Other Adjustments (Note 32)
Appropriations Used (Note 37)
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
Funds from
Dedicated
Collections
All Other
Funds
Consolidated
Total
$ 2,966,236 $ 508,636 $ 3,474,872
4,054
134,699
270,253
15,608
1.083.758
1,508,372
16.635
16,635
$ (1,200,533)
324.474
8,190,426
(58)
21,330
142
(1.083.758)
7,128,082
85.205
85,205
(7,224,524)
(11.237)
8,194,480
134,699
270,195
36,938
142
8,636,454
101.840
101,840
(8,425,057)
313.237
S 3.290.710 $ 497.399 S 3.788.109
Funds from
Dedicated
Collections
All Other
Funds
Consolidated
Total
2,790 $ 8,058,744 $ 8,061,534
(4.054)
(4,054)
(1,264)
9,288,440
2,717
(229,890)
(8.190.426)
870,841
9,288,440
2,717
(229,890)
(8.194.480)
866,787
8,929,585 8,928,321
S 3.289.446 S 9.426.984 S 12.716.430
The accompanying notes are an integral part of these financial statements.
32
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United States Environmental Protection Agency
Consolidated Statement of Changes in Net Position
For the Fiscal Year Ending September 30, 2018 (Restated)
(Dollars in Thousands)
Funds from
Dedicated
Collections
All Other
Funds
Consolidated
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
Adjustment:
(a) Changes in Accounting Principles
(b) Corrections of Errors (Note 37)
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Used (Note 37)
Nonexchange Revenue - Securities Investment (Note 33)
Nonexchange Revenue - Other (Note 33)
Transfers In/Out
Trust Fund Appropriations
Total Budgetary Financing Sources (Note 37)
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 30)
Total Other Financing Sources
Net Cost of Operations (Note 37)
Net Change (Note 37)
Cumulative Results of Operations (Note 37)
$ 2,638,364 $ 572,065 $ 3,210,429
12,994
12,994
2,638,364
4,144
80,893
244,969
(4,763)
1.000.646
1,325,889
585,059
7,931,651
23,976
(1.094.046)
6,861,581
82,785
3,223,423
7,935,795
80,893
244,969
19,213
(93.400)
8,187,470
97,383
14.598
14,598 82,785 97,383
$(1,012,615) $(7,020,789) $(8,033,404)
327.872 (76.423) 251.449
S 2.966.236 $ 508.636 S 3.474.872
Funds from
Dedicated
Collections
All Other
Funds
Consolidated
Total
Unexpended Appropriations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Appropriations Received
Other Adjustments (Note 32)
Appropriations Used (Note 37)
Total Budgetary Financing Sources (Note 37)
Total Unexpended Appropriations (Note 37)
TOTAL NET POSITION (Note 37)
: 3,697 $
7,302,077 $
7,305,774
3,237
8,862,285
8,865,522
-
(173,967)
(173,967)
(4.144)
(7.931.651)
(7.935.795)
(907)
756,667
755,760
2.790
8.058.744
8.061.534
S 2.969.026 $ 8.567.380 $ 11.536.406
The accompanying notes are an integral part of these financial statements.
33
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United States Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Fiscal Years Ending September 30, 2019 and 2018
(Dollars in Thousands)
2019
2018
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
Outlays, Net (total) (discretionary and mandatory)
Distributed Offsetting Receipts (-) (Note 28)
Agency Outlays, Net (discretionary and mandatory)
Budgetary
4,714,826
10,801,690
557,467
Non-
Budgetary
Credit Reform
Financing
Account
1,461,572
1,083,500
5
Budgetary
4,479,928
10,225,913
610,290
Non-
Budgetary
Credit Reform
Financing
Account
2,500,000
S 16.073.983 X 2.545.077 S 15.316.131 S 2.500.000
10,613,226
5,273,498
917
186.342
5,460,757
2,524,163
20,914
20,914
10,823,821
4,210,746
194,768
86.796
4,492,310
1,038,428
1,461,572
1,461,572
S 16.073.983 S 2.545.077 S 15.316.131 S 2.500.000
$ 9,648,346 $
("1.5 84.783)
$ 8.063.563 $_
264 $ 9,484,562 $
(1.399.483)
264 $ 8.085.079 $_
The accompanying notes are an integral part of these financial statements.
34
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United States Environmental Protection Agency
Statement of Custodial Activity
For the Fiscal Years Ending September 30, 2019 and 2018
(Dollars in Thousands)
20192018
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties
$
352,092
$
78,596
Other
(4.359)
23.087
Total Cash Collections
347,733
101,683
Accrual Adjustment
8.912
2.467
Total Custodial Revenue (Note 23)
$
356.645
$
104.150
Disposition of Collections:
Transferred to Others (General Fund)
$
347,711
$
101,615
Increases/Decreases in Amounts to be Transferred
8.934
2.535
Total Disposition of Collections
$
356.645
$
104.150
Net Custodial Revenue Activity
$
-
$
-
The accompanying notes are an integral part of these financial statements.
35.
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(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 2019 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-13 6, 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. 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 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 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
36
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
loans are disbursed. The Agency received two-year appropriations in fiscal years 2019 and 2018 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.
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 Reregi strati on and Expedited Processing Fund (FIFRA) is provided by fees collected from
industry to offset costs incurred by the Agency in carrying out these programs. 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 U.S. Department
of 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.
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 U.S. Treasury through the Government-Wide Treasury Account Symbol Adjusted Trial Balance
System.
37
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
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 U.S. 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. In addition to these funds, 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.
38
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
The FIFRA and PRIA funds receive funding through fees collected for services provided and interest on
invested funds. The Hazardous Waste Electronic Manifest System Fund receives funding through fees
collected for use of the Hazardous Waste Electronic Manifest System. 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.
39
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
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.
40
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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, 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 15 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. An exception to the accounting of contract property includes equipment purchased by the WCF.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
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 5 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 based on the collection of loan
receivables at the end of the fiscal year.
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.
42
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
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. For detailed information on the restatements of the FY 2018 Consolidated Financial Statements,
refer to Note 37, Restatements.
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 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.
43
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
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 Puerto Rico SRFs.
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.
44
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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 June 28, 2019. As a result, Net Adjustments
to Unobligated Balance Brought Forward, Oct. 1 has been omitted in the Statement of Budgetary Resources.
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 2. Fund Balance With Treasury (FBWT)
Fund Balance with Treasury as of September 30, consists of the following:
2019 2018
Entity
Non-Entity
Entity
Non-Entity
Assets
Assets
Total
Assets
Assets
Total
Trust Funds:
Superfund
$ 77,906
$
$ 77,906
$ 140,013
$
-
$ 140,013
LUST
21,902
-
21,902
10,425
-
10,425
Oil Spill & Misc.
12,109
-
12,109
8,822
-
8,822
Revolving Funds:
FIFRA/Tolerance
58,133
-
58,133
47,864
-
47,864
Working Capital
129,185
-
129,185
128,909
-
128,909
Credit Reform Financing
-
-
-
-
-
-
E-Manifest
8,029
-
8,029
4,294
-
4,294
WIFIA
-
-
-
-
NRDA
1,551
-
1,551
2,057
-
2,057
Appropriated
9,236,309
-
9,236,309
8,348,172
-
8,348,172
Other Fund Types
507.871
3.929
511.800
489.727
3.809
493.536
Total
S10.052.997
S 3.929
S10.056.926
S 9.180.283
$
3.809
S 9.184.092
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:
Unobligated Amounts in Fund Balance:
Available for Obligation
Unavailable for Obligation
Net Receivables from Invested Balances
Balances in Treasury Trust Fund (Note 35)
Obligated Balance not yet Disbursed
Non-Budgetary FBWT
Total
2019
2018
$ 5,294,411 $ 4,405,970
187,260
(5,096,874)
14,912
9,160,730
496,487
86,796
(4,758,627)
1,807
8,974,558
473,588
S 10.056.926 S 9.184.092
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 FY 2019 and FY 2018, 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, 2019 and September 30, 2018, the balance in the imprest fund was $10 thousand.
46
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 4. Investments
As of September 30, 2019 and 2018, investments related to Superfund and LUST consist of the following:
Amortized
(Premium) Interest Investments, Market
Cost Discount Receivable Net Value
Intragovernmental Securities:
Non-Marketable FY 2019 $ 6,024,413 32,170 5,414 5,997,657 $ 5,997,657
Non-Marketable FY 2018 $ 5,537,630 44,298 4,715 5,498,047 $ 5,498,047
CERCLA, as amended by SARA, authorizes the EPA to recover monies to clean up Superfund sites from
PRPs. Some PRPs 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 PRPs 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 from dedicated collections. The cash receipts collected from the public for dedicated collection funds
are deposited in the U.S. 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 U.S. Treasury. Because the EPA and the U.S. 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 U.S. 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.
47
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 5. Accounts Receivable, Net
Accounts Receivable as of September 30, 2019 and 2018, consist of the following:
2019 2018
Intr agovernmental:
Accounts & Interest Receivable
$
34,802
$
17,849
Less: Allowance for Uncollectible
-
-
Total
$
34.802
$
17.849
Non-Federal:
Unbilled Accounts Receivable
$
109,545
$
234,731
Accounts & Interest Receivable
2,573,004
2,385,341
Less: Allowance for Uncollectible
(2.181.663)
(2.161.616)
Total
$
500.886
$
458.456
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, 2019 and 2018, consist of the following:
2019
2018
Intr agovernmental:
Advances to Federal Agencies
$
210,498
$
212,334
Advances for Postage
93
175
Total
$
210.591
$
212.509
Non-Federal:
Travel Advances
$
90
$
119
Other Advances
7,607
2,954
Inventory Purchased for Resale
17
215
Total
$
7.714
$
3.288
Note 7. Loans Receivable, Net
Loans Receivable disbursed from obligations made prior to FY 1992 are presented net of allowances for
estimated uncollectible loans, if an allowance was considered necessary. Loans 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 2019 and 2018, the Agency received
borrowing authority of $920 million and $2.5 billion for the non-subsidy portion of loan proceeds disbursed,
48
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
respectively, for a total of $3.42 billion in borrowing authority. The cumulative loan limit for the WIFIA
Loan Program through fiscal year 2019 is $17.1 billion. For the fiscal year ended September 30, 2019 and
2018, the Agency closed $2.5 billion and $1 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, 2019 and 2018, the WIFIA program has incurred $7.3 and $4.0 million in administrative
expenses, respectively.
Obligated after FY 1991
Direct Loan Program
WIFIA
2019 Loans
Receivable,
Gross
26f
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 2019 2018
WIFIA $ 261 ~~
Subsidy Expense for Direct Loans by Program and Component
Subsidy Expense for New Direct Loans Disbursed
2019 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA $ - - I 2 $ 2
Modifications and Reestimates
2019 Interest
Total Rate Technical Total
Direct Loan Program Modifications Reestimates Reestimates Reestimates
WIFIA $ - 4 - $ 4
Budget Subsidy Rates for Direct Loans for the Current Year Cohort
2019 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA 0% 0% 0% .69% .69%
The subsidy rates disclosed pertain to the current year's cohort. The rates cannot be applied to the direct
49
-------
United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
50
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Schedule for Reconciling Subsidy Cost Allowance Balances
Beginning Balance, Changes and Ending Balance 2019 2018
Beginning Balance of the Subsidy Allowance $ - $ -
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 2 2
Total of the Above Subsidy Expense Components 2 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 : :
Total of the Above Reestimate Components : :
Ending Balance of the Subsidy Cost Allowance $ 2 $ 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 2019 loan
disbursements were lower than the interest rate assumptions used during the budget formulation process at
loan origination.
Note 8. Accounts Payable and Accrued Liabilities (Restated)
The Accounts Payable and Accrued Liabilities are current liabilities and consist of the following amounts as
of September 30, 2019 and 2018 (Restated):
Restated
2019 2018
Intr agovernmental:
Accounts Payable $ 5,719 $ 3,902
Liability for Allocation 226
Accrued Liabilities 130.880 126.560
Total $ 136.825 $ 130.462
51
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Restated
2019 2018
Non-Federal:
Accounts Payable $ 68,012 $ 67,003
Advances Payable (2,454) (1,355)
Interest Payable 5 5
Grant Liabilities 325,335 288,526
Other Accrued Liabilities 149.337 168.810
Total S 540.235 S 522.989
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, 2019 and 2018, General PP&E consisted of the following:
2019 2018
Net
Net
Acquisition
Accumulated
Book
Acquisition Accumulated
Book
Value
Depreciation
Value
Value
Depreciation
Value
EPA-Held Equipment
$ 304,453
$ (212,886) $
91,567
$ 299,732
$ (203,434) $
96,298
Software (production)
439,787
(398,613)
41,174
441,571
(365,206)
76,365
Software (development)
27,046
-
27,046
7,908
-
7,908
Contractor Held Equip.
44,707
(28,593)
16,114
40,437
(26,706)
13,731
Land and Buildings
794,192
(303,239)
490,953
774,146
(286,224)
487,922
Capital Leases
24.485
(20.132)
4.353
24.485
(19.316)
5.169
Total
S 1.634.670
S (963.463) S
671.207
S 1.588.279
S (900.886) S
687.393
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, 2019, the EPA had debt due to Treasury of $266
thousand consisting entirely of funds borrowed to finance the non-subsidy portion of the WIFIA Direct Loan
Program. In FY 2018, the EPA did not borrow funds to finance the WIFIA Direct Loan Program as there
were no disbursements of loan proceeds.
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
52
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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, 2019 and 2018, the Agency possessed the following land and land rights:
2019 2018
Superfund Sites with Easements:
Beginning Balance
Additions
Withdrawals
Ending Balance
S jperfund Sites with Land Acquired:
Beginning Balance
Additions
Withdrawals
Ending Balance
; 39
$
39
l
-
; 40
$
39
: 32
$
34
a)
(2)
; 31
$
32
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, 2019,
and 2018, custodial liability is approximately $36,494 thousand and $26,544 thousand, respectively.
Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2019:
Covered by
Budgetary
Resources
Not Covered
by
Resources
Total
Current
Employer Contributions & Payroll Taxes
WCF Advances
Other Advances
Advances HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Non-Current
Unfunded FECA Liability
Unfunded Unemployment Liability
Payable to Treasury Judgement Fund
Total Intragovernmental
$ 19,161 $ - $ 19,161
3,504 - 3,504
6,062 - 6,062
82 - 82
117,256 - 117,256
9,229 9,229
- 22.000 22.000
$ 146.065 $ 31.229 $ 177.294
53
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
$ 134,076 $
$
134,076
Liability for Deposit Funds, Non-Federal
3,769
-
3,769
Capital Lease Liability
-
343
343
Non-Current
Capital Lease Liability
-
2.361
2.361
Total Non-Federal
S 137.845 S
2.704 S
140.549
Other Liabilities consist of the following as
of September 30, 2018 (Restated):
Covered by Not Covered
Budgetary
by
Resources Resources
Total
Current
Employer Contributions & Payroll Taxes
$ 17,574 $
$
17,574
WCF Advances
1,651
-
1,651
Other Advances
6,161
-
6,161
Advances HRSTF Cashout
60,048
-
60,048
Deferred HRSTF Cashout
9,069
-
9,069
Liability for Deposit Funds
(1)
-
(1)
Non-Current
Unfunded FECA Liability
-
8,906
8,906
Unfunded Unemployment Liability
-
87
87
Payable to Treasury Judgement Fund
-
22.000
22.000
Total Intragovernmental
S 94.502 S
30.993 S
125.495
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
$ 127,132 $
$
127,132
Liability for Deposit Funds, Non-Federal
5,942
-
5,942
Capital Lease Liability (Restated)
-
291
291
Non-Current
Capital Lease Liability (Restated)
-
2.704
2.704
Total Non-Federal
$ 133.074 $
2.995 $
136.069
Note 14. Leases
The value of assets held under Capital Leases as of September 30, 2019 and 2018 (restated), are as follows:
A. Capital Leases:
2019
Restated
2018
Summary of Assets Under Capital Lease:
Real Property
Personal Property
Total
Accumulated Amortization
$ 24,485 $
24,485
24.485
24.485
$ 20.132 $
19.316
54
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(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 Capital Leases
2020 $ 769
2021 769
2022 769
2023 769
2024 769
After five years 256
Total Future Minimum Lease Payments 4,101
Less: Imputed Interest (1.397)
Net Capital Lease Liability 2.704
Liabilities not Covered by Budgetary Resources $ 2.704
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 $769 thousand from 2015 until 2025. Note
37 provides additional information about the restatement of lease data.
B. Operating Leases:
The GSA provides leased real property (land and buildings) as office space for the EPA employees. GSA
charges a Standard Level User Charge that approximates the commercial rental rates for similar properties.
The EPA has two direct operating leases for land and buildings housing scientific laboratories and computer
facilities. The leases include 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.
The total minimum future operating lease costs are listed below:
Operating Leases,
Land and
Fiscal Year Buildings
2020
Total Future Minimum Lease Payments
$
36
$
36
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.
55
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
The FECA Actuarial Liability as of September 30, 2019 and 2018, was $42,044 thousand and $43,679
thousand, respectively. The estimated future costs are recorded as an unfunded liability. The FY 2019 present
value of these estimated outflows is calculated using a discount rate of 2.610 percent in the first year, and
2.610 percent in the years thereafter. The estimated future costs are recorded as an unfunded liability.
Note 16. Cashout Advances, Superfund
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, 2019 and 2018 (restated),
cash-out advances total $3,453,124 thousand and $3,305,023 thousand, respectively.
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, 2019 and 2018, there were 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 September 30, 2019, 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
56
-------
United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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 is 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, 2019, 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.
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, 2019, 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, 2019 and $2.5
million in the period ending September 2018.
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 2018 and $8.3 million in the period ending September 2019.
57
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 18. Funds from Dedicated Collections (Unaudited)
Other Funds
Total Funds
Environmental
from Dedicated
from Dedicated
Services
LUST
Superfund
Collections
Collections
Balance sheet as of September 30,2019
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
56.705
7.255
64.136
Total Assets
491.972
887.504
5.716.473
104.155
7.200.104
Other Liabilities
99.012
3.733.012
78.635
3.910.659
Total Liabilities
_
99.012
3.733.012
78.635
3.910.659
Unexpended Appropriations
(2)
(1,262)
(1,264)
Cumulative Results of Operations
491.972
788.492
1.983.465
26.781
3.290.710
Total Liabilities and Net Position
491.972
887.504
5.716.475
104.154
7.200.105
Statement of Net Cost for the Fiscal
Year Ended September 30,2019
Gross Program Costs
Less: Earned Revenues
Net Costs of Operations
Statement of Changes in Net Position
for the Fiscal Year Ended September
30,2019
Net Position, Beginning of Period 3
> 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
283
16,634
Net Cost of Operations
-
(89.019)
(1.093.709)
C17.805)
(1.200.533)
Change in Net Position
22.781
165.136
127.129
5.374
320.420
Net Position S
> 491.972 $
788.492 $
1.983.463 $
25.519 $
3.289.446
89,019
$ 89.019
1,392,940
299.231
$ 1.093.709
82,167
64.362
$ 17.805
1,564,126
363.593
$ 1.200.533
58
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Other Funds
Total Funds
Environmental
from Dedicated
from Dedicated
Services
LUST
Superfund
Collections
Collections
Balance sheet as of September 30,2018
Assets
Fund Balance with Treasury
$ 469,194 $
10,425
$ 140,013
$ 83,571
$ 703,203
Investments
-
620,160
4,877,887
-
5,498,047
Accounts Receivable, Net
-
87,588
306,338
1,784
395,710
Other Assets
-
209
54.723
7.614
62.546
Total Assets
469.194
718.382
5.378.961
92.969
6.659.506
Other Liabilities
3
95.026
3.522.627
72.824
3.690.480
Total Liabilities
3
95.026
3.522.627
72.824
3.690.480
Unexpended Appropriations
(2)
2,792
2,790
Cumulative Results of Operations
469.191
623.356
1.856.336
17.353
2.966.236
Total Liabilities and Net Position
469.194
718.382
5.378.961
92.969
6.659.506
Statement of Net Cost for the Fiscal
Year Ended September 30,2018
Gross Program Costs
Less: Earned Revenues
Net Costs of Operations
Statement of Changes in Net Position
for the Fiscal Year Ended September
30,2018
Net Position, Beginning of Period $
Nonexchange Revenue - Securities
Investments
Nonexchange Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
Change in Net Position
Net Position $:
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.
H 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 allocated to the states through cooperative agreements and prevention
93,897
1,328,447
422,277
66,224
53,676
93.897 $ 906.170 $_
12.548
1,488,568
475.953
1.012.615
444,636 $
24,555
24.555
469.191 $
; 591,252 $
1,599,954 $
6,218 $
2,642,060
8,657
71,516
720
80,893
210,731
6,598
3,085
244,969
(93,400)
1,070,070
22,450
999,120
13
14,366
220
14,599
(93.897)
(906.170)
(12.548s)
(1.012.615)
32.104
256.380
13.927
326.966
; 623.356 $
1.856.334 $
20.145 $
2.969.026
59
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
iii 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.
H Pesticide Registration Fund:
The Pesticide Registration Fund authorized by a 2004 Act, "Consolidated Appropriations Act (P.L. 108-
199)," and reauthorized until September 30, 2019, 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.
iii 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
60
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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.
Note 19. Cost of Stewardship Land
EPA had two Stewardship-Superfund Real Estate Actions in FY19.
The first action was for site: Santaquin City, Utah. It was for release of lien and an affidavit asserting a new
lien. This allowed the City to proceed with the construction of a road, with EPA maintaining its security
interest on a portion of the property. Because Santaquin City Corporation will continue to own the land, and
EPA would be owed all proceeds of a sale only when Santaquin eventually disposes the portion of the
property that EPA would have a 100% interest, no cash transaction took place (apart from the sum of $1 that
Santaquin is providing as consideration for EPA's release of its lien). This action was effectuated via the
signing of the Quit Claim Deed, signed on May 21, 2019.
The second action was for site: Crossley Farm Superfund Site; Hereford Township, Berks County,
Pennsylvania. EPA authorized the Army Corps of Engineers to acquire a 30-year easement for the
continuation of remedial actions and maintenance on the Crossley Farm Superfund site. Pennsylvania state
recently revised their Hazardous Site Cleanup Act (HSCA) order that applies to the location to confine
restrictions. The revision left out the access road to the site which is now private property. The easement
will allow unfettered access to the site as necessary. The Authorization was signed on May 8, 2019.
Note 20. 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.
61
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
As of September 30, 2019, 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.
A. Accrued Clean-up Cost
The EPA has 30 sites for which it is required to fund the environmental cleanup. As of September 30, 2019,
the estimated costs for site clean-up were $32.8 million unfunded, and $551 thousand funded, respectively. In
2018 the estimated costs for site clean-up were $33.0 million unfunded, and $1.1 million 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 2019, the estimate for unfunded clean-up cost decreased by $0.2 million from the FY 2018 estimate.
This decrease is primarily due to current lab cleanup and closeout actions, and ongoing clean-up actions at
similar facilities resulted in more refined and significantly lower estimates of future clean-up costs in various
regions.
Note 21. 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.
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, 2019 and 2018, the total remaining state credits have been estimated at $21.3
million, and $21.4 million, respectively.
Note 22. 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, 2019, the EPA had 3
outstanding preauthorized mixed funding agreements with obligations totaling $6.3 million. As of September
30, 2018, the EPA had 4 outstanding preauthorized mixed funding agreements with obligations totaling $6.7
62
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
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 23. 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.
2019 2018
Fines, Penalties and Other Miscellaneous Receipts $ 356.645 $ 104.150
Accounts Receivable for Fines, Penalties and Other Miscellaneous
Receipts:
Accounts Receivable
$
166,089
$
158,990
Less: Allowance for Uncollectible Accounts
(129.680)
(131.494)
Total
$
36.409
$
27.496
Note 24. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited FY 2019 Statement of
Budgetary Resources, will be reconciled to the amounts included in the FY 2019 Budget of the United States
Government when they become available. The Budget of the United States Government with actual numbers
for FY 2019 has not yet been published. We expect it will be published by early 2020, 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, 2018 are listed immediately below (dollars in
millions):
FY 2018 Budgetary Offsetting
Resources Obligations Receipts Net Outlays
Statement of Budgetary Resources $ 17.816 $ 11.862 $ 1.399 $ 9.485
Reported in the Budget of the U.S. Government $ 17.720 $ 11.853 $ 1.399 $ 9.477
Note 25. 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 for September 30, 2019, and 2018:
2019 2018
Net Adjustments to Unobligated Balance Brought Forward, Oct 1.
$ 226.028 $
232.751
Temporarily Not Available - Rescinded Authority
(4.592)
(11.217)
Permanently Not Available:
Rescinded Authority
(210,529)
(148,848)
Cancelled Authority
(19.588)
(24.200)
Total Permanently Not Available
S (230.117) S
(173.048)
-------
United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 26. 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, 2019 and 2018:
2019 2018
Unexpired Unobligated Balance $ 5,295,329 $ 5,867,574
Expired Unobligated Balance 186.342 86.796
Total X 5.481.671 X 5.954.370
Note 27. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2019 and 2018, were $12.7 billion
and $10.0 billion, respectively.
Note 28. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt accounts offset
gross outlays. For September 30, 2019 and 2018, the following receipts were generated from these activities:
Trust Fund Recoveries
Special Fund Environmental Services
Trust Fund Appropriation
Miscellaneous Receipt and Clearing Accounts
Total
2019
73,266
22,778
1,455,299
33,440
2018
40,664
24,558
1,292,678
41,583
X 1.584.783 X 1.399.483
64
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 29. Transfers-In and Out, Statement of Changes in Net Position
A. Appropriations Transfers, In/Out:
For September 30, 2019 and 2018, 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, 2019, and 2018:
2019 2018
Net Transfers from Invested Funds $ 1,572,990 $ 1,306,784
Transfer to the Department of Transportation 89,000 142,400
Transfers to Another Agency 2,884 1,004
Allocations Rescinded - 6.600
Total of Nets Transfers on The Statement of Budgetary Resources S 1.664.874 S 1.456.788
B. Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2019 and 2018, 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, 2019, and 2018:
Type of Transfer/Funds:
2019
Funds From
Dedicated
Collections Other Funds
2018
Funds From
Dedicated
Collections Other Funds
Transfers-in (out) nonexpenditure, Earmark to
Science and Technology and Office of The
Inspector General funds $ (2,776) $ 24,048 $ (23,976) $ 23,976
Transfers-in (out) nonexpenditure, Oil Spill 18,209 - 18,209
Transfers-in (out) nonexpenditure, e-Manifest 8 -
Transfers-in (out), TSCA - (2,718)
National Resource Damage Assessment 167 - 1.004 -
Total Transfer in (out) without Reimbursement,
Budgetary $ 15.608 $ 21.330 $ (4.763) $ 23.976
65
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 30. 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 2019 were $81.1 million. For FY 2018, the estimates were $73.0 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 2019 total imputed costs were
$16.8 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 2019, entries for Judgment Fund payments totaled $3.9
million. For FY 2018, entries for Judgment Fund payments totaled $2.3 million.
Note 31. Payroll and Benefits Payable
Payroll and benefits payable to the EPA employees for the years September 30, 2019, and 2018, consist of
the following:
Covered by Not Covered
Budgetary by Budgetary
Resources Resources Total
FY 2019 Payroll and Benefits Payable
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable - Thrift Savings Plan
Accrued Unfunded Annual Leave
$ 50,890 $
10,582
810
$ 50,890
10,582
810
141.703 141.703
141.703 S 203.985
Total - Current
S 62.282 $.
66
-------
United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Covered by
Budgetary
Resources
FY 2018 Payroll and Benefits Payable
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable - Thrift Savings Plan
Accrued Unfunded Annual Leave
Total - Current
$
40,487
20,553
2,795
Not Covered
by Budgetary
Resources
138,184
Total
40,487
20,553
2,795
138,184
63.835 $ 138.184 $ 202.019
Note 32. 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 Other
Funds Funds
2019 2018
Cancelled General Authority $ 229.890 $ 173.967
Total Other Adjustments S 229.890 S 173.967
Note 33. Non-Exchange Revenue, Statement of Changes in Net Position
Non-Exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net Position as of
September 30, 2019 and 2018 consists of the following items:
2019
Funds from
Dedicated All Other
Collections Funds
2018
Funds from
Dedicated All Other
Collections Funds
Interest on Trust Fund
Tax Revenue, Net of Refunds
Fines and Penalties Revenue
Special Receipt Fund Revenue
Total Nonexchange Revenue
134,699
237,963
6,195
26,095
404.952
80,893
210,731
6,598
27,640
(58) _
i58) X 325.862 $_
67
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 34. Reconciliation of Net Cost of Operations to Budget
Intra-
With the
governmental
Public
Total 2019
NET COST
$ 1,209,171
$ 7,215,886
$ 8,425,057
Components of Net Cost That Are Not Part of Net Outlays:
Property, Plant and Equipment Depreciation
-
(77,679)
(77,679)
Property, Plant and Equipment Disposal & Revaluation
-
(1,160)
(1,160)
Year-end Credit Reform Subsidy Re-estimates
4
-
4
Other
-
62,120
62,120
Increase/(Decrease) in Assets:
Accounts Receivable
16,953
42,430
59,383
Loans Receivable
-
263
263
Investments
499,610
-
499,610
Other Assets
(1,918)
4,426
2,508
(Increase)/Decrease in Liabilities:
Accounts Payable and Accrued Liabilities
(6,364)
(17,245)
(23,609)
Debt Due to Treasury
(266)
-
(266)
Pensions and Other Actuarial Liabilities
-
1,635
1,635
Environmental Cleanup Costs
-
148
148
Cashout Advances, Superfund
-
(148,101)
(148,101)
Commitments and Contingencies
-
-
-
Payroll and Benefits Payable
-
(1,966)
(1,966)
Other Liabilities
(51,799)
(4,481)
(56,280)
Other Financing Sources:
Federal Employee Retirement Benefit Costs Paid by OPM and
81,061
-
81,061
Imputed to the Agency
Transfer Out (In) Without Reimbursement
2,256,131
-
2,256,131
Other Imputed Financing
20.779
-
20.779
Total Components of Net Cost That Are Not Part of Net
Outlays
4,023,362
7,076,276
11,099,638
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
-
194
194
Acquisition of Other Assets
-
21,059
21,059
Other
-
(2,908,480)
(2,908,480)
Total Components of Net Outlays That Are Not Part of Net
Cost
-
(2.887.227)
(2.887.227)
Other Temporary Timing Differences
-
(148,584)
(148,584)
-------
United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
NET OUTLAYS S 4.023.362 X 4.040.465 S 8.063.827
Note 35. 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, 2019 and 2018.
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 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
$
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
Corporate Environmental
-
-
-
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
$
1.648.386
69
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
In FY 2019, the EPA received an appropriation of $1.1 billion for Superfund. Treasury's Bureau of 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, 2019 and 2018, the Treasury Trust Fund
has a liability to the EPA for previously appropriated funds and special accounts of $52 billion and $5.0
billion, respectively.
SUPERFUND FY 2018 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance
$
$
1.807
$ 1.807
Total Undistributed Balance
-
1,807
1,807
Interest Receivable
-
-
-
Investments, Net
4.671.302
201.942
4.873.244
Total - Assets
S 4.671.302
$
203.749
S 4.875.051
Liabilities and Equity
Equity
4.671.302
208.391
4.879.693
Total Liabilities and Equity
4.671.302
208.391
4.879.693
Receipts
Corporate Environmental
-
-
-
Cost Recoveries
-
239,297
239,297
Fines and Penalties
-
1.294
1.294
Total Revenue
-
240,591
240,591
Appropriations Received
-
1,094,046
1,094,046
Interest Income
-
71.516
71.516
Total Receipts
-
1.406.153
1.406.153
Outlays
Transfers to/from EPA, Net
1.324.412
(1.324.412)
-
Total Outlays
1.324.412
(1.324.412)
-
Net Income
S 1.324.412
$
81.741
S 1.406.153
-------
United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
B. LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2019 and
2018, 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 2019
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance
$
$
11.909
$
11.909
Total Undistributed Balance
-
11,909
11,909
Interest Receivable
-
-
-
Investments, Net
92.029
681.367
773.396
Total - Assets
S 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
S 93.441
$
148.672
$
242.113
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
LUST FY 2018
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance
$
$
$
Total Undistributed Balance
-
-
-
Interest Receivable
-
72
72
Investments, Net
87.588
532.500
620.088
Total - Assets
S 87.588
S 532.572
S 620.160
Liabilities and Equity
Equity
87.588
532.572
620.160
Total Liabilities and Equity
87.588
532.572
620.160
Receipts
Highway TF Tax
-
200,338
200,338
Airport TF Tax
-
10,348
10,348
Inland TF Tax
-
45
45
Total Revenue
-
210,731
210,731
Interest Income
-
8.657
8.657
Total Receipts
-
219.388
219.388
Outlays
Transfers to/from EPA, Net
142.400
(142.400)
-
Total Outlays
142.400
(142.400)
-
Net Income
S 142.400
S 76.988
S 219.388
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
2018 FR can be found here: https://www.fiscal.treasury.gov/reports-statements/ and a copy of the 2019 FR
will be posted to this site as soon as it is released.
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.
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Reclassification of Balance Sheet to Line Items used for the Government-wide Balance Sheet as of September
30,2019
FY 2019 EPA Balance Sheet
Line Items Used to Prepare the FY 2019
Government-wide Balance Sheet
Financial Statement Line
Amounts
Amounts
Reclassified Statement Line
ASSETS
ASSETS
Intra-Governmental Assets
Intra-Governmental Assets
FBWT
10,056,926
10,056,926
FBWT
5,992,244
Federal Invesments
Investments, Net
5,997,657
5,413
Interest Receivable - Investments
Total Investments, Net
5,997,657
5,997,657
Total Reclassified Investments, Net
Accounts Receivable
34,802
13,501
Accounts Receivable
Total Accounts Receivable
34,802
13,501
Total Reclassified - A/R
Other
210,591
210,591
Advances to Others and Prepayments
Total Other
210,591
210,591
Total Reclassified Other
Total Intra-Governmental Assets
16,299,976
16,278,675
Total Intra-Governmental Assets
Cash and Other Monetary Assets
10
10
Cash and Other Monetary Assets
Accounts Receivable, Net
500,886
500,716
Accounts and Taxes Receivable, Net
Direct Loans, Net
263
263
Loans Receivable, Net
Inventory and Related Property, Net
17
17
Inventory and Related Property, Net
General PP&E
671,207
645,437
PP&E, Net
Other
7,697
19,887
Other
Total Assets
17,480,056
17,445,005
Total Assets
LIABILITIES
LIABILITIES
Intra-Governmental Liabilities
Intra-Governmental Liabilities
Accounts Payable
136,825
161,026
Accounts Payable
Debt
266
266
Debt
Other - Custodial Liability
36,494
45,248
Other - Custodial Liability
Other - Miscellaneous Liabilities
177,294
24,793
Benefit Program Contributions Payable
Advances from Others & Deferred
-
126,433
Credits
-
2,981
Other Liabilities
Total Other - Miscellaneous Liabilities
177,294
154,207
Total Reclassified Other - Miscellaneous
Liabilities
Total Intra-Governmental Liabilities
350,879
360,747
Total Intra-Governmental Liabilities
Accounts Payable
540,235
66,757
Accounts Payable
Federal Employee and Veteran Benefits
42,044
43,872
Federal Employee and Veteran Benefits
Environmental and Disposal Liabilities
32,810
32,810
Environmental and Disposal Liabilities
Contingent Liabilities
-
-
Contingent Liabilities
Advances and Deferred Revenue
3,453,124
-
Miscellaneous Liabilities
344,534
4,391,803
Other Liabilities
Total Miscellaneous Liabilities
344,534
4,535,242
Total Reclassified Miscellaneous
Liabilities
Total Liabilities
4,763,626
4,895,989
Total Liabilities
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
NET POSITION
NET POSITION
Unexpended Appropriations - Funds
from Dedicated Collections
(1,264)
2,120,704
Net Position - Funds from Dedicated
Collections
Unexpended Appropriations - Other
8,929,585
10,428,312
Net Position - Funds Other Than Those
Funds
From Dedicated Collections
Cumulative Results of Operations -
3,171,087
-
Funds from Dedicated Collections
Cumulative Results of Operations - All
496,905
-
Other
Total Net Position
12,596,313
12,549,016
Total Liabilities & Net Position
17,359,939
17,445,005
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, 2019
FY 2019 EPA SNC
Line Items Used to Prepare the FY 2019
Government-wide SNC
Financial Statement Line
Amounts
Amounts
Reclassified Statement Line
Gross Costs
8,883,930
Non-Federal Costs
-
7,635,954
Non-Federal Gross Costs
-
7,635,954
Total Non-Federal Costs
Intragovernmental Costs
-
357,395
Benefits Program Costs
-
101,839
Imputed Costs
-
834,250
Buy/Sell Costs
-
21,154
Purchase of Assets
-
8
Borrowing and Other Interest Expense
-
(1,007)
Other Expenses (w/o Reciprocals)
-
1,313,639
Total Intragovernmental Costs
Total Gross Costs
8,883,930
8,949,593
Total Reclassified Gross Costs
Earned Revenue
349,935
338,073
Non-Federal Earned Revenue
Intragovernmental Revenue
108,938
108,829
Buy/Sell Revenue
-
21,154
Purchase of Assets Offset
134,698
Federal Securities Interest Revenue
Including Associated Gain/Losses
Exchange
-
1
Borrowing and Other Interest Revenue
Accrual of Custodial Collections Yet to
be Transferred to a TAS Other Than The
-
19
General Fund
-
264,701
Total Intragovernmental Earned
Revenue
Total Earned Revenue
458,873
602,774
Total Reclassified Earned Revenue
NET COST
8,425,057
8,346,819
NET COST
74
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(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, 2019
FY 2019 EPA SCNP
Line Items Used to Prepare the FY 2019
Government-wide SCNP
Financial Statement Line
Amounts
Amounts
Reclassified Statement Line
UNEXPENDED APPROPRIATIONS
UNEXPENDED APPROPRIATIONS
Unexpended appropriations, Beginning
Balance
8,061,534
8,120,376
Net Position Beginning of Period
Corrections of Errors
-
(82,569)
Corrections of Errors
(37,547)
Corrections of Errors - Years Preceding
the Prior Year
Total Correction of Errors
-
(120,116)
Total Correction of Errors
Appropriations Received
9,288,440
9,058,323
Appropriations Received as Adjusted
Other Adjustments
(227,173)
-
Other Adjustments
Appropriations Used
(8,194,480)
(8,253,323)
Appropriations Used
Total Unexpended Appropriations
8,928,321
CUMULATIVE RESULTS OF
OPERATIONS
Cumulative Results, Beginning Balance
3,474,872
3,434,403
Cumulative Results, Beginning Balance
Appropriations Used
8,194,480
8,253,323
Appropriations Used
Non-Federal Non-Exchange Revenues
Nonexchange Revenue - Securities
Investment
134,699
-
Nonexchange
-
-
Nonexchange Revenue - Other
270,195
57,531
Other Taxes and Receipts
404,894
57,531
Total Non-Federal Non-Exchange
Revenues
-
2
Borrowings and Other Interest Revenue
-
225,930
Other Taxes and Receipts
Transfers In/Out w/o Reimbursement-
36,938
18,209
Non-Expenditure Transfers-In of
Budgetary
Unexpended Appropriations and
Financing Sources
142
142
Transfers-in without reimbursement
-
-
Transfers-out without reimbursement
Total Transfers In/Out w/o
Reimbursement-Budgetary
142
142
Total Reclassified Transfers In/Out w/o
Reimbursement-Budgetary
Imputed Financing Sources
101,840
101,840
Imputed Financing Sources (Federal)
-
(1,226)
Non-entity collections transferred to the
General Fund of the U.S. Government
421
Accrual or non-entity amounts to be
collected and transferred to the General
Fund of the U.S. Government
Total Financing Sources
101,982
101,177
Net Cost of Operations
(8,425,057)
(8,346,819)
Net Cost of Operations
Ending Balance - Cumulative Results
of Operations
3,788,109
3,743,756
Total Net Position
12,716,430
12,549,016
Total Net Position
75
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United States Environmental Protection Agency
Notes to the Financial Statements
Fiscal Years ended September 30, 2019 and September 30, 2018
(Dollars in Thousands)
Note 37. Restatements
Capital Lease
EPA performed a review of its capital lease in FY 2019. The review revealed that the lease liability schedule
did not align with the lease agreement because of the following:
1. The lease agreement required a change in payment upon exercise of a 10-year renewal option
2. In 2015, the agency exercised the 10-year renewal option, but the lease schedule did not reflect
the new payment
To address these findings, the EPA revised the capital lease schedule to agree with the terms of the lease
agreement. The agency corrected the lease liability payment schedule and made corrections to the
accumulated amortization schedule for the leasehold asset.
As a result of these corrections, the agency restated FY 2018 financial statements. The changes impacted the
FY 2018 Balance Sheet, Statement of Net Cost, and Statement of Changes in Net Position.
Contract Accrual
During a review in FY 2019, EPA determined that the amount accrued for contracts in FY 2018 was
understated by approximately $59 million. To address this finding, EPA restated its FY 2018 financial
statements. The changes impacted the FY 2018 Balance Sheet, Statement of Net Cost, and Statement of
Changes in Net Position.
76
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Required Supplementary Information (Unaudited)
United States Environmental Protection Agency
September 30, 2019 and September 30, 2018
(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 Year2019:
2019 2018
Asset Category
Buildings
$
131,059
$
136,407
EPA Held Equipment
-
120
Vehicles
-
-
Total Deferred Maintenance
$
131.059
$
136.527
In Fiscal Year 2019, 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:
77.
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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.
78
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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.
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.
79
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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.
Supplemental Combined Statement of Budgetary Resources (Unaudited)
United States Environmental Protection Agency
For the Fiscal Year Ending September 30, 2019
(Dollars in Thousands)
Leaking
Environmental Underground
Programs & Storage
Science &
State Tribal
Assistance
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
Management
$ 454,823
2,602,978
123.718
Tanks Technology Superfiind Agreements Other
Totals
11,233 $137,615
93,441 707,073
- 23.200
$3,411,496 $402,241 $1,758,990
1,592,437 4,542,863 1,262,898
1,083,500
- 313.963
96.591
$6,176,398
10,801,690
1,083,500
557.472
$3.181.519 $ 104.674 $ 867.888 $5.100.524 $4.945.104 $4.419.351 $18.619.060
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
$ 2,702,112 $ 98,173 $720,888
314,672
164.735
479.407
$ 3.181.519
6,501
6.501
128,540
18.460
147.000
$ 104.674 $ 867.i
$ 1,495,522 $4,068,669
3,605,002 876,435
3.605.002
1,052,025 $ 13,137,389
876.435
363,262
917
3.147
367.326
5,294,412
917
186.342
5.481.671
$5.100.524 $4.945.104 $4.419.351 $ 18.619.060
OUTLAYS, NET
Outlays, Net (total) (discretionary and mandatory)
Distributed Offsetting Receipts (-)
Agency Outlays, Net (discretionary and mandatory)
$ 2,503,735 $ 89,432 $ 674,801 $ 1,363,556 $3,826,088 $1,190,998 $ 9,648,610
- - - (1.528.564) - (56.219) (1.584.783)
$ 2.503.735 $ 89.432 $ 674.801 $ (165.008) $3.826.088 $1.134.779 $ 8.063.827
80
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Required Supplemental Stewardship Information (Unaudited)
United States Environmental Protection Agency
Required Supplemental Stewardship Information (Unaudited)
For the Fiscal Year Ended September 30, 2019
(Dollars in Thousands)
Investment in The Nation's Research and Development:
The EPA's Office of Research and Development provides the crucial underpinnings for EPA decision-
making. Through conducting cutting-edge science and technical analysis, ORD develops sustainable
solutions to our environmental problems and employs more innovative and effective approaches to reducing
environmental risks. Public and private sector institutions have long been significant contributors to our
nation's environment and human health research agenda. The EPA, however, is unique among scientific
institutions in this country in combining research, analysis, and the integration of scientific information
across the full spectrum of health and ecological issues and across the risk assessment and risk management
paradigm. Research enables us to identify the most important sources of risk to human health and the
environment, and by so doing, informs our priority-setting, ensures credibility for our policies, and guides
our deployment of resources. It gives us the understanding, the framework, and technologies we need to
detect, abate, and avoid environmental problems.
Among the Agency's highest priorities are research programs that address: the development and application
of alternative techniques for prioritizing chemicals for further testing through computational toxicology; the
environmental effects of pollutants on children's health; the potential risks and effects of manufactured
nanomaterials on human health and the environment; the impacts of global change and providing information
to policy makers to help them adapt to a changing climate; the potential risks of unregulated contaminants in
drinking water; the health effects of air pollutants such as particulate matter; the protection of the nation's
ecosystems; and the provision of near-term, appropriate, affordable, reliable, tested, and effective
technologies and guidance for potential threats to homeland security. The EPA also supports regulatory
decision-making with chemical risk assessments.
For FY 2019, the full cost of the Agency's Research and Development activities totaled over $525M. Below
is a breakout of the expenses (dollars in thousands):1
2015 2016 2017 2018 2019
Programmatic Expenses $ 535,352 $ 541,190 $ 532,153 $ 492,648 $ 469,769
Allocated Expenses $ 78,028 $ 82,646 $ 103,451 $ 54,684 $ 55,339
See Section II of the PAR for more detailed information on the results of the Agency's investment in research
and development.
'Allocated Expenses calculated specifically for the Required Supplemental Stewardship Information report and do not represent the
overall Agency indirect cost rates. Allocated expenses include general and administrative expenses of headquarter organizations
that provide support services to the entire agency, general and administrative expenses of the regional and headquarter offices that
provide support services to national programs within their organization, and inter-entity costs provided by Office of Personal
Management.
81.
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Investment in The Nation's Infrastructure:
The Agency makes significant investments in the nation's drinking water and clean water infrastructure,
primarily through the two SRF programs and the WIFIA program.
WIFIA: The EPA provides through the WIFIA program long-term, low cost supplemental credit assistance
under customized terms for creditworthy water and wastewater projects. The WIFIA program directly
supports the Agency's goal to ensure waters are clean through improved water infrastructure. The program
requires a small appropriation compared to its potential loan volume. For example, the FY19 WIFIA
appropriation of $68 million could potentially spur up to $11 billion in total infrastructure investment when
combined with other sources of funding. The WIFIA program is designed to attract private participation,
encourage new revenue streams for infrastructure investment, and allow public agencies to get more projects
done.
State Revolving Funds: The EPA provides capital, in the form of capitalization grants, to state revolving
funds which state governments use to make loans to eligible entities for the construction of wastewater and
drinking water treatment infrastructure. When the loans are repaid to the state revolving fund, the collections
are used to finance new loans for new construction projects. The capital is reused by the states and is not
returned to the Federal Government.
Construction Grants Program: During the 1970s and 1980s, the Construction Grants Program provided more
than $60 billion of direct grants for the construction of public wastewater treatment projects. These projects,
which constituted a significant contribution to the nation's water infrastructure, included sewage treatment
plants, pumping stations, and collection and intercept sewers, rehabilitation of sewer systems, and the control
of combined sewer overflows. The construction grants led to the improvement of water quality in thousands
of municipalities nationwide. Congress set 1990 as the last year that funds would be appropriated for
Construction Grants. Projects funded in 1990 and prior will continue until completion. After 1990, the EPA
shifted the focus of municipal financial assistance from grants to loans that are provided by State Revolving
Funds.
The Agency also is appropriated funds to finance the construction of infrastructure outside the Revolving
Funds programs. These are reported below as Other Infrastructure Grants.
The Agency's appropriated investments in the nation's Water Infrastructure are outlined below (dollars in
thousands):
2015 2016 2017 2018 2019
Construction Grants $ 17,462 $ 11,344 $ 8,686 $ - $ 843
Clean Water SRF $ 1,715,630 $ 1,459,820 $ 1,247,919 $ 1,422,613 $ 1,708,175
Drinking Water SRF $ 1,268,360 $ 1,213,201 $ 994,297 $ 890,460 $ 1,016,071
Other Infrastructure Grants $ 96,439 $ 62,011 $ 44,916 $ 48,198 $ 24,243
Allocated Expenses $ 590,595 $ 529,815 $ 480,415 $ 438,823 $ 499,466
WIFIA2 $ - $ - $ 30,000 $ 63,000 $ 68,000
See the Goal 2 - Clean and Safe Water portion in Section II of the AFR for more detailed information on the
results of the Agency's investment in infrastructure.
2 Amounts for WIFIA include administrative expenses.
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Human Capital
Agencies are required to report expenses incurred to train the public with the intent of increasing or
maintaining the nation's economic productive capacity. 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, but the focus is on enhancing the nation's environmental, not
economic, capacity.
The Agency's expenses related to investments in the Human Capital are outlined below (dollars in
thousands):
2015
2016
2017
2018
2019
Training and Awareness Grants
Fellowships
Allocated Expenses
Total
$
27,047 $ 29,116 $ 22,090 $
6,579 4,630 2,077
5.146 5.336 4.073
19,351 $
1,460
2.525
23,336 $
21,072
442
2.831
24,345
$
38,772 $ 39,082 $ 28,240 $
83
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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
NIST National Institute of Standards and Technology
OCFO Office of the Chief Financial Officer
OIG Office of Inspector General
OMB Office of Management and Budget
OMS Office of Mission Support
PII Personally Identifiable Information
SFFAS Statement of Federal Financial Accounting Standards
SPH Sensitive Personally Identifiable Information
U.S.C. United States Code
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£ ro " November 19,2019
-. U.S. Environmental Protection Agency 20-F-0033
\ Office of Inspector General
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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 (EPA's) Office of
Inspector General (OIG) 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.
EPA's Fiscal Years 2019 and 2018 (Restated)
Consolidated Financial Statements
EPA Receives an Unmodified Opinion for FY 2019 and 2018
We found the EPA's
financial statements to be
fairly presented and free
of material misstatement.
We rendered an unmodified opinion on the
EPA's consolidated financial statements for
fiscal years 2019 and 2018 (restated), meaning
they were fairly presented and free of material
misstatement.
Internal Control Material Weakness and
Significant Deficiencies Noted
We noted the following material weakness:
• The EPA needs to improve its financial statement preparation process.
We noted the following significant deficiencies:
• The EPA improperly recorded e-Manifest receivables and earned revenue.
• The EPA misclassified e-Manifest user fee revenue.
• The EPA understated its contract accrued liabilities.
• The EPA needs to improve the process to disable user accounts for
financial and mixed financial systems.
• The EPA's Office of the Chief Financial Officer needs to protect personally
identifiable information on its server used to transfer data with vendors.
Compliance with Laws and Regulations
We did not note any significant noncompliance with laws and regulations.
Recommendations and Planned Agency Corrective Actions
The EPA agreed with all 17 recommendations and has either completed
corrective actions or provided an estimated time frame for completion.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBCOMMENTS@epa.gov.
List of OIG reports.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
November 19, 2019
MEMORANDUM
SUBJECT: EPA's Fiscal Years 2019 and 2018 (Restated) Consolidated Financial Statements
Report No. 20-F-0033
Attached is our report on the U.S. Environmental Protection Agency's (EPA's) fiscal years 2019 and
2018 (restated) consolidated financial statements. The project number for this audit was OA&E-FY19-
0201. We are reporting one internal control material weakness and five significant deficiencies.
Attachment 1 contains details on the material weakness and significant deficiencies. We did not
note any instances of noncompliance.
This audit report represents the opinion of the Office of Inspector General (OIG), and the findings in this
report do not necessarily represent the final EPA position. EPA managers, in accordance with
established EPA audit resolution procedures, will make final determinations on the findings in this audit
report. Accordingly, the findings described in this audit report are not binding upon the EPA in any
enforcement proceeding brought by the EPA or the U.S. Department of Justice.
The agency agreed with the recommendations in this report and, therefore, no further response is
required. If you nonetheless choose to provide a response, your response 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.
This report will be available at www.epa.gov/oig.
FROM: Paul C. Curtis, Director
Financial Directorate
Office of Audit and Evaluation
TO:
David Bloom, Acting Chief Financial Officer
Donna Vizian, Principal Deputy Assistant Administrator
Office of Mission Support
Attachments
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EPA's Fiscal Years 2019 and 2018 (Restated)
Consolidated Financial Statement
20-F-0033
Table of Contents
Inspector General's Report on EPA's Fiscal Years 2019 and
2018 (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 6
Prior Audit Coverage 7
Attachments
1. Internal Control Material Weakness and Significant Deficiencies 8
Material Weakness
FINANCIAL STATEMENT PREPARATION
EPA Needs to Improve Its Financial Statement Preparation Process 9
Significant Deficiencies
E-MANIFEST ACCOUNTS RECEIVABLES AND REVENUE
EPA Improperly Recorded e-Manifest Receivables and Earned Revenue 11
EPA Misclassified e-Manifest User Fee Revenue 14
ACCRUED LIABILITIES
EPA Understated Its Contract Accrued Liabilities 16
INFORMATION TECHNOLOGY
EPA Needs to Improve Process to Disable User Accounts
for Financial and Mixed Financial Systems 18
OCFO Needs to Protect Personally Identifiable Information
on Its Server Used to Transfer Data with Vendors 21
2. Status of Prior Audit Report Recommendations 25
3. Status of Current Recommendations and Potential Monetary Benefits 28
- continued -
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EPA's Fiscal Years 2019 and 2018 (Restated) 20-F-0033
Consolidated Financial Statement
Appendices
I. EPA's FYs 2019 and 2018 Consolidated Financial Statements
II. Agency Response to Draft Report
III. Distribution
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Inspector General's Report on
EPA's Fiscal Years 2019 and 2018 (Restated)
Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
Report on the Financial Statements
We have audited the accompanying financial statements of the U.S. Environmental Protection
Agency (EPA), which comprise the consolidated balance sheet, as of September 30, 2019, and
September 30, 2018 (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 financial
statements in accordance with accounting principles generally accepted in the United
States of America; 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 financial statements based upon our
audit. We conducted our audit in accordance with generally accepted government
auditing standards; 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 (OMB) Bulletin No. 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 financial statements are free from
material misstatements.
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.
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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 (OIG) 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, 2019 and
2018, in conformity with accounting principles generally accepted in the United States of
America.
Emphasis of Matter- Restatement FY 2018
As described in Note 37, the EPA made certain restatements in its FY 2018 financial
statements to correct misstatements for a capitalized lease and contract accruals. Our
opinion is not modified with respect to these corrections.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
information in the Required Supplementary Steward Information, 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 OMB and the Federal Accounting Standards
Advisory Board who consider it to be an essential part of the financial reporting for placing the
basic consolidated financial statements in an appropriate operational, economic, or historical
context. We have applied certain limited procedures to the Required Supplementary Stewardship
Information, Required Supplementary Information, Supplemental Information, and Management's
Discussion and Analysis, in accordance with auditing standards generally accepted in the United
States of America, 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 statements, and other knowledge we obtained during the audit of the
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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 auditing
procedures for the purpose of expressing an opinion on the financial statements and to comply
with OMB audit guidance, not to express an opinion on 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
No. 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 (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 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,
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 in a timely manner. 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.
We consider one of these matters to be a material weakness. These issues are summarized below
and detailed in Attachment 1.
Material Weakness
FINANCIAL STATEMENT PREPARATION
EPA Needs to Improve Its Financial Statement Preparation Process
We found multiple instances whereby the agency had major misstatements of its financial
transactions and financial statements. The OMB requires that information in the financial
statements be presented in accordance with Generally Accepted Accounting Principles.
Agency personnel initially failed to make the appropriate adjustments to the financial
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statements, believing their accounting was accurate. Failure to correct the errors resulted
in the agency's misstating its financial statements, requiring a restatement. Furthermore,
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.
Significant Deficiencies
E-Manifest Accounts Receivables and Revenue
EPA Improperly Recorded e-Manifest Receivables and Earned Revenue
The EPA did not properly record $15,682,808 of e-Manifest receivables during FY 2019.
Federal accounting standards require federal entities to recognize accounts receivable
when a legal claim exists, as well as to recognize exchange revenue when goods or
services are provided to the public or another government entity at a price. 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.
EPA Misclassified e-Manifest User Fee Revenue
The EPA misclassified $10.7 million of user fees collected for services provided as
nonexchange revenue instead of exchange revenue. Federal accounting standards require
the recognition of exchange revenue when a government entity provides goods or
services to the public or another government entity and when each party sacrifices value
and receives value in return. However, the agency recognized $10.7 million as
nonex change revenue because it had not updated its accounting posting model. As a
result, there was a high risk that the EPA would continue to misclassify user fee revenues
and would potentially overstate its net cost of operations. Further, such overstatement
inaccurately presented the EPA's ability to sustain program operation costs through user
fee revenues.
ACCRUED LIABILITIES
EPA Understated Its Contract Accrued Liabilities
We found that the EPA understated its FY 2018 contract accrued liabilities by $59
million. EPA policy states that accrual estimates should closely reflect the actual
liabilities outstanding at the end of the reporting period. The misstatement occurred
because the EPA relied on 1 month of subsequent disbursements to proof its accrual
estimate, even though contract payments for FY 2018 liabilities continued throughout FY
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2019. Consequently, the EPA's FY 2018 understatement of accruals also resulted in an
overstatement of its FY 2019 contract expenses.
INFORMATION TECHNOLOGY
EPA Needs to Improve Process to Disable User Accounts for Financial and
Mixed Financial Systems
The Office of the Chief Financial Officer (OCFO) and the Office of Mission Support
(OMS) did not consistently remove user access to financial and mixed financial systems
when employees were separated or terminated from the EPA. Removing each departing
employee access to information technology infrastructure is critical to protecting systems
and data. Federal and EPA directives require that user access to systems be removed
when access is no longer needed. However, account managers for the systems were not
consistently notified to remove access when employees no longer worked for the agency.
As a result, former agency employees could inappropriately access critical financial and
mixed financial systems and had the ability to inappropriately use or disclose EPA's data.
OCFO Needs to Protect Personally Identifiable Information on Its Server
Used to Transfer Data with Vendors
The OCFO lacks controls to protect personally identifiable information (PII) and
sensitive PII (SPII) stored on a file transfer server that is used to exchange data with EPA
vendors. Federal and EPA directives require the EPA to secure this type of information.
However, the OCFO did not encrypt, restrict access rights or remove files containing PII
and SPII on the file transfer server. Without proper security and access controls, PII and
SPH collected by EPA are vulnerable to unauthorized access and a breach of privacy that
could lead to identity theft.
Attachment 2 contains the status of issues reported in prior years' reports. The issues included in
the attachment should be considered among the EPA's significant deficiencies for FY 2019.
We reported less significant internal control matters to the agency during the course of the audit.
We will not issue a separate management letter.
Comparison of EPA's FMFIA Report with Our Evaluation of Internal Control
OMB Bulletin No. 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 No. 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.
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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 its
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 No. 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 (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. Ongoing investigations involving EPA grantees and
contractors could disclose violations of laws and regulations, but a determination about
these cases has not been made
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
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 the
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.
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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. In its representations to us, the EPA
reported one incident of potential violations of the Antideficiency Act regarding a
U.S. Government Accountability Office opinion related to the potential violation. We did
not identify any other potential violations of this act during the course of our 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.
• The EPA materially overstated earned revenue.
• The EPA improperly increased accounts receivable and related revenue.
• Originating offices did not forward accounts receivable source documents in a timely
manner to the finance center.
• The EPA should improve its efforts to resolve its long-standing cash differences with the
U.S. Treasury.
• Financial management system user account management need improvement.
• The EPA's OCFO lack internal controls when assuming responsibility for account
management procedures of financial systems.
• The EPA need controls to monitor direct access to its accounting system.
• The EPA need to perform a documented evaluation on upgrading equipment used to
implement physical environmental controls at the National Computer Center.
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 and Evaluation
Office of Inspector General
U.S. Environmental Protection Agency
November 19, 2019
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Attachment 1
Internal Control Material Weakness and
Significant Deficiencies
Table of Contents
Material Weakness
FINANICAL STATEMENT PREPARATION
1 EPA Needs to Improve Its Financial Statement Preparation Process 9
Significant Deficiencies
E-MANIFEST RECEIVABLES AND REVENUE
2 EPA Improperly Recorded e-Manifest Receivables and Earned Revenue 11
3 EPA Misclassified e-Manifest User Fee Revenue 14
ACCRUED LIABILITIES
4 EPA Understated Its Contract Accrued Liabilities 16
INFORMATION TECHNOLOGY
5 EPA Needs to Improve Process to Disable User Accounts
for Financial and Mixed Financial Systems 18
6 OCFO Needs to Protect Personally Identifiable Information
on Its Server Used to Transfer Data with Vendors 21
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1—EPA Needs to Improve Its Financial Statement Preparation Process
We found multiple instances whereby the agency had major misstatements of its financial
transactions and financial statements. The OMB requires that information in the financial
statements be presented in accordance with Generally Accepted Accounting Principles. Agency
personnel initially failed to make the appropriate adjustments to the financial statements,
believing their accounting was accurate. Failure to correct the errors resulted in the agency's
misstating its financial statements, requiring a restatement. Furthermore, 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.
OMB Circular A-13 6, Financial Reporting Requirements, Section II. 3, requires that information
in the financial statements be presented in accordance with Generally Accepted Accounting
Principles, which include the Federal Accounting Standards Advisory Board's Statement of
Federal Financial Accounting Standards (SFFAS). The U.S. Government Accountability Office's
Standards for Internal Control in the Federal Government defines the five components of
internal control in government. 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 multiple instances whereby the agency had major misstatements of its financial
transactions and financial statements. Specifically, we found that the agency misreported a
capitalized lease; contract accruals; expenses incurred for Superfund sites, including unbilled
costs and unearned revenue; and other revenue:
• Capitalized Lease. In fiscal year (FY) 2016, we reported that the agency erroneously
reclassified the real property capital lease as an operating lease without making a proper
determination. SFFAS 5, Accounting for Liabilities of The Federal Government, and
SFFAS 6, Accounting for Property, Plant, and Equipment, provide specific requirements
for classifying a lease as capital. In FY 2019, the agency performed a review of its capital
lease. Initially, the agency decided to record remaining future payments on its capitalized
lease as a lease expense, thereby reclassifying it as an operating lease, even though the
terms of the lease had not changed since its inception. The agency later corrected the
lease liability and affected accounts, and it posted an adjustment.
• Contract Accruals. In FY 2018, we informed the agency that it had understated its
contract accruals. The agency maintained that its amounts were correct. While the agency
did post an adjustment to correct some of the difference, the contract accrual was still
understated, as discussed in Significant Deficiency 4, which is titled "EPA Understated
Its Contract Accrued Liabilities."
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• Superfund Unbilled Oversight Costs. During our analysis of the agency's manual
adjustments to unearned revenue, we noticed a restated amount posted for FY 2018 and
material adjustments to FY 2019. When we inquired about these adjustments, agency
staff indicated that they were changing the financial statements to reflect a new
accounting model used for special accounts. However, our analysis indicated that the
agency was not properly matching revenue with expenses incurred, in accordance with
SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for
Reconciling Budgetary and Financial Accounting. The agency also failed to provide
sufficient documentation to determine the validity of actions taken, affecting our ability
to conclude that the entries made were accurately recorded.
• Other. We found other discrepancies in the agency's financial statements. Specifically, in
the November 14, 2019, version of the financial statements, the agency recorded negative
revenue of $371 million. This material change was the result of late journal entries. After
we inquired about this negative balance, agency staff indicated that they would make
corrections.
Agency personnel initially failed to make the appropriate adjustments to the financial statements,
believing their accounting was accurate. In each case, the agency's initial accounting for the
transactions was in error, as was its intended corrections. It was only after we conducted an
account analysis of the activity and questioned the agency's actions that staff made adjustments
to correct the errors. Had it not been for the intensive inquiry by our auditors, major and material
errors would have impacted the financial statements. These issues highlight the need for the
agency to strengthen its processes so that data are accurate; comply with federal accounting
standards; and are readily available on a timely basis to prepare the financial statements.
Failure to correct the errors resulted in the agency misstating its FY 2018 financial statements,
requiring a restatement. Furthermore, 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.
Recommendations
We recommend that the Chief Financial Officer:
1. Evaluate and improve the EPA's process for preparing financial statements.
2. Provide accurate and reliable supporting documentation for adjustments and corrections
to the financial statements.
Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendations. The agency's estimated completion date
for corrective actions is July 31, 2020, for Recommendation 1 and February 29, 2020, for
Recommendation 2.
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2—EPA Improperly Recorded e-Manifest Receivables and
Earned Revenue
The EPA did not properly record $15,682,808 of e-Manifest receivables during FY 2019.1
Federal accounting standards require federal entities to recognize accounts receivable when a
legal claim exists, as well as to recognize exchange revenue when goods or services are provided
to the public or another government entity at a price. 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.
SFFAS I, Accounting for Selected Assets and Liabilities, states:
A receivable should be recognized when a federal entity establishes a claim to cash
or other assets against other entities, either based on legal provisions, such as a
payment due date, ... or goods or services provided. ... [Further,] [Receivables
from federal entities are intragovernmental receivables, and should be reported
separately from receivables from nonfederal entities.
In addition:
Interest [receivable] should be recognized on outstanding accounts receivable and
other U.S. government claims against persons and entities in accordance with
provisions in 31 U.S.C. 3717, Interest and Penalty Claims. ... Interest receivable
from federal entities should be accounted for and reported separately from interest
receivable from the public.
SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling
Budgetary and Financial Accounting, states:
Exchange revenue and gains are inflows of resources to a Government entity that
the entity has earned. They arise from exchange transactions, which occur when
each party to the transaction sacrifices value and receives value in return.
The EPA did not create appropriate accounting models to record e-Manifest accounts receivable
or to recognize revenue when costs were incurred. We found three collection transactions during
our sample testing that reduced accounts receivable in General Ledger account 13100044,
"Billed Emanifest [sic] Receipts Public." However, no prior receivable had been recorded for
these transactions. Upon further review of activity during the fiscal year, we identified
$15,682,808 of receivables that were not properly recorded.
1 The e-Manifest system is the EPA's national system for electronically tracking hazardous waste shipments.
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The Office of Land Emergency Management compiles invoice data based on the electronic
manifest documents received from waste handlers and transmits invoices from the e-Manifest
system to individual facilities. However, the e-Manifest system is not integrated with Compass
Financials; therefore, no financial data for the invoiced amounts or earned revenue for services
provided are recorded in Compass at the transaction level. Facilities receive the invoices and
remit payments, which are recorded in Compass. The EPA records a standard voucher at the end
of each month to record receivables and recognize revenue, but this standard voucher is recorded
solely for financial reporting purposes, not to record individual receivable and earned revenue
transactions. Although the standard voucher, combined with the collection entries, offsets the
receivables and recognizes earned revenue, the receivables and earned revenue are still not
recorded at the transaction level. The EPA is therefore not compliant with federal accounting
standards during the year, and accounts are misstated until the monthly standard voucher is
posted.
We also found that penalties, interest and federal revenue are also not properly recorded in
Compass. According to the Office of Land Emergency Management, interest and penalties are
assessed automatically within the e-Manifest system and are combined with the amount of fees
due in invoices. Finally, the EPA does not differentiate its reporting of earned revenue from
federal versus nonfederal sources. According to information provided by Office of Land
Emergency Management, e-Manifest collections are from both federal and nonfederal vendors.
However, this activity was not accounted for separately in the agency's accounting system,
which misstates earned revenue due to the failure to differentiate between federal versus
nonfederal sources.
By not creating proper accounting models for e-Manifest transactions to record accounts
receivable and earned revenue at the transaction level, account receivables and earned revenue
are understated during the year, and interest, penalties and federal revenue are misstated in the
EPA's financial statements. Furthermore, the EPA is not in compliance with either SFFAS 1,
which requires the recognition of a receivable when a legal claim exists, or SFFAS 7, which
requires revenue recognition when the goods or services were provided.
Recommendations
We recommend that the Chief Financial Officer:
3. Update the accounting models to properly record collections and not reduce an account
receivable account.
4. Establish accounting models to properly record e-Manifest account receivables and
recognize earned revenue at the transaction level.
5. Establish accounting models to properly classify and record interest, fines, penalties and
fees.
6. Establish accounting models to properly record receivables, collections and earned revenue
from federal versus nonfederal vendors.
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Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendations. The agency's estimated completion date
for corrective actions is September 30, 2021.
7.
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3—EPA Misclassified e-Manifest User Fee Revenue
The EPA misclassified $10.7 million of user fees collected for services provided as nonexchange
revenue instead of exchange revenue. Federal accounting standards require the recognition of
exchange revenue when a government entity provides goods or services to the public or another
government entity and when each party sacrifices value and receives value in return. However,
the agency recognized $10.7 million as nonexchange revenue because it had not updated its
accounting posting model. As a result, there was a high risk that the EPA would continue to
misclassify user fee revenues and would potentially overstate its net cost of operations. Further,
such overstatement inaccurately presented the EPA's ability to sustain program operation costs
through user fee revenues.
SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling
Budgetary and Financial Accounting, states:
Exchange revenue and gains are inflows of resources to a Government entity that
the entity has earned. They arise from exchange transactions, which occur when
each party to the transaction sacrifices value and receives value in return. That is,
exchange revenue arises when a Government entity provides something of value
to the public or another Government entity at a price.
This standard also states that "[ejxchange revenue includes most user charges other than taxes."
In addition, according to the Hazardous Waste Electronic Manifest Establishment Act
(e-Manifest Act), 42 U.S.C. § 6939g(c)(2), the EPA is required to recover the full cost of
providing system-related services through the established user fees.
In FY 2019, the OCFO misclassified four vouchers—with a total of $10.7 million of e-Manifest2
user fees collected for services provided—as nonexchange revenue instead of exchange revenue.
Table 1 sets forth the user fee summary totals recorded as nonexchange revenue in the EPA's
general ledger.
Table 1: User fee vouchers posted as nonexchange revenue
Voucher number
Date
Amount
RAS19081AJS
3/27/19
$5,981,552.10
RAS19125TWJ
4/10/19
1,008,967.00
RAS19146CYL
5/24/19
1,986,986.64
RAS19159TWJ
6/6/19
1,761,742.40
Total
$10,739,248.14
Source: Office of Inspector General analysis.
According to OCFO staff, they initially believed that the revenue received from e-Manifest user
fees was not equal in value to the services the agency provided to the public. After we discussed
our finding with OCFO staff, however, they agreed that the fees should have been recorded as
2 The e-Manifest is the EPA's national system for electronically tracking hazardous waste shipments.
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exchange revenue. In response to our finding, the staff said that they will change their accounting
posting model to correctly record the e-Manifest user fees as exchange revenue.
If the agency did not change the accounting posting model, the EPA could have continued to
misclassify user fee revenues and potentially overstated its net cost of operations. Further, such
overstatement would inaccurately present the EPA's ability to sustain the program's operations
and recover its full cost through user fee revenues, as required by the e-Manifest Act.
Based on our finding, the OCFO updated the voucher posting model to record e-Manifest user
fees as exchange revenue. In addition, the OCFO reclassified the $10.7 million as exchange
revenue. Since the agency has already acted on our finding, we make no recommendations.
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A—EPA Understated Its Contract Accrued Liabilities
We found that the EPA understated its FY 2018 contract accrued liabilities by $59 million. EPA
policy states that accrual estimates should closely reflect the actual liabilities outstanding at the
end of the reporting period. The misstatement occurred because the EPA relied on 1 month of
subsequent disbursements to proof its accrual estimate, even though contract payments for
FY 2018 liabilities continued throughout FY 2019. Consequently, the EPA's FY 2018
understatement of accruals also resulted in an overstatement of its FY 2019 contract expenses.
Statement of Federal Financial Accounting Standard No. 5, Accounting for Liabilities of the
Federal Government, requires that all liabilities be recognized when incurred, regardless of
whether they are covered by available budgetary resources. In addition, the EPA's Resource
Management Directive System No. 2540-04-P4, Recognizing Year-End Accrued Liabilities,
states that "[w]hile the amounts recorded as accruals are estimates of liabilities, reasonable
efforts should be made to develop a methodology that will closely reflect the actual amount
outstanding at the end of the reporting period."
The EPA recorded $67 million as its contract accrued liability as of September 30, 2018. At that
time, we estimated that the EPA's contract accrual should have been approximately
$116 million, a difference of $49 million. We discussed our finding with the EPA and reported
an audit difference of $49 million during our FY 2018 audit. The EPA decided not to record the
audit difference.
In FY 2018, the EPA changed its contract accrual methodology. To support the reasonableness
of its new methodology, the EPA calculated a proof of its contract accrual for FY 2018. The
EPA's initial proof was based on FY 2018 contract payments disbursed during the first month of
FY 2019. However, we found that EPA payments on contracts for work performed in FY 2018
continued throughout FY 2019. As a result, the contract accrual should have been approximately
$126 million, which means the EPA understated the accrual amount by $59 million.
After we discussed these findings with the EPA, the agency agreed that its new accrual
methodology did not closely reflect the actual expenses for the reporting period. The EPA
therefore decided to restate its FY 2018 financial statements by posting a $49 million adjustment.
Subsequently, the EPA updated its contract accrual methodology for FY 2019. However, based
on the actual disbursements, we estimate that the FY 2018 restated financial statements are still
understated by approximately $10 million.
By understating the FY 2018 accrued liabilities, the EPA overstated its FY 2019 contract expenses.
Recommendations
We recommend that the Chief Financial Officer:
7. Adjust the fiscal year 2018 contract accrued liabilities by $9,853,030.26.
8. Perform a proof of the contract accrual methodology using actual expenses to verify the
accuracy of the EPA's accruals.
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Agency Comments and OIG Evaluation
The EPA agreed with our findings and recommendations and has completed corrective actions.
9.
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5—EPA Needs to Improve Process to Disable User Accounts for
Financial and Mixed Financial Systems
The OCFO and the OMS did not consistently remove user access to financial and mixed
financial systems when employees were separated or terminated from the EPA. Removing each
departing employee access to information technology infrastructure is critical to protecting
systems and data. Federal and EPA directives require that user access to systems be removed
when access is no longer needed. However, account managers for the systems were not
consistently notified to remove access when employees no longer worked for the agency. As a
result, former agency employees could inappropriately access critical financial and mixed
financial systems and had the ability to inappropriately use or disclose EPA's data.
Federal and EPA Requirements for Termination of Access Control
National Institute of Standards and Technology's (NIST's) Special Publication 800-53,
Security and Privacy Controls for Federal Information Systems and Organizations, Revision
4, dated April 2013, Access Control-2, states that each federal agency or organization:
• "Creates, enables, modifies, disables, and removes information system accounts in
accordance with" organization-defined procedures or conditions.
• "Notifies account managers ... When users are terminated or transferred."
Section AC-2 of the EPA's Information Security - Access Control Procedure (CIO-2150-
P-01.2, dated September 21, 2015) states:
When a user's official association with the EPA or authorization to access
EPA information systems is terminated, all accounts associated with that
user are disabled immediately. Such accounts include network access,
e-mail access, etc.
EPA Did Not Remove User Access for Separated Employees
The OCFO and the OMS did not always follow procedures to enforce access controls
procedures to notify account managers when users are separated from the agency. We
reviewed user access to four systems; some financial and some mixed financial systems:
• Three under the purview of the OCFO—the Automated Standard Application for
Payments, Compass Financials and the Grants Payment Allocation System.
• One under the purview of the OMS—the Integrated Grants Management System.
For these four systems, we interviewed the three account managers and found they had
differing prompts for disabling user accounts:
• One removes or disables user accounts via direct notification, while the other
removes or disables user accounts via indirect notification.
• One relies upon annual reviews to certify that users still need system access, even
though EPA policy requires system access to be removed immediately.
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As a result, eight former EPA employees who separated from the agency from May 1,
2018, through May 31, 2019, retained access to one financial and two mixed financial
systems we reviewed (Table 2).
Table 2: Active accounts for former employees who separated from the EPA from May 1,
2018, through May 31, 2019
System name
System purpose
Separated employees
with active accounts
Automated Standard
Application for
Payments
This Department of the Treasury system is used by federal
agencies to enroll recipient organizations, authorize payments
and manage accounts.
23
Compass Financials
This web application provides the tools needed to manage,
budget and track expenditures.
1
Integrated Grants
Management System
This system exchanges data with Grants.gov, the central portal
for applicants to apply for federal grants. The system receives
electronic applications and makes them available to EPA
employees for review, approval, and funding and post-award
management.
4
Total separated employees with access
7
Source: OIG analysis.
If the EPA does not take immediate action to remove system access when employees
separate or are terminated from the agency, these active accounts could be used to gain
unauthorized access to the agency's financial and mixed financial systems, leaving data
vulnerable to unauthorized use and disclosure.
Recommendations
We recommend that the Chief Financial Officer:
9. Implement a process to timely notify the Compass Financials and Automated Standard
Application for Payment user account administrators of individuals who are separated or
terminated from the EPA and remove their access to these systems.
10. Remove user access of the separated Compass Financial user identified with an active
account.
We recommend that the Assistant Administrator for Mission Support:
11. Implement a process to timely notify the Integrated Grants Management System user
account administrator of individuals who separate from the EPA and remove their access
to this system.
12. Remove user access of the separated Integrated Grants Management System users
identified with active accounts.
3 Two former employees separated effective March 30, 2019. These former employees were included in the analysis
because user access was not disabled until April 22, 2019.
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Agency Comments and OIG Evaluation
The EPA agreed with our recommendations and provided acceptable corrective actions and
milestone dates. Specifically:
• For Recommendation 9, the agency stated that it had an internal control process that
provided automated notifications to terminate access when users separated from the
agency, but this process failed in the spring of 2019. Management indicated that it is
currently using a manually executed report and will update the internal controls so that
access to the EPA network is revoked when employees are separated.
• For Recommendation 10, the agency indicated that it removed the Compass access for
the employees identified in the finding.
• For Recommendation 11, the agency indicated that it will identify specific areas where
improvement is necessary in the deprovisioning process of user accounts and licenses.
The agency said that it will then implement, where appropriate, a technical solution for
these improvements.
• For Recommendation 12, the agency indicated that it has removed the IGEMS access for
the employees identified in the finding.
Recommendations 9 and 11 are resolved with corrective actions pending. The agency provided
documentation supporting that corrective actions to address Recommendations 10 and 12 have
been completed. Therefore, Recommendations 10 and 12 are completed. The EPA's full
response to our draft report is in Appendix II.
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6—OCFO Needs to Protect Personally Identifiable Information on Its
Server Used to Transfer Data with Vendors
The OCFO lacks controls to protect PII and SPII stored on a file transfer server that is used to
exchange data with EPA vendors. Federal and EPA directives require the EPA to secure this type
of information. However, the OCFO did not encrypt,
restrict access rights or remove files containing PII and
SPH on the file transfer server. Without proper security
and access controls, PII and SPII collected by EPA are
vulnerable to unauthorized access and a breach of privacy
that could lead to identity theft.
Federal and EPA Standards Require Protection of Information
NIST Special Publication 800-53 specifies the following controls for protecting PII:
• System and Communications Protection-28, Protection of Information at Rest.
This control addresses the confidentiality and/or integrity of information at rest,
which refers to the state of information when it is located on storage devices as
specific components of information systems. Pursuant to this control,
"Organizations have the flexibility to either encrypt all information on storage
devices (i.e., full disk encryption) or encrypt specific data structures (e.g., files,
records, or fields)."
• Access Control-6, Least Privilege. This control provides, "The organization
employs the principle of least privilege, allowing only authorized accesses for
users (or processes acting on behalf of users)
which are necessary to accomplish assigned tasks
in accordance with organizational missions and
business functions." This control is also defined in
the EPA's Information Security - Access Control
Procedure.
The EP A's Protecting Sensitive Personally Identifiable Information (SPII), Chief
Information Officer Directive No. 2151-P-10.0, dated December 19, 2016, provides that
security and controls are required to protect SPII due to the harm it could cause if an
information system is breached. This procedure states system owners are responsible for
properly destroying copies and files containing SPII after 90 days. In addition, pursuant
to this directive, all employees, must:
• "Ensure all such SPII has been erased, returned, or destroyed within 90 days, or
request approval ... for continued use."
• "Encrypt documents containing SPII properly ... and document the encryption."
PII: Information used to distinguish, trace or
identify an individual's identity, such as name,
date of birth and home address.
SPII: A subset of PII, this information includes
Social Security numbers or comparable
identification numbers, as well as passport,
biometric, medical or financial data.
The principle of least privilege is
the principle where users have the
minimum system access necessary
to perform their work.
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EPA File Transfer Server Does Not Protect Sensitive Information
The OCFO uses a file transfer server to exchange financial and other information with its
external service providers. This server and the exchanged data are controlled by the EPA
(Figure 1). When PII and SPII are exchanged, they should be protected from
unauthorized access. However, the
OCFO lacked internal controls to
verify that employees
(1) implemented information
system security controls required by
NIST and (2) followed the EPA's
Information Security - Access
Control Procedure and the EPA's
Protecting Sensitive Personally
Identifiable Information (SPII).
The OCFO did not limit access to
PII and SPH or encrypt SPII.
Specifically, OCFO employees
did not:
• Prevent people with access to the file transfer server from viewing SPII. For
example, we learned during an interview with the technician who maintains the
server for the OCFO that this person could view SPII on the server. However, the
technician does not need access to the SPII for work purposes.
• Follow the EPA's Information Security - Access Control Procedure, which
requires each user to have only the minimum
system access needed to accomplish assigned
organizational missions and business functions. The
OCFO thought access to SPII was restricted by
information technology based on assigned user
groups; however, we found that access to view SPII
was granted to all users of the server. As such, the OCFO process does not limit
access to PII and SPII.
• Erase SPII when it was no longer needed for current operations. Consequently, the
server contained bank files from calendar year 2013 and calendar year 2019 that
contain the EPA's travel, purchase and fleet credit card information, including
names, expiration dates and credit card numbers. The server also stored tax
information, including the names and social security numbers of EPA contractors,
from calendar years 2012 through 2017.
All 139 user accounts of the file transfer server could view the server's SPII because of
this lack of control. The OCFO could have protected the SPII by encrypting the data,
Figure 1: File Transfer Server
The EPA's Network
nir
EPA Systems
Compass Financials
Hosting Vendor
Source: EPA OIG.
User groups help simplify
access to a computer system,
whereby users assigned to the
same "group" have the same
system access and ability to
perform the same tasks.
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restricting which users could access the data and erasing the data from the file transfer
server after the data had been transferred to the system of record.
The OCFO indicated that it would work with its service provider, the Office of Mission
Support, to either remove or restrict user access by September 20, 2019. However, as of
September 24, 2019, the system access rules were not changed to restrict user access to
the server. The Office of Mission Support representative who is responsible for
maintaining the file transfer server told us that the OCFO had not submitted a request for
any rule changes. OMS also added that there are information technology staff in the
OCFO who can update access rights. The OCFO also said that it would work with its
support team to implement the agency's file retention policy and transfer the files
containing PII and SPII to a secure location by December 13, 2019.
Recommendations
We recommend that the Chief Financial Officer:
13. Implement internal controls to comply with mandatory information system security
controls to protect Personally Identifiable Information (PII) and Sensitive Personally
Identifiable Information (SPII) stored on the file transfer server as specified by the
National Institute of Standards and Technology Special Publication 800-53, Security and
Privacy Controls for Federal Information Systems and Organizations, Revision 4,
April 2013.
14. Implement internal controls to comply with CIO's Directive No.: 2151-P-10.0,
Protecting Sensitive Personally Identifiable Information (SPII), dated December 19,
2016, for the PII and SPII stored on the server used to exchange information with EPA
vendors.
15. Take immediate action to verify that the user accounts on the file transfer server, with
access to the PII and SPII, need the access to the file transfer server and remove the user
accounts of personnel who do not need access to the server.
16. Take immediate action to update the user account access group rules to restrict what PII
and SPII users can view on the file transfer server used to exchange information with
EPA vendors.
17. Take immediate action to verify that employees are complying with the EPA record
retention procedures for the PII and SPII that is currently stored on the file transfer server
used to exchange information with EPA vendors.
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Agency Comments and OIG Evaluation
The EPA agreed with our recommendations and provided acceptable corrective actions and
milestone dates. Specifically:
• For Recommendation 13, the agency indicated that it will remove the files from the
server within 5 days. Further the agency will use a tool to alert staff that the files have
been removed.
• For Recommendation 14, the agency indicated that it will develop a process to annually
recertify user access to the file transfer server. Further, the agency will generate a report
to validate and verify group access to the file transfer server.
• For Recommendation 15, the agency indicated that it has implemented steps to recertify
all users. Further, the agency will remove user accounts of personnel who do not need
access to the file transfer server.
• For Recommendation 16, the agency indicated that it would review all access from the
file transfer server and take the necessary actions to either remove or restrict access.
• For Recommendation 17, the agency indicated that it will not retain files with PII and
SPII on the file transfer server. The file transfer server is intended as a mechanism to
transfer files between agency systems and external destinations. The agency will transfer
files from the file transfer server to a secure location.
We consider Recommendations 13, 14, 15, 16 and 17 resolved with corrective actions pending.
The EPA's full response to our draft report is in Appendix II.
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Attachment 2
Status of Prior Audit Report Recommendations
The EPA is working to strengthen its audit management procedures to address audit findings in a
timely manner and to complete corrective actions expeditiously and effectively. Strengthened
procedures will also help improve environmental results. In FY 2019, 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 management procedures:
• The OCFO worked closely with Agency Audit Follow-Up Coordinators during
FY 2019 to ensure that corrective action dates were being met and required
certification memorandums were being submitted. The EPA said that OCFO efforts
significantly helped with the EPA's responses to the OIG's two Semiannual Reports
to Congress in FY 2018, which were issued in the spring and fall of 2018.
• The agency provided a session on Financial Audits and Audit Outcomes at the
FY 2019 OCFO Technical Conference held in the spring. Participants attended from
all EPA offices.
• The agency continued to hold quarterly meetings with Agency Audit Follow-Up
Coordinators to discuss issues and concerns, as well as to emphasize adherence to
corrective action due dates and the need to keep the Management Audit Tracking
System current. The EPA asked the OIG to participate in the agency's spring quarterly
meeting, and the EPA said that our participation, provided it with a better understanding
of OIG and EPA roles and responsibilities.
In addition, the EPA maintained its commitment to engage early with the OIG on audit
findings and to develop effective corrective actions that address OIG recommendations.
However, the following table outlines the status of past significant deficiency findings that
have not been resolved to date.
Table 3: Significant deficiency issues not fully resolved
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 not due until September 2017; however,
the agency revised the expected completion 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
examinations was not feasible.
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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 are 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.
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. Therefore, the EPA's corrective action was not totally effective.
Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the
Finance Center
In FY 2014, we found that the EPA and the Department of Justice did not forward accounts receivable
source documents to the 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 Cincinnati Finance Center's timely receipt of legal documents,
we still identified instances of untimely receipt during FYs 2015 through 2019. Therefore, the agency's
corrective actions are not completely effective, and we will continue to evaluate whether the agency
timely receives legal source documents in FY 2020.
EPA Improperly Increased Accounts Receivable and Related Revenue
During FY 2018, we found that the EPA improperly increased accounts receivable based on the cash
received rather than the amount stipulated in the legal claim. Based on our findings, we recommended
the agency adjust accounts receivable only for amounts stipulated in settlement agreements. The EPA
considers this recommendation completed; however, we found during the FY 2019 audit that the EPA
recorded an accounts receivable based on the cash received rather than the amount stipulated in the
legal document. Therefore, the agency's corrective actions are not completely effective, and we will
continue to evaluate the agency's recording of accounts receivable.
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. As of November 2019, we were awaiting additional supporting documentation
from the agency, and we had not assessed the effectiveness of the agency's corrective action.
Financial Management System User Account Management Needs Improvement
During our FY 2009 audit, we found that the EPA had not established policies that clearly define
incompatible functions and associated processes to facilitate the proper separation of duties within the
financial system application. Based on our findings, we recommended in our FY 2009 report that the
OCFO verify that all new and updated financial management systems include an automated control to
enforce separation of duties. The agency agreed with our finding and recommendation. The EPA had
considered this recommendation closed; however, the OCFO agreed in FY 2016 to develop alternative
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corrective actions for this recommendation, with a planned completion date of December 31, 2017.
In FY 2017, the OCFO extended the completion date to December 31, 2018. In FY 2019, the agency
provided us with a separation of duties waiver and a list of individuals requesting access in accordance
with EPA procedures, but the agency did not provide us the required list of mitigating controls. We
asked the EPA for additional documents to support the completion of the corrective action. The EPA did
not provide further information. Therefore, this recommendation is unresolved.
OCFO Lacks Internal Controls When Assuming Responsibility for Account Management
Procedures of Financial Systems
During our FY 2015 audit, we found that the OCFO's Application Management staff assumed
responsibility for managing oversight of users' access to the Payment Tracking System without ensuring
that the system had documentation covering key account management procedures. Based on our
findings, we recommended that the Chief Financial Officer implement an internal control process for
transferring the management of an application's user access to Application Management staff. We also
recommended that the Chief Financial Officer conduct an inventory of OCFO systems managed by
Application Management staff and create or update supporting access management documentation for
each application. The agency agreed with our finding and recommendations. In FY 2019, the OCFO
extended the completion date for the first recommendation to December 16, 2019, and the second
recommendation to the second quarter of FY 2020.
EPA Needs Controls to Monitor Direct Access to the Compass Financials Database
During our FY 2016 audit, we found that the EPA did not establish controls to monitor direct access to
data within the Compass Financials database. Based on our findings, we recommended in our FY 2017
report that the Chief Financial Officer work with the Compass Financials service provider to establish
controls for creating and locking administrative accounts. We also recommended that the Chief
Financial Officer work with the Compass Financials service provider to develop and implement a
methodology to monitor accounts with administrative capabilities. Further, we recommended that the
Chief Financial Officer enter the Continuous Monitoring Assessment recommendations into the
agency's system used for monitoring the remediation of information security corrective actions. The
agency concurred with our recommendations. According to the agency's May 1, 2019, corrective action
status report, the agency was adhering to the planned completion date of September 30, 2021, for the
first and second recommendations. Corrective actions for the third recommendation have been
completed.
EPA Needs to Perform a Documented Evaluation on Upgrading Equipment Used to Implement
Physical Environmental Controls at the National Computer Center
During FY 2018, we found that the EPA did not implement controls to enforce the required verification of
each person's identity every time anyone enters the agency's computer rooms. Additionally, we found
that equipment supporting the physical and environmental controls for the computer room at the
National Computer Center has not been maintained or reviewed to see if it still meets the needs of the
computer center. Based on our findings, we recommended that the Office of Mission Support:
• Implement controls to enforce the required verification of each person's identity prior to allowing
individuals to access the agency's computer rooms.
• Perform a review of system requirements and evaluate the suitability of existing technology to
replace or implement updates to the National Computer Center computer room's surveillance
system and generators. Update or replace, if warranted, the equipment based on the results of
the evaluation.
The Office of Mission Support provided a corrective action date of March 31, 2020, for the first
recommendation. We considered the first recommendation resolved with corrective actions pending.
For the second recommendation, the agency provided documentation to support that it evaluated the
video surveillance coverage of the National Computer Center computer room and established a process
to refill the fuel tanks for the generators. Additionally, the agency provided confirmation that its
generators' fuel tanks have a run time that exceeds the requirement for continuous uptime. Therefore,
the second recommendation is resolved.
Source: OIG analysis.
20-F-0033
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27
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Attachment 3
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
Potential
Monetary
Benefits
(in $000s)
1
10
Evaluate and improve the EPA's process for preparing financial
statements.
R
Chief Financial Officer
7/31/20
2
10
Provide accurate and reliable supporting documentation for
adjustments and corrections to the financial statements.
R
Chief Financial Officer
2/29/20
3
12
Update the accounting models to properly record collections and
not reduce an account receivable account.
R
Chief Financial Officer
9/30/21
4
12
Establish accounting models to properly record e-Manifest
account receivables and recognize earned revenue at the
transaction level.
R
Chief Financial Officer
9/30/21
5
12
Establish accounting models to properly classify and record
interest, fines, penalties and fees.
R
Chief Financial Officer
9/30/21
6
12
Establish accounting models to properly record receivables,
collections and earned revenue from federal versus nonfederal
vendors.
R
Chief Financial Officer
9/30/21
7
16
Adjust the fiscal year 2018 contract accrued liabilities by
$9,853,030.26.
C
Chief Financial Officer
11/8/19
$9,853
8
16
Perform a proof of the contract accrual methodology using actual
expenses to verify the accuracy of the EPA's accruals.
C
Chief Financial Officer
11/7/19
9
19
Implement a process to timely notify the Compass Financials
and Automated Standard Application for Payment user account
administrators of individuals who are separated or terminated
from the EPA and remove their access to these systems.
R
Chief Financial Officer
1/31/20
10
19
Remove user access of the separated Compass Financial user
identified with an active account.
C
Chief Financial Officer
10/31/19
11
19
Implement a process to timely notify the Integrated Grants
Management System user account administrator of individuals
who separate from the EPA and remove their access to this
system.
R
Assistant Administrator for
Mission Support
6/30/20
12
19
Remove user access of the separated Integrated Grants
Management System users identified with active accounts.
C
Assistant Administrator for
Mission Support
11/4/19
13
23
Implement internal controls to comply with mandatory
information system security controls to protect Personally
Identifiable Information (Pll) and Sensitive Personally Identifiable
Information (SPII) stored on the file transfer server as specified
by the National Institute of Standards and Technology Special
Publication 800-53, Security and Privacy Controls for Federal
Information Systems and Organizations, Revision 4, April 2013.
R
Chief Financial Officer
1/31/20
20-F-0033
117
28
-------
RECOMMENDATIONS
Potential
Planned
Monetary
Rec.
Page
Completion
Benefits
No.
No.
Subject
Status1
Action Official
Date
(in $000s)
14 23 Implement internal controls to comply with ClO's Directive No.:
2151-P-10.0, Protecting Sensitive Personally Identifiable
Information (SPII), dated December 19, 2016, forthe Pll and
SPII stored on the server used to exchange information with EPA
vendors.
Chief Financial Officer
12/30/19
15 23 Take immediate action to verify that the user accounts on the file R
transfer server, with access to the Pll and SPII, need the access
to the file transfer server and remove the user accounts of
personnel who do not need access to the server.
16 23 Take immediate action to update the user account access group
rules to restrict what Pll and SPII users can view on the file
transfer server used to exchange information with EPA vendors.
17 23 Take immediate action to verify that employees are complying
with the EPA record retention procedures forthe Pll and SPII
that is currently stored on the file transfer server used to
exchange information with EPA vendors.
R
Chief Financial Officer
Chief Financial Officer
Chief Financial Officer
11/22/19
11/22/19
12/13/19
1 C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
20-F-0033
118
29
-------
Appendix I
EPA's FYs 2019 and 2018
Consolidated Financial Statements
20-F-0033 119
-------
Appendix
Agency Response to Draft Report
ST*
'* ^ UNITED STATr < /'i;. IV*i • - ^ Tir^ON AGENCY
November 19, 2019
MEMORANDUM
SUBJECT: Respond to Office of Insjvctoi Cicncul I>utt '\uilii Rq*»it, Piopxt No < > Vvl 4 Y19-
UJOI. ' / P I \ FlUfl/ } L'lti <¦ Jf'/V imd 201S cA\ sklled) I oiniilhUh ti I llut>\ 111I
SutL 'dated November 18, 2019
,>>!. ""v J
i J ' I I 'ft. t
f j ' „ SSs
FROM: ^ IXiuJ \S4lut>ifl:'^itHgt'llief 1 ¦inaticial Officer
^ OUkeol the Chief Financial Officei
TO: t'lwdcs J Sheelun, Acting Inspector General
( H'flee ot Inspector General
Thank you for the opportunity to respond to the issues and recommendations in the subject draft
audit report. The following is a summary of the 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 we can.
AGENCY'S OVERALL POSITION
The agency concurs with all seventeen of the recommendations.
AGENCY'S RESPONSE TO DRAFT AUDIT RECOMMENDATIONS
Agreements
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
1
Evaluate and improve the
EPA's process for preparing
financial statements.
The agency makes every effort to
continually review and improve its
processes for financial statement
reporting, including the implementation of
new financial statements preparation
software in FY 2019.
July 31, 2020
20-F-0033
120
-------
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
The agency will continue to review its
processes for preparing financial
statements and identify process
improvements to further strengthen the
preparation process.
2
Provide accurate and reliable
supporting documentation for
adjustments and corrections to
the financial statements.
The agency makes every effort to provide
supporting documentation for adjustments
and corrections; however, we will review
with staff the need to include more of the
supporting analysis and rationale behind
the adjustments made and the accounting
basis for them. The OIG has verbally told
the agency that supporting documentation
has improved over the last year, but we
will continue to work with the OIG on any
specific instances for which they feel
additional documentation is needed.
February 29,
2020
3
Update the accounting models
to properly record collections
and not reduce an account
receivable account.
The OCFO will work with the Office of
Land and Emergency Management to
review the business process for e-Manifest
financial activities and develop a plan for
recording the related activities at the
transactional level.
September 30,
2021
4
Establish accounting models to
properly record e-Manifest
account receivables and
recognize earned revenue at the
transaction level.
The OCFO will work with the Office of
Land and Emergency Management to
review the business process for e-Manifest
financial activities and develop a plan for
recording the related activities at the
transactional level.
September 30,
2021
5
Establish accounting models to
properly classify and record
interest, fines, penalties and
fees.
The OCFO will work with the Office of
Land and Emergency Management to
review the business process for e-Manifest
financial activities and develop a plan for
recording the related activities at the
transactional level.
September 30,
2021
6
Establish accounting models to
properly record receivables,
collections and earned revenue
from federal versus nonfederal
vendors.
The OCFO will work with the Office of
Land and Emergency Management to
review the business process for e-Manifest
financial activities and develop a plan for
recording the related activities at the
transactional level.
September 30,
2021
20-F-0033
121
-------
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
7
Adjust the fiscal year 2018
contract accrued liabilities by
$9,853,030.26.
The agency has made an additional
adjustment to contract accrued liabilities
by $9,853,030.26 in the final FY 2019
financial statement.
Completed
November 8,
2019
8
Perform a proof of the contract
accrual methodology using
actual expenses to verify the
accuracy of the EPA's accruals.
The agency performed the proof as
requested.
Completed
November 7,
2019
9
Implement a process to timely
notify the Compass Financials
and Automated Standard
Application for Payment user
account administrators of
individuals who are separated
or terminated from the EPA and
remove their access to these
systems.
OCFO/OTS has an internal control
process for an automated notification to
terminate access, which failed in the
spring of 2019. We are currently using a
manually executed report and will update
the internal controls to ensure system
access is revoked when employees are
separated. As a compensating
control, during the off-boarding of
employees, EPA network access is
revoked, and a valid network user account
ID and password are required for access to
Compass.
The two ASAP users were an unusual
situation, and access removal was
completed on April 18, 2019. The
Director of the Finance Center that
manages ASAP will continue to notify the
ASAP account manager of terminations or
separations.
January 31, 2020
10
Remove user access of the
separated Compass Financial
user identified with an active
account.
OCFO/OTS has removed Compass access
of the identified user.
Completed
October 31, 2019
11
Implement a process to timely
notify the Integrated Grants
Management System user
account administrator of
individuals who separate from
the EPA and remove their
access to this system.
OMS/OGD will work directly with
OMS/EI, OMS/ARM/OHR and
OMS/ORBO to determine specific areas
where improvement is necessary in the
deprovisioning process of user accounts
and licenses. OMS/ARM/OGD, along
with its partners, will then identify and
implement, where appropriate, a technical
June 30, 2020
20-F-0033
122
-------
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
solution for these improvements. The
target date for developing and fully
implementing all improvements is June
30, 2020.
12
Remove user access of the
separated Integrated Grants
Management System users
identified with active accounts.
As of November 4, 2019,
OMS/ARM/OGD has removed IGMS
access for the identified users.
Completed
November 4,
2019
13
Implement internal controls to
comply with mandatory
information system security
controls to protect Personally
Identifiable Information (PII)
and Sensitive Personally
Identifiable Information (SPII)
stored on the file transfer server
as specified by the National
Institute of Standards and
Technology (NIST), Special
Publication 800-53, Security
and Privacy Controls for
Federal Information Systems
and Organizations, Revision 4,
April 2013.
In coordination with OMS/EI,
OCFO/OTS disabled the non-secure
connection (ftp) port access on
Wednesday, September 11, 2019,
preventing any future transfer of
information. OCFO/OTS will only allow a
secure transfer method (SSH File Transfer
Protocol, also known as Secure FTP) to
transfer the files to and from the file
transfer server.
In accordance with security controls
identified in the National Institute of
Standards and Technology, Special
Publication 800-53, Security and Privacy
Controls for Federal Information Systems
and Organizations, Revision 4, April
2013, OTS will monitor the file transfer
server on a bi-weekly basis to ensure that
the PII and SPII files are transferred to a
secure location within 5 days or less. In
addition, OTS will work with OMS to
create an automatic monitoring script by
January 31, 2020, to generate a report that
OTS/AMD staff will use to validate and
confirm that no files older than 5 days
remain on the file transfer server.
January 31, 2020
14
Implement internal controls to
comply with CIO's Directive
No.: 2151-P-10.0, Protecting
Sensitive Personally
Identifiable Information (SPII),
dated December 19, 2016, for
the PII and SPII stored on the
Access to the file transfer server is
controlled by file-level roles and
privileges. All EPA users of the
referenced server are required to be inside
the EPA network, therefore additional
encryption on the file transfer server is not
required due to the controlled access
December 30,
2019
20-F-0033
123
-------
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
server used to exchange
information with EPA vendors.
previously mentioned. Additionally,
external connections are made over a
point-to-point connection, and all traffic
flows through either an IP Sec tunnel or
VPN, which terminates within the NCC.
OCFO/OTS will continue to verify their
compliance to protect the PII and the SPII
stored on the server used to exchange
information with EPA vendors.
OCFO/OTS has also implemented steps to
recertify all users. By November 22, 2019,
OCFO/OTS will remove user accounts
who do not need access to the file transfer
server.
In compliance with CIO Directive No.:
2151-P-10.0, Protecting Sensitive
Personally Identifiable Information (SPII),
12/19/2016, OTS implemented a process
to recertify all users on an annual
basis. The recertification process involves
users submitting a form identifying their
roles associated with accessing files on
the file transfer server. In addition, OTS
will work with OMS to generate a
monthly report by December 30, 2019 that
OTS/AMD staff will use to validate and
verify group access on the file transfer
server. OTS expects to complete the initial
recertification by November 22, 2019.
15
Take immediate action to verify
that the user accounts on the file
transfer server, with access to
the PII and SPII, need the
access to the file transfer server
and remove the user accounts of
personnel who do not need
access to the server.
OCFO/OTS has implemented steps to
recertify all users. OCFO/OTS will
remove user accounts of personnel who
do not need access to the file transfer
server by November 22, 2019.
November 22,
2019
20-F-0033
124
-------
No.
Recommendation
High-Level Intended Corrective
Action(s)
Estimated
Completion Date
16
Take immediate action to
update the user account access
group rules to restrict what PII
and SPII users can view on the
file transfer server used to
exchange information with EPA
vendors.
OCFO/OTS will work with OMS/EI to
review all access from the file transfer
server and take necessary actions to either
remove or restrict access by November
22, 2019 as appropriate.
November 22,
2019
17
Take immediate action to verify
that employees are complying
with the EPA record retention
procedures for the PII and SPII
that is currently stored on the
file transfer server used to
exchange information with EPA
vendors.
OCFO/OTS will not retain files with PII
and SPII on the file transfer server. The
file transfer server is intended as a
mechanism for file transfers between
OCFO/OTS systems and external
destinations. OCFO/OTS will work with
OMS/EI to transfer files from the file
transfer server to a secure location by
December 13, 2019.
December 13,
2019
CONTACT INFORMATION
If you have any questions regarding this response, please contact OCFO's Audit Follow-up
Coordinator, Andrew LeBlanc, at 202-564-1761.
cc: Kevin Christensen
Richard Eyermann
Paul Curtis
Rudy Brevard
Wanda Arlington
Margaret Hiatt
Donna Vizian
Carol Terris
Jeanne Conklin
Meshell Jones-Peeler
Denise Polk
Richard Gray
Dany Lavergne
Greg Luebbering
Aileen Atcherson
Lorna Washington
Andrew LeBlanc
20-F-0033
125
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Appendix III
Distribution
The Administrator
Assistant Deputy Administrator
Associate Deputy Administrator
Chief of Staff
Deputy Chief of Staff
Chief Financial Officer
Assistant Administrator for Mission Support
Assistant Administrator for Land and Emergency Management
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Associate Administrator for Policy, Office of the Administrator
Director, Office of Continuous Improvement, Office of the Administrator
Associate Chief Financial Officer
Associate Chief Financial Officer for Policy
Principal Deputy Assistant Administrator for Mission Support
Associate Deputy Assistant Administrator for Mission Support
Deputy Assistant Administrator for Administration and Resources Management, Office of
Mission Support
Deputy Assistant Administrator for Environmental Information and Chief Information Officer,
Office of Mission Support
Principal Deputy General Counsel
Principal Deputy Assistant Administrator for Land and Emergency Management
Deputy Assistant Administrator for Land and Emergency Management
Director, Office of Budget, Office of the Chief Financial Officer
Controller, Office of the Controller, Office of the Chief Financial Officer
Deputy Controller, Office of the Controller, Office of the Chief Financial Officer
Director, 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, Research Triangle Park Finance Center, Office of the Chief Financial Officer
Director, Cincinnati Finance Center, Office of the Chief Financial Officer
Director, Office of Resources and Business Operations, Office of Mission Support
Director, Administrative IT Staff, Office of Mission Support
Director, Information Security and Management Staff, Office of Mission Support
Director, Office of Acquisition Solutions, Office of Mission Support
Director, Office of Grants and Debarment, Office of Mission Support
Director, Office of Administration, Office of Mission Support
Director, Office of Human Resources, Office of Mission Support
Director, Office Information Technology Operations, Office of Mission Support
Director, Office Information Security and Privacy, Office of Mission Support
20-F-0033
126
-------
Deputy Director, Office of Grants and Debarment, Office of Mission Support
Senior Debarring Official, Office of Grants and Debarment, Office of Mission Support
Senior Associate Director for Grants Competition, Office of Grants and Debarment, Office of
Mission Support
Director, Office of Superfund Remediation and Technology Innovation, Office of Land and
Emergency Management
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
Audit Follow-Up Coordinator, Office of Mission Support
Audit Follow-Up Coordinator, Office of Acquisition Solutions, Office of Mission Support
Audit Follow-Up Coordinator, Office of Grants and Debarment, Office of Mission Support
Audit Follow-Up Coordinator, Office of Land and Emergency Management
20-F-0033
127
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Section III
Other Accompanying
Information
-------
MANAGEMENT INTEGRITY AND CHALLENGES
Overview of EPA's Efforts
Management challenges and integrity weaknesses represent vulnerabilities in program operations that may
impair 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 EPA's external evaluators, such as OMB, the U.S. Government Accountability Office and EPA's OIG. 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 EPA's progress in addressing its FY 2019 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). Agencies also 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 2019, one new material weakness was identified by
the OIG (see the following subsections for a discussion of EPA's progress in addressing material
weaknesses).
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 sound management
policy. The Agency will continue to address its remaining weaknesses and report on its progress.
129
-------
2019 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 2019, the OIG identified six challenges. The table below includes issues the OIG identified as key
management challenges facing 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
f http://epa.gov/planandbudget/strategicplan.html].
OIG Identified Key Management Challenges for the EPA
FY 2017
FY 2018
FY 2019
EPA
strategic
goal
Oversight of States, Territories, and Tribes Authorized to
Accomplish Environmental Goals: The EPA has made
important progress, but our work continues to identify
challenges throughout agency programs and regions, and
many of our recommendations to establish consistent
baselines and monitor programs are still not fully
implemented.
•
•
•
Cross-Goal
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.
•
•
•
Cross- Goal
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.
•
•
•
Cross- Goal
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.
•
•
Cross-Goal
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.
•
•
Cross-Goal
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.
•
Cross-Goal
130
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*Tj U.S. ENVIRONMENTAL PROTECTION AGENCY
I OFFICE OF INSPECTOR GENERAL
PRO^°
EPA Management
Challenges
19-N-0235
July 15, 2019
-------
Abbreviations
CFR
Code of Federal Regulations
CIO
Chief Information Officer
EPA
U.S. Environmental Protection Agency
FTE
Full-Time Equivalent
FY
Fiscal Year
GAO
U.S. Government Accountability Office
IT
Information Technology
OIG
Office of Inspector General
OMB
Office of Management and Budget
PII
Personally Identifiable Information
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (2410T)
Washington, DC 20460
(202) 566-2391
www.epa. eov/oig
Subscribe to our Email Updates
Follow us on Twitter @EPAoig Send
us your Project Suggestions
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
19-N-0235
July 15, 2019
What Are Management
Challenges?
According to the Government
Performance and Results Act
Modernization Act of 2010,
major 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.
As required by the Reports
Consolidation Act of 2000,
we are providing issues we
consider to be the
U.S. Environmental
Protection Agency's (EPA's)
major management
challenges for fiscal year
2019.
EPA's Fiscal Year 2019 Management Challenges
What We Found
Attention to agency management challenges could result in stronger results
and protection for the public, and increased confidence in management
integrity and accountability.
The EPA Needs to Improve Oversight of States, Territories and Tribes
Authorized to Accomplish Environmental Goals:
• The EPA has made important progress, but our work continues to identify
challenges throughout agency programs and regions, and many of our
recommendations are still not fully implemented.
The EPA Needs to Improve Workload Analysis to Accomplish Its Mission
Efficiently and Effectively:
• The EPA needs to identify its workload needs so that it can more effectively
prioritize and allocate limited resources to accomplish its work.
The EPA Needs to Enhance Information Security to Combat Cyber Threats:
• Though the EPA continues to initiate actions to further strengthen or improve
its information security program, issues remain.
The EPA Needs to Improve on Fulfilling 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.
The EPA Needs Improved Data Quality and Should Fill Identified Data Gaps for
Program Performance and Decision-Making:
• Poor data quality negatively impacts the EPA's effectiveness in overseeing
programs that directly impact human health.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBPOSTINGS@epa.gov.
List of OIG reports
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.
133
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^ V UNITED STATES ENVIRONMENTAL
I JUL. | PROTECTION AGENCY
I V\l/V I WASHINGTON, D.C. 20460
'^L PR0^feO
% * OFFICE OF
%
-------
Similar to how the U.S. Government Accountability Office reports its High-Risk List, each year we
assess the agency's efforts against the following five criteria required to justify removal of management
challenges from the prior year's list:
1. Demonstrated top leadership commitment.
2. Agency capacity - people and resources to reduce risks, and processes for reporting and
accountability.
3. Corrective actions - analysis identifying root causes, targeted plans to address root causes, and
solutions.
4. Monitoring efforts - established performance measures and data collection/analysis.
5. Demonstrated progress - evidence of implemented corrective actions and appropriate
adjustments.
The U.S. Government Accountability Office's 2019 High-Risk Series report describes these five criteria
as a road map for efforts to improve and ultimately address high-risk issues. Addressing some of the
criteria leads to progress, while satisfying all the criteria is central to removal from the list.
This year we retained all five management challenges from last year's report due to persistent issues.
We added one additional challenge ("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").
We will post this report to our website at www.epa.gov/oig. We welcome the opportunity to discuss our
list of challenges and any comments your staff might have.
Attachment
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CHALLENGE: The EPA Needs to Improve
Oversight of States, Territories and Tribes
Authorized to Accomplish Environmental Goals
CHALLENGE FOR THE AGENCY
Over the past 10 years, both the U.S. Environmental
Protection Agency (EPA) Office of Inspector General (OIG)
and the U.S. Government Accountability Office (GAO)
consistently have found that the EPA needs to improve its oversight of states, territories and tribes that
have authority (or "delegated authority") to implement environmental programs and enforce
environmental laws. The agency has improved its oversight and addressed deficiencies. However,
recent audits indicate oversight remains a significant management challenge.
BACKGROUND
To accomplish its mission, the EPA develops regulations and establishes programs to implement
environmental laws. In many cases, the EPA can delegate to states, territories and tribes or otherwise
formally authorize them to implement the laws. Delegation or authorization occurs after the EPA
determines that the governmental entity has the legal authority and capacity to operate an
environmental protection and enforcement program consistent with federal standards. The EPA relies
on states, territories and tribes with delegated and authorized programs to collect environmental data
and implement compliance and enforcement programs. The EPA authorizes or delegates many, but not
all, portions of environmental laws to states, tribes and territories. According to the Environmental
Council of States, states have assumed more than 96 percent of the delegable authorities under
federal law. The table below provides examples of environmental programs delegated or authorized by
the EPA.
Examples of delegated or authorized environmental programs
States with
Territories
Tribes with
delegated
with
delegated
or
delegated or
or
Federal law and federal programs delegated or
authorized
authorized
authorized
authorized by the EPAa
programs
programs'3
programs
Clean Air Act: Title Vc
50
2
2
Clean Water Act: National Pollutant Discharge Elimination System d
46
1
0
Resource Conservation and Recovery Act: Hazardous Waste Program e
48
1
0
Safe Drinking Water Act: Public Water Supply Supervision Program
49
5
1
Source: OIG analysis.
a. The District of Columbia implements Title V, National Pollutant Discharge Elimination System, and Hazardous Waste programs.
b. Johnston Atoll and Midway Islands are not included.
c. In some states, such as California, local agencies issue Title V permits,
d. This includes partially and fully authorized National Pollutant Discharge Elimination System programs.
e. This includes partially and fully authorized Hazardous Waste Programs.
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The EPA retains the oversight responsibility to provide reasonable assurance that the delegated and
authorized programs protect human health and the environment. The EPA must monitor delegated
and authorized programs to determine whether they continue to meet federal standards and to verify
that federal funds help achieve the intended environmental protection goals. The EPA also retains its
own authority to enforce environmental laws. EPA headquarters and regional staff perform a varietyof
formal and informal oversight activities; however, those activities are not always consistently
implemented, leading to disparities in the effectiveness of delegated and authorized programs and
results from those programs.
THE AGENCY'S PROGRESS
We first reported this management challenge in fiscal year (FY) 2008. Since then, the EPA has reviewed
some of the inconsistencies in its oversight of state, territorial and tribal programs. The agency has also
used its enforcement authorities when states, territories or tribes did not use their authority (or
"delegated authority") to protect human health and the environment. The EPA continues to develop
and implement policies to improve consistency in its oversight of delegated and authorized programs.
Strategic Planning and Agency Emphasis on Oversight
The agency's 2018-2022 Strategic Plan, issued in February 2018, emphasizes oversight of delegated
and authorized programs as an area of focus. The plan provides examples of ways the EPA is working to
improve oversight of state, territorial and tribal environmental programs, including: (1) approving
state/tribal implementation plans, vehicle and engine emission certification applications, and
compliance actions in cases of noncompliance; (2) reiterating its oversight role as a co-regulator with
states, territories and tribes in delegated programs; and (3) working with states, territories and tribes
to ensure compliance with environmental laws and establish consistency and certainty for the
regulated community.
In addition to the oversight emphasis in the agency's Strategic Plan, Administrator Andrew Wheeler
issued an oversight memorandum, "Principles and Best Practices for Oversight of Federal
Environmental Programs Implemented by States and Tribes," on October 30, 2018. According to the
Administrator, the memorandum was published to "provide certainty by setting expectations for state,
tribal and federal roles and responsibilities and ensuring decisions are made in a timely fashion."
Agency Actions to Improve Oversight
In August 2016, the Deputy Administrator released a document, "Promoting Environmental Program
Health and Integrity: Principles and Best Practices for Oversight of State Permitting Programs," for the
EPA and states to use to enhance the efficiency and effectiveness of the oversight system. The EPA
developed the document to "deliver on a commitment in the EPA's cross-agency strategy to launch a
new era of state, tribal, local and international partnerships and to help respond to recommendations
for strengthening oversight from the EPA's Office of Inspector General." This strategy was the result of
efforts by the State Program Health and Integrity Workgroup, which includes the EPA's national
program offices for air, enforcement and water as well as states and media associations. The
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workgroup gathers and analyzes information on oversight of state practices, identifies gaps and
develops solutions.
Under the Public Water Systems Supervision program, the EPA provides oversight of state delegated
programs by conducting drinking water program reviews and in-depth file reviews. According to the
agency's Office of Water 2018 Federal Managers' Financial Integrity Act assurance letter, EPA regions
began using a new template for Drinking Water Program Reviews to increase consistency among the
reviews and the annual report. In addition, the agency has increased the number of in-depth file reviews
over the past few years so that approximately eight to 10 in-depth file reviews are conducted annually.
Also, in collaboration with state revolving fund managers, the EPA developed three new financial
indicators to support oversight and management of fund growth. The Drinking Water and Clean Water
State Revolving Funds are federal-state partnerships that provide financial assistance to communities for
drinking water and wastewater infrastructure and related projects. The EPA uses financial information to
conduct annual reviews of state performance regarding these funds. The range of financial indicators will
better inform stakeholders on the financial sustainability of both the Drinking Water and Clean Water
State Revolving Funds. On April 26, 2018, the Office of Wastewater Management and Office of Ground
Water and Drinking Water issued a memorandum to the regional state revolving fund branch chiefs
regarding the new indicators.
The following reports issued within the last 5 years show the continued prevalence of the issue and the
actions the EPA has taken or plans to take.
Relevant Reports
OIG Reports
• In February 2018 (18-P-0079), we found that the EPA could not ensure that its Federal
Insecticide, Fungicide, and Rodenticide Act cooperative agreement funding achieved agency
goals and reduced risks to human health and the environment from pesticide misuse. We
made recommendations to improve oversight. Corrective actions are pending.
• In July 2018 (18-P-0221). 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 the state and the city levels. Specifically,
EPA Region 5 did not 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 Lead and Copper Rule.
Corrective actions are pending.
138
Lead service lines showing inner surface without
any coating from corrosion control treatment (left),
with coating (right), and fully corroded (middle).
(EPA photo)
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• Irs July 2018 (18-P-0227). we found that states and the EPA have taken many years to
authorize hazardous waste rules—from less than 1 year to more than 31. No state had been
authorized by the EPA for all required rules. The EPA lacked internal controls to validate the
completeness and accuracy of state authorization information and did not collect sufficient
data to identify reasons for delays or lack of authorization of Resource Conservation and
Recovery Act rules. Further, the EPA had not defined authorization goals to track program
performance. Corrective actions are pending.
• In September 2018 (18-P-0270). we found that, over a period of years, the EPA had only
conducted 13 percent of Asbestos Hazard Emergency Response Act compliance inspections
at schools within its responsibility/jurisdiction. Only one EPA region had a strategy for its
Toxic Substances Control Act compliance monitoring efforts, as recommended by the Toxic
Substances Control Act Compliance Monitoring Strategy. We also found that only five EPA
regions had inspected for asbestos in schools when they received asbestos-related tips or
complaints. Corrective actions are pending.
• In September 2018 (18-P-0271). we found that, due to North Carolina's inaction as the
delegated authority to conduct asbestos removal and site remediation for over 7 months,
the EPA used its Comprehensive Environmental Response, Compensation, and Liability Act
authority to perform the necessary and costly work. Based upon these findings, we
recommended that EPA Region 4 implement internal controls to verify the state's
enforcement of work practices at demolition
and renovation sites under Asbestos National
Emission Standards for Hazardous Air Pollutants
and work with the state to clarify authorities.
The agency completed all corrective actions.
• In September 2018 (18-P-0283). 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. Corrective actions are pending.
• In April 2017 (17-P-0174). we found that while most states and some tribes had fish advisories
in place this information was often confusing and complex, and did not effectively reach
appropriate segments of the population. Under the Clean Water Act, the EPA can take a
States implementing enhanced inspection
and maintenance nroarams
States
implementing
enhanced
inspection
and maintenance
Source: EPA OIG.
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stronger leadership role in working with states and tribes to ensure that effective fish advisory
information reaches all such segments of the population. Corrective actions are pending.
• In September 2017 (17-P-0402). we found that EPA Region 2 needed to improve its internal
processes for reviewing Puerto Rico's assistance agreements. The region may have
inefficiently used over $217,000 in taxpayer funds, may have needed additional support for
grant award decisions, and may not have had evidence that taxpayer funds had been
properly used under two cooperative agreements. Corrective actions are pending.
• In March 2016 (16-P-0108). we reported that EPA efforts to bring small drinking water
systems into compliance through enforcement and compliance assistance resulted insome
improvement over time. However, across EPA Regions 2, 6 and 7, we found inconsistencies
in adherence to the EPA's Enforcement Response Policy. The agency completed all corrective
actions to improve noncompliance at drinking water systems and use of enforcement and
compliance assistance tools across the regions. The EPA completed all corrective actions.
• In May 2016 (16-P-0166). we found that EPA Region 9 needed improved internal controls for
oversight of Guam's consolidated cooperative agreements. Without adequate internal
controls and oversight, more than $67 million in consolidated cooperative agreement funds
may not have been administered efficiently and effectively. The agency completed all
corrective actions to address the report recommendations, including the recovery of
unallowable costs and expansion of internal controls with enhanced reviews and data
reporting.
• In June 2016 (16-P-0217). we found that the EPA incurred total obligations and expenditures
in excess of the authorized cost ceiling for 51 of 504 active and closed contracts; did not
perform timely, complete and accurate financial closings for 20 such contracts to ensurethat
both the EPA and the state had satisfied their respective cost share requirements; and did
not have all the up-to-date information needed for an accurate Superfund state contract
accrual calculation. The agency completed corrective actions to address the
recommendations.
• In October 2016 (17-P-0004). we found that EPA Region 5 had the authority and sufficient
information to issue a Safe Drinking Water Act Section 1431 emergency order to protect
residents in Flint, Michigan, from lead-contaminated water as early as June 2015. The agency
completed all corrective actions by updating its Final Guidance on Emergency Authority
under Section 1431 of the Safe Drinking Water Act, and by training all relevant drinking
water and water enforcement program management and staff on Section 1431 and the
updated guidance. The EPA completed all corrective actions.
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• In February 2015 (15-P-0099). we found that Region 8 was not conducting inspections at
establishments in North Dakota that produced pesticides, or was not conducting inspections
of pesticides imported into the state. Further, North Dakota did not have a state inspector
with qualifications equivalent to a federal inspector to conduct inspections on the EPA's
behalf. The EPA initiated inspections, developed a multi-year plan for future inspections,
compiled a list of the inspections conducted annually for Region 8's North Dakota end-of-
year report, and reviewed the end-of year report to confirm that inspections had been
initiated. The EPA completed all corrective actions.
• In April 2015 (15-P-0137). we found that the U.S. Virgin Islands (part of EPA Region 2) did not
meet program requirements for numerous activities related to implementing Clean Air Act,
Clean Water Act, Safe Drinking Water Act and Underground Storage Tank/Leaking
Underground Storage Tank programs. Some corrective actions are pending.
• In September 2015 (15-P-0298). we recommended that EPA Region 9 withhold $8,787,000
for the Hawaii Drinking Water State Revolving Fund capitalization grant until the region was
satisfied with progress on implementing the corrective action plan. After being briefed on
our report, EPA Region 9 initiated an enforcement action against the Hawaii Department of
Health for not meeting its loan commitment and disbursement targets advising the state
that it would withhold an FY 2015 Drinking Water State Revolving Fund capitalization grant
and possibly further awards. The EPA completed the corrective action.
GAO Reports
• In September 2018 (GAO 18-620). 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, 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 it was focused on state compliance with drinking water rules, and not
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 states and water systems had used to identify
and publicize locations of lead service lines with all states.
• In September 2017 (GAO-17-424). the GAO reported that the EPA does not have nationwide
information about lead infrastructure because the Lead and Copper Rule does not require
states to provide the EPA with information on the whereabouts of lead pipe lines. The GAO
recommended that the EPA require states to report information about lead pipes as wellas
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all 90th percentile sample results for small water systems. The GAO further recommended
that states develop a statistical analysis to identify water systems that might pose a greater
likelihood for Lead and Copper Rule violations.
• In February 2016 (GAO-16-281). the GAO reported that the EPA had not collected necessary
information or conducted oversight activities to determine whether state and EPA-managed
Underground Injection Control class II programs were protecting underground sources of
drinking water. GAO recommendations included that the EPA require programs to report
well-specific inspections data, clarify guidance on enforcement data reporting, and analyze
the resources needed to oversee programs.
• In August 2015 (GAO-15-567). the GAO reported that financial indicators collected by the
EPA as part of its oversight responsibilities did not show states' abilities tosustain their Clean
Water and Drinking Water State Revolving Funds. The GAO recommended that the EPA
update its financial indicator guidance to include measures for identifying the growth of the
states' funds. The GAO also recommended that, during the reviews, the EPA develop
projections of state programs by predicting the future lending capacity.
WHAT REMAINS TO BE DONE
The EPA strategic plan and the Administrators memorandum acknowledges state oversight is an issue
and provide some guidance. However, EPA leadership needs to demonstrate an organizational
commitment to correcting problems with the agency's oversight of key state, territorial and tribal
programs by aligning the proper people, resources and processes, and developing a framework for
addressing oversight issues. The agency also needs to develop a system for monitoring state, tribal and
territorial oversight effectiveness so that it can consistently work toward demonstrating its progress in
correcting this management challenge across all program offices.
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CHALLENGE: The EPA Needs to Improve Workload Analysis
to Accomplish Its Mission Efficiently and Effectively
CHALLENGE FOR THE AGENCY
The EPA has not addressed the workforce planning requirements of 5 CFR Part 250, Subpart B, Strategic
Human Capital Management, April 11, 2017. In the rule, workforce analysis is a component of workforce
planning. The EPA's ability to assess its workload—and subsequently estimate workforce levels
necessary to carry out that workload —is critically important to mission accomplishment. Prior to the
rule, the EPA OIG and GAO had reported that the EPA had not incorporated workload analysis into its
resource allocations. Specifically, the EPA had not fully implemented controls and a methodology to
determine workforce levels based upon analysis of the agency's workload. Due to the broad implications
for accomplishing the EPA's mission, we have included this management challenge since 2012.
BACKGROUND
The purpose of the Strategic Human Capital Management rule is to better align human capital activities
with an agency's mission and strategic goals. The rule establishes the Human Capital Framework, which
communicates the workforce planning methods agencies are required to follow. The Talent
Management portion of the framework1 defines workforce planning as follows:
To accomplish workforce planning the rule requires that agency leadership identify the
human capital required to meet organizational goals, conducts analyses to identify
competency and skill gaps, develop strategies to address human capital needs and close
competency skill gaps, and ensure the organization is structured effectively.
The rule requires the agency to develop a Human Capital Operating Plan. The plan serves as a tool for
agency leadership to set a clear path for achieving stated human capital strategies, identify and secure
resources, determine time frames and measures to assess progress, and demonstrate how each
Human Capital Framework system is being fulfilled. The Office of Personnel Management manages the
rule and told us that workforce planning and other elements of the rule are to be updated on an
annual basis in the Human Capital Operating Plan.
Over the past 23 years, the EPA OIG and GAO have issued over 15 reports citing the need for the EPA
to incorporate workload analysis into its distribution of staff. In the 1980s, the EPA conducted
comprehensive workload analyses to determine appropriate workforce levels and, each year, with
regional consensus, evaluated need and allocated its human resources accordingly. In 1987, the EPA
decided it would discontinue these analyses and instead focus on marginal changes to full-time
equivalent (FTE) distribution.
1The four systems of the Human Capital Framework are Strategic Planning and Alignment, Performance Culture, Talent
Management, and Evaluation. Talent Management incorporates workforce planning, or the process to identify and close
skill gaps. Performance Culture engages, develops and inspires a diverse, high-performing workforce.
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In 2010, we reported that the EPA did not have policies and procedures requiring that workforce levels
be determined based upon workload analysis. In 2011, we reported that the EPA did not require
program offices to collect and maintain workload data. Without such data, the EPA is limited in its
ability to analyze workloads and justify resource needs. The GAO also reported in October 2011 that
the EPA's process for budgeting and allocating resources did not fully consider the agency's current
workload. As recently as 2017, the EPA OIG reported that the distribution of Superfund FTEs among
EPA regions did not support the current regional workload. The GAO also reported on the EPA's
workload concerns and issued eight reports between 2000 and 2018.
Since 2005, EPA offices have studied workload issues at least six different times, spending nearly
$3 million for various contractor studies. However, for the most part, the EPA has not used the findings
and recommendations from these studies. According to the EPA, the results and recommendations
from the completed studies were generally not feasible to implement.
Over the last decade, the EPA's workforce levels declined by 2,500 FTEs (including losses due to early-
outs and buyouts in 2014 and 2017). These were budget-driven reductions and were not supported by
agencywide workforce analyses. Without a clear understanding of its workload, it is unclear whether
this decline jeopardizes the EPA's ability to meet its statutory requirements and overall mission to
protect human health and the environment, or if the decline represents a natural and justifiable
progression because the EPA has completed major regulations implementing environmental statutes
and delegated many environmental programs to the states.
THE AGENCY'S PROGRESS
In the FY 2018 Agency Financial Report, the EPA reported that it has continued to perform only
targeted workforce analyses. However, the agency did not address the requirements of the Strategic
Human Capital Management rule that requires agencywide workforce planning to be updated on an
annual basis. According to the report, the EPA does not agree that comprehensive agencywide
analyses are necessary because the EPA has highly variable, multiyear and non-linear functions and
activities that limit the utility of workload analyses to determine staffing levels.
In its FY 2018 Agency Financial Report, the agency provided examples of selected workload analysis work:
• The agency conducted workload analyses on grants management, informationtechnology
security officers, funds control officers and fee-related duties.
• The Superfund program will develop a multiyear FTE plan.
Finally, the agency stated in the report that it believed targeted analyses would contribute to the
agency's multiyear approach to resource and workforce planning by helping to identify potential
investment opportunities and informing workforce decisions.
The following reports show the continued prevalence of workforce analysis and the actions the EPA
has taken or plans to take.
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Relevant Reports
OIG Reports
• In September 2018 (18-P-0270). we reported that although the EPA was responsiblefor
asbestos-in-schools inspections for a majority of the states, the EPA only performed
13 percent of the inspections while the states performed 87 percent. This disparity occurred
because the number of EPA inspectors was reduced based upon budget concerns, not a
comprehensive workforce analysis. Most regions indicated that inspections were necessary
and would be performed if resources were available. The EPA concurred with the
recommendations and corrective actions are pending.
• In September 2017 (17-P-0397). we reported that the distribution of Superfund FTEs among
EPA regions did not support current regional workloads. As a result, some regions had to
prioritize work and slow down, discontinue or not start cleanup work due to a lack of
personnel. In a survey of EPA regions, six of 10 said they were not able to start, or had to
discontinue, work due to a lack of FTEs, which could impede efforts to protect human
health and the environment. The EPA concurred with the recommendations and corrective
actions are pending.
• In July 2016 (16-P-0222). we reported that grants specialists in Regions 4 and 5 indicated
workload was the reason administrative baseline monitoring reviews were not completed
or were not completed timely. The EPA reported implementing a new baseline monitoring
approach in October 2017 to have project officers obtain information from grants specialists
regarding indirect costs, disadvantaged business enterprise and single audits, to incorporate
in the baseline monitoring review preparations. The EPA concurred with and implemented
the recommendation on baseline monitoring.
GAO Report
• In January 2017 (GAO-17-144). the GAO reported that the EPA awarded roughly $3.9 billion
(about 49 percent of its budget) in grants to states, local governments, tribes and other
recipients. These grants supported such activities as repairing aging water infrastructure,
cleaning up hazardous waste sites, improving air quality and preventing pollution. The GAO
concluded that the EPA's ability to manage this portfolio depended primarily on grant
specialists and project officers, but the agency did not have the information it needed to
allocate grants management resources in an effective and efficient manner. In addition,the
EPA had not identified project officer critical skills and competencies or monitored
recruitment and retention efforts for grant specialists.
WHAT REMAINS TO BE DONE
The agency must comply with the Strategic Human Capital Management rule by developing a
workforce plan for the entire agency, not just parts of the agency. The targeted approach only ensures
that a portion of the EPA's workforce needs are reviewed.
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CHALLENGE: The EPA Needs to Enhance Information
Security to Combat Cyber Threats
CHALLENGE FOR THE AGENCY
The EPA continues to face a management 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.
Despite progress, recent audits continue to highlight the need to fully implement information security
throughout the EPA, which requires continued senior-level emphasis. The EPA relies heavily on
contractor personnel to implement and manage configurations and operations of agency networked
resources, but the EPA lacks processes for internal control and monitoring of contractor performance.
Also, recent audits noted the need for other improvements.
For example, the EPA's current incident tracking system lacks the required security controls to protect
the confidentiality of personally identifiable information (PII) and enforce password management
requirements. In addition, EPA data is vulnerable to unauthorized access because there are no
procedures to ensure that EPA security control requirements are implemented for file servers and share
folders. The EPA does not have policies that fully address the role of its Chief Information Officer (CIO)
consistent with federal laws and guidance. Furthermore, Office of Management and Budget (OMB) risk
management assessment ratings rated EPA as "at risk," meaning that while some essential policies,
processes and tools are in place to mitigate overall cybersecurity risk significant gaps remain.
BACKGROUND
Protecting EPA networks and data is as important today as it was in 2001 when we first reported the
issue as a management challenge. 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. In past years,
various federal agencies have had numerous attacks on their systems, impacting at least 21.5 million
individuals.
To address these complex cybersecurity issues, the EPA has made significant strides in developing a
policy framework to enable information technology (IT) systems to adhere to federal information
security requirements. These strides include developing extensive policies and procedures and
addressing a significant portion of federal information security requirements and making them
available to all its headquarters and regional offices. However, the EPA manages the implementation of
this policy framework in a decentralized manner. Recent audit work indicates that the lack of 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.
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THE AGENCY'S PROGRESS
In response to our FY 2018 management challenge, the EPA indicated it will do the following:
• Continue to work with the U.S. Department of Homeland Security's Continuous Diagnostics and
Mitigation Program Office to fully implement Continuous Diagnostics and Mitigation Phase
One, which includes hardware asset management.
• Continue to share information with the United States Computer Emergency ReadinessTeam
through the Einstein Program.
• Attend the federal CIO and Chief Information Security Officer meetings as well as special
interest meetings held by the OMB and Department of Homeland Security, to understand
trends and share intelligence and solutions to improve the federal cybersecurity posture.
• Identify or develop training for contracting officer's representatives on their responsibilities for
monitoring contractors.
• Prioritize the development and implementation of role-based training roles within its
information security program.
Over the past year, the agency has taken the following actions:
• Reviewed all statements of work and performance work statements undergoing the agency's
Federal Information Technology Acquisition Reform Act review for the inclusion of the role-
based training requirements task.
• Implemented a process requiring all Senior Information Officials to provide writtencertification
to the EPA's Chief Information Security Officer stating that contractors with significant
information security responsibilities have completed the necessary security training specific to
their roles under those contracts by September 30 of each year.
The EPA stated that it continues to do the following.
• Leverage technology to document and maintain the inventory of EPA networked assets. The
detailed inventory includes all the necessary data (e.g., Purpose, Capability, Operating System,
etc.) required for the data center's disaster recovery plan. The EPA indicated that it updates the
inventory on a quarterly basis and documents the results in the center's contingency plan.
• Develop and implement processes by creating the Office of Mission Support/Office of
Resources and Business Operations to improve management and oversight of its audits to
include streamlining and process improvement, hiring additional staff, and using the most
appropriate IT system to maintain and track audit and corrective actions.
• Identify equipment needed to restore operations and network connectivity forfinancial and
mixed-financial applications, to include data storage plans based on the service provider's
backup and data retention polices.
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• Monitor physical access to its data center using a digital system with cameras installed
strategically at various locations inside and outside facilities. The agency (1) maintains a list of
authorized members/teams, (2) has an access authorization process for contractors and visitors
who enter a facility, and (3) provides daily on-site security year-round.
• Deny personnel access to agency information resources when the personnel do not submit the
appropriate waiver request to perform certain duties. Access to specific roles is controlled by
account-level roles and privileges. The EPA controls account creation within its core financial
application via an online access request form and locks administrative accounts via the agency's
help desk ticket process. The EPA receives a monthly report from its service provider that
allows for the monitoring of all users' direct access to data within the agency's core financial
application. The EPA also noted that the project manager for its core financial application
received the Federal Acquisition Certification for Program and Project Managers Senior Level
and applied for the IT specialty certification.
The following reports issued within the last 5 years show the continued prevalence of the issue and the
actions the EPA has taken or plans to take.
Relevant Reports
OIG Reports
• In May 2019 (19-P-0158). we found that insufficient practices for managing known security
weaknesses and system settings weakened the EPA's ability to combat cyber threats. EPA
personnel did not manage plans of action and milestones for remediating security
weaknesses within the agency's information security weakness tracking system as required
by EPA policy. This happened because the office responsible for identifying vulnerabilities
relied on other agency offices to enter the plans of action and milestones in the tracking
system to manage unremediated vulnerabilities. Additionally, the EPA's information
security weakness tracking system lacked controls to prevent unauthorized changes to key
data fields and to record these changes in the system's audit logs. This occurred because
the EPA neither enabled the feature within the tracking system to preventunauthorized
modifications to key data nor configured the system's logging feature to capture
information on the modification of key data fields. The EPA concurred with the
recommendations and corrective actions are pending.
• In January 2019 (19-P-0058). we found that more work is needed by the agency to achieve
managed and measurable information security functions to manage cybersecurity risks. In
this regard, the EPA's information security program was not graded as effective for any of
the Cybersecurity Framework Security Functions defined by the National Institute of
Standards and Technology. We found that the EPA can further improve its processes in the
following domains to strengthen its information security posture:
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Domain
Action needed
Risk Management
Implement standard data elements for hardware assets connected to
the network and software and associated licenses.
Security Training
Implement a process for reporting on contractors' completion of role-
based training.
Incident Response
Implement technologies to support the incident response program.
Contingency Planning
Implement a process to ensure that the results of business impact
analyses are used to guide contingency planning efforts.
The report assessed EPA compliance with the Federal Information System Modernization
Act of 2014 and contained no recommendations.
• In September 2018 (18-P-0298). we found that the EPA's current incident tracking system
lacked the required security controls to (1) protect the confidentiality of Pll, including
sensitive Pll; and (2) enforce password management requirements even though the
requirements are specified in federal and agency guidance. The EPA was unaware that Pll was
included on incident tickets handled by help desk technicians and retained in the current
incident tracking system where they can be
viewed by all registered users (both EPA
employees and contractors). Password
management controls documented in the
replacement system's draft security plan
(dated March 2018) did not meet EPA
requirements. Corrective actions are pending.
• In August 2018 (18-P-0234). we found that EPA data were vulnerable to unauthorized access
because Region 4 did not create procedures to ensure that EPA security control
requirements were implemented for file servers and share folders. Region 4 share folders
contained sensitive data, and the region did not have a process to monitor user activity or
content in file servers' share folders. Federal and agency guidance requires agencies to
implement security controls for information systems and related components, including file
servers and the share folders they host. The lack of procedures, combined with the lack of
audit logging or an audit log review process, put the EPA at risk for unauthorized activity
being undetected and uninvestigated. The EPA concurred and implemented the
recommendation.
• In June 2018 (18-P-0217). we found that the EPA categorized the sensitivity of the
information within its electronic manifest system at such a low level that planned
information system security controls would not minimize the risk of environmental harm.
This system—designed to track shipment of hazardous waste from a generator's site to
another site for disposition —includes such information as material, quantity, waste code,
hazard class, and the names and addresses of waste generators and receivers. The low-level
categorization occurred, in part, because responsible personnel did not sufficiently consider
homeland security implications as they relate to chemicals of interest. As a result, the EPA
AT RISK
Sensitive
Personally
Identifiable
Information
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plans to place sensitive hazardous waste information in its system without implementing
stronger minimum information system security controls commensurate with the harm that
could be caused if the information is compromised. The EPA concurred with the
recommendations and corrective actions are pending
GAO Reports
• In February 2018 (GAO-18-211). the GAO reported that EPA officials indicated they do not
have the statutory authority to collect information from the Water and Wastewater Systems
sector regarding adoption and implementation of the Cybersecurity Framework. Further, the
GAO stated that the EPA did not have qualitative or quantitative means for measuring
adoption in the sector. EPA officials noted that although the agency agreed with the findings
of the report, it was constrained by several factors. The agency said it was unable to
participate in a survey to assess Cybersecurity Framework implementation by the water
sector without prior approval from the OMB under the Paperwork Reduction Act; water
sector facilities are reluctant to divulge sensitive information about specific infrastructure
protection activities, including cybersecurity; and there is a lack of a strong mandate for the
collection data and a lack of a unified cross-sector approach to metrics and survey methods
for assessing Cybersecurity Framework adoption.
• In August 2018 (GAO-18-93). the GAO reported that the EPA does not have policies that fully
address the role of the agency's CIO consistent with federal laws and guidance. In addition,
the EPA did not fully address the role of its ClOs for any of the six key areas that the GAO
identified: IT leadership and accountability, IT budgeting, information security, IT investment
management, IT strategic planning and IT workforce. Federal ClOs acknowledged in their
responses to the GAO's survey that they were not always very effective in implementing the
six IT management areas. The GAO noted that until agencies (including the EPA) fully address
the role of ClOs in their policies, the agencies will be limited in addressing longstanding IT
management challenges.
• In December 2018 (GAQ-19-105). the GAO reported that until agencies more effectively
implement the government's approach and strategy, federal systems will remain at risk. The
GAO noted that the OMB's risk management assessment ratings rated the EPA as at risk,
which means that while some essential policies, processes and tools were in place to
mitigate overall cybersecurity risk, significant gaps remain.
WHAT REMAINS TO BE DONE
The EPA needs to take the following actions to enhance information security from cyber threats.
1. Develop and implement a processthat:
a) Strengthens internal controls for monitoring and completing corrective actions on open
cyber security recommendations.
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b) Maintains appropriate documentation to support completion of corrective actions on cyber
security audits; if delegated to sub-offices, the process should include regular inspections
by the Office of Mission Support's Audit Follow-Up Coordinator.
c) Specifies when sub-offices must complete corrective actions on cyber security audits.
d) Requires verification that corrective actions fixed issues that led to the recommendations
in cyber security audits.
e) Requires sub-offices to continue to use the improved processes.
f) Requires Office of Mission Support managers to update the office's Audit Follow-Up
Coordinator on the status of upcoming corrective actions on cyber security audits.
g) Allows appropriate approval and monitoring access to share folder content that is
consistent with requirements specified by federal and EPA information security
procedures.
2. Enter the Continuous Monitoring Assessment recommendations into the agency's system
used for monitoring the remediation of information security corrective actions.
3. Work with the U.S. Department of Homeland Security to gain an understanding of the riskof
a breach of the data within the Electronic Manifest system, and work with the National
Institute of Standards and Technology to determine the proper data classification to
re-evaluate the categorization of the information within the system that should be regularly
re-evaluated.
4. Implement a strategy to protect the confidentiality of Pll in the EPA's current incidenttracking
system and update standard operating procedures for help desk technicians to follow when
handling incident tickets that require collecting Pll, including sensitive Pll.
5. Ensure that the agency's IT management policies address the role of the CIO forkey
responsibilities in the six areas identified by the GAO.
6. Take steps to consult with respective critical infrastructure sector partners, as appropriate,to
develop methods for determining the level and type of cybersecurity framework adoption by
entities across their respective sector.
7. Establish a control to validate that agency personnel create required plans of action and
milestones for vulnerability testing results, establish a process to periodically review the
agency's tracking system's security settings to validate that each setting meets theagency's
standards, and collaborate with the tracking system's vendor to determine whether audit
logging can capture all data changes.
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CHALLENGE: The EPA Needs to Improve on
Fulfilling Mandated Reporting Requirements
CHALLENGE FOR THE AGENCY
Our work over the last 9 years has shown that the agency faces
issues in tracking and submitting reports mandated by law that
contain key program information for use by Congress, the Administrator and the public. When the EPA
does not fulfill reporting requirements, the agency is in violation of the law and does not demonstrate
how and whether it is achieving the goals Congress set for the associated programs. Without these
reports, Congress and the public are not informed about the challenges programs face during
implementation and do not learn about the EPA's progress toward achieving environmental and public
health program goals. Our findings across multiple programs emphasize the need for EPA management
to take agencywide action to verify that required reports are submitted. The OIG first identified this
issue as an agency management challenge in 2018, and we are retaining it as a challenge in 2019
because the agency has not yet established and implemented a comprehensive approach to address
the challenge.
BACKGROUND
The EPA OIG identified instances across five major environmental programs where the EPA failed to
meet legal reporting requirements to Congress between 2010 and 2018. As part of the budget process,
the agency continues to maintain a list of 25 congressionally required reports it views as outdated
and/or duplicative. As part of the budget process, the agency informs congressional committees of the
reports it thinks should be eliminated, but Congress has not yet removed any of these required reports
from the agency's workload. The OIG previously recommended that the agency meet the specific
reporting requirements and establish internal controls to track issuance of these required reports.
Fulfilling mandated reporting requirements will inform future rulemaking and decision-making.
However, additional work remains to solve this agencywide issue.
THE AGENCY'S PROGRESS
In response to our work, the EPA has issued required reports that it previously had not provided to
Congress and the public on the beach monitoring grant program, the renewable fuel standards program,
the national status of environmental education, the residual effects of methamphetamine labs, and the
urban air toxics program. Additionally, the Office of Congressional and Intergovernmental Relations
issued a March 2018 memorandum to the EPA's Assistant Administrators and Associate Administrators
reminding them of the agency's standard practice of tracking reports to Congress in ADPTracker. The
following issues identified in our work over recent years demonstrate both the breadth of this challenge
and the agency's work toward addressing the issue on a program-by-program basis. For the OIG reports
where this issue was identified, the EPA ultimately agreed to our recommendations or implemented
corrective actions by planning and submitting required program reports.
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The following reports issued within the last 5 years show the continued prevalence of the issue and the
actions the EPA has taken or plans to take.
Relevant OIG Reports
• In January 2018 (18-P-0071). we found that the Office of Water did not fulfill the legal requirement
under Section 7 of the Beaches Environmental Assessment and Coastal Health Act of 2000 (known
as the BEACH Act) to report to Congress every 4 years on the program's progress and its impact on
water quality and public health. The act requires that the EPA report to Congress on
recommendations for additional criteria or actions to improve water quality, provide a national
assessment of the implementation of the act, and note areas for improvement in monitoring.
At the time of the report, the EPA had last submitted this required report to Congress in 2006,
though it was due in 2010 and again in 2014. According to EPA staff, lack of resources to complete
the report and disagreement between the EPA and OMB on whether the program was still needed
led the EPA to cease its reporting to Congress. The EPA's guidance for issuing such reports did not
include a process for addressing or appealing such disagreements. The OIG recommended that the
EPA submit the mandated reports to Congress and review and update controls for identifying,
tracking and submitting mandated reports. In response, in March 2018, the Office of Congressional
and Intergovernmental Relations issued a memorandum, Reminder of Existing Practices Regarding
Statutorily-Mandated Reports to Congress, noting that all legislatively mandated reports are to be
placed in ADPTracker. Additionally, the Office of Water submitted a report to Congress,
Implementing the BEACH Act of 2000: 2018 Report to Congress (EPA 823-R-18-002). in July 2018,
but the 2018 report did not make reference to required reports for the prior quadrennial periods.
• In July 2016 (16-P-0246). we found that after 2005 the EPA's Office of Environmental Education
did not fund and convene until 2012 the National Environmental Education Advisory Council, as
required by the National Environmental Education Act. As a result, the council was not always
able to biennially provide congressionally required reports on the extent and quality of
environmental education in the United States. The OIG recommended that the EPA ensure that
the council is appointed and submits congressionally required reports. The EPA agreed and the
council issued the required biennial report, 2015 Report to the U.S. Environmental Protection
Agency Administrator (undated), to Congress, the EPA Administrator and the public.
• In August 2016 (16-P-0275). we found that the Office of Research and Development had failedto
fulfill a legal requirement under Section 204 of the Energy Independence and Security Act of
2007 to report to Congress every 3 years on the environmental and resource conservation
impacts of the renewable fuel standard program. The office issued an initial report to Congress
for the program in 2011 but did not issue subsequent triennial reports. The agency attributed
this to competing research priorities, reductions to the office's budget, and the 3-year reporting
cycle not allowing time for significant scientific advances to occur. The OIG recommended that
the EPA fulfill its obligation to provide triennial reports to Congress. The agency agreed with this
recommendation and issued the required report, Biofuels and the Environment: The Second
Triennial Report to Congress (EPA 600-R-18-195). in June 2018.
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WHAT REMAINS TO BE DONE
To ensure required reports are issued, the EPA needs to make a comprehensive effort across the
agency to identify the causes for programs not issuing required reports, implement targeted plans to
address the causes, and complete and issue the reports. For example, while the agency submitted the
two required reports to Congress that we mentioned in the 2018 management challenges (i.e., the
reports on the BEACH Act and Renewable Fuels programs), we have not yet seen a sustained
commitment from agency management on the issue.
Further, the EPA must continue to work with Congress to eliminate duplicative reports. The EPA
maintains a list of 25 congressionally mandated reports that it deems duplicative and/or outdated, and
the agency has requested that Congress eliminate its requirements for these reports. However, Congress
has not yet responded to the EPA's request and, consequently, these reports continue to be required for
EPA work.
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CHALLENGE: The EPA Needs Improved Data Quality and
Should Fill Identified Data Gaps for Program Performance
and Decision-Making
CHALLENGE FOR THE AGENCY
We continue to identify weaknesses in quality controls for EPA program data and have identified
multiple data gaps. Data quality and gaps matter because managers use data to manage the EPA's
programs to achieve the agency's goals. The EPA needs and expects high-quality, accurate, and
complete data to support high-quality decisions. Since 1979, EPA policy has required that the EPA use
an agencywide quality system supporting environmental programs and requires that non-EPA
organizations performing work on behalf of the EPA also use such a system through extramural
agreements. Further, the Government Performance and Results Act Modernization Act of 2010 states
that agencies must execute an annual performance plan that includes a description of how the agency
will ensure the accuracy and reliability of data used to measure progress toward performance goals.
BACKGROUND
To accomplish its mission, the EPA develops regulations and establishes programs that implement
environmental laws. The EPA performs oversight of these programs—including programs implemented
by the agency, delegated states, territories or tribes—to verify effectiveness and ultimately to protect
human health and the environment. Effective oversight should provide reasonable assurance that
program goals are achieved and activities comply with all relevant laws and regulations. The EPA relies
on data to help assess program performance and public benefit and, as such, those assessments
depend on the quality of the data that underpin the analyses.
We identified data standards and data quality in the FY 2007 management challenges report. At that
time, we found that the EPA was not routinely incorporating data standards and collecting information
for all programs. We removed that challenge for FY 2008 but reintroduced data quality for program
data as an FY 2018 management challenge because recent OIG work pointed to a pattern of data
quality issues. For FY 2019, we are retaining but modifying the challenge by adding discussion of data
gaps that inhibit program performance and decision-making.
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. Data quality issues and
data gaps also subject the EPA to significant financial risks and delayed cleanups while the public
endures prolonged exposure to unsafe substances and restrictions on the use of natural resources.
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THE AGENCY'S PROGRESS
In response to EPA OIG reports, the EPA took corrective actions to address data quality issues; however,
problems persist. The following reports issued within the last 5 years show the continued prevalence of
the issue and the actions the EPA has taken or plans to take.
Relevant OIG Reports
Data quality problems
• In April 2019 (19-N-0115). we found discrepancies between (1) the total pounds of
chemicals released to the environment as reported in the publicly available Toxic Release
Inventory data for reporting years 2013-2017 and (2) the information that the EPA provided
to us separately on the total pounds of chemicals released. Our work led to the EPA's
discovery that total release calculations provided by the publicly available database do not
properly include the Publicly Owned Treatment Works release amounts. This report was a
management alert and no recommendations were made.
• In July 2018 (18-P-0222). we found that the EPA lacked documented internal controls to
prevent the use of Presidential Green Chemistry Challenge Awards Program results in
agency performance metrics. Without documented controls, there is a risk that unverified
program results could be used as part of future agency metrics (for example, if and when
new staff become involved with the program). Also, the EPA disagreed with the OIG about
the requirements regarding supporting documentation for completed corrective actions
from a 2015 report on the same topic. Corrective actions from this 2018 report are pending.
• In June 2017 (17-P-0249). we found that EPA management controls did not provide
reasonable assurance that facility-reported data were of sufficient quality to assess
compliance or maintain the integrity of credit-related information for benzene standards.
Benzene is one of three key pollutants contributing the most to cancer risks nationwide,
and has been linked to blood disorders and cancers, including leukemia. Mobile sources are
responsible for most of the outdoor risks from benzene, and the EPA has classified benzene
as a regional cancer risk driver. EPA staff need to research and correct questionable data
quality before the EPA can determine whether facilities comply with the benzenestandards
and purchased credits were proper. The agency completed some corrective actions to
address the report recommendations.
• In October 2017 (18-P-0001). we found that the Toxics Release Inventory and the Discharge
Monitoring Report Comparison Dashboard had limited utility for identifying possible surface
water dischargers that lacked a National Pollutant Discharge Elimination System permit due
to a lack of discharger address information. Without specific discharger address
information, attempting to manually match a National Pollutant Discharge Elimination
System facility to a Toxics Release Inventory facility was resource-intensive and inexact,
impacting the EPA's ability to regulate facilities. Further, the Pollutant Loading Tool could
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not identify unpermitted dischargers to surface water based on Toxics Release Inventory
data, which means the EPA and public cannot know when or how much pollution occurs
from those dischargers. Corrective actions are pending.
• In December 2017 (18-P-0059). we found that the EPA lacked a data system with the
capability to track multiple environmental liabilities regarding cleanup activities and
resources and technical ability to validate self-insurance for companies with multiple
environmental liabilities. The inability to validate a company's self-insurance represents a
high-risk issue to the EPA; if a company defaults on its cleanup obligations, the EPA and
other federal funds may be required to finance cleanups that should be paid for by the
polluter. Invalid self-insurance may also result in contamination being left at sites; larger,
more complicated cleanups; higher costs; and longer human and environmental exposures
to unsafe substances. Corrective actions are pending.
• In May 2016 (16-P-0164). we found that the Clean Air Act facility inspection data on the EPA
Enforcement and Compliance History Online website did not reflect that many facilities had
received a full compliance inspection, and it was not verified that data were properly
migrated into the database used by the website. Inaccurate data hinder the EPA's oversight
and reduce assurance that the delegated compliance programs comply with the agency's
guidance. Further, unreported or inaccurate data presented on the publicly available
website could misinform the public about the status of facilities. The EPA completed
corrective actions on the recommendations, which included updating the compliance
monitoring system, conducting regular data reviews with state and local agencies,
establishing a regular data quality check process, specifying the length of time states and
local air districts should retain evaluation records, and providing guidance to California local
air districts.
Data gap issues
• In July 2018 (18-P-0227). we found that most states were authorized to implement the
majority of new required hazardous waste rules promulgated by the EPA. However, states
and the EPA have taken many years to authorize rules—from less than 1 year to morethan
31. No state has been authorized by the EPA for all required rules. The EPA lacks internal
controls to validate the completeness and accuracy of state authorization information and
does not collect sufficient data to identify reasons for delays or lack of authorization.
Further, the EPA has not defined authorization goals to track program performance. For
Hazardous and Solid Waste Amendments of 1984 rules, EPA regions can administer the
requirements if a state has not received authorization. However, for non-Hazardous and
Solid Waste Amendments rules, the EPA cannot administer a rule when a state has not yet
been authorized for the rule, which creates regulatory gaps. Corrective actions are pending.
• In September 2018 (18-P-0281). we found that 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
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comprehensive internal controls to manage the emergency exemption data 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 that 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 potential benefits or risks. We also found significant deficiencies in
the office's online database management, draft Section 18 emergency exemption standard
operating procedure and application checklist, and reports to Congress and the OMB.
Corrective actions are pending.
• In September 2018 (18-P-0283). we found that the EPA should collect additional program
performance data to better assess the effectiveness of enhanced inspection and
maintenance programs for reducing vehicle emissions. For example, 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 ofclarity
in EPA guidance. As a result, the EPA lacked data to determine the effectiveness of state
enhanced vehicle inspection and maintenance programs. In addition, states are required to
submit annual reports to the EPA about the performance of their vehicle inspection and
maintenance programs, and, while the EPA has been improving the oversight of this
reporting, improvements are needed. The agency agreed with our recommendations and
corrective actions are pending.
• In November 2018 (19-P-0002). we found that the EPA's controls over the land application
of sewage sludge (biosolids) were incomplete or had weaknesses and may not fully protect
human health and the environment. The EPA consistently monitored biosolids for nine
regulated pollutants. However, it lacked the data or risk assessment tools needed to make a
determination on the safety of 352 pollutants found in biosolids, including 61 pollutants
designated as acutely hazardous, hazardous or priority pollutants in other EPA programs.
Past reviews showed that the EPA needed more information to fully examine the health
effects and ecological impacts of land-applied biosolids. Although the EPA is not required to
obtain additional data, without such data the agency cannot determine whether biosolids
pollutants with incomplete risk assessments are safe. The EPA's website, public documents
and biosolids labels do not explain the full spectrum of pollutants in biosolids and the
uncertainty regarding their safety, which can impact public health and the environment.
The agency partially agreed with our recommendations, and while some corrective actions
are pending, work is underway to reach agreement on the unresolved recommendations.
WHAT REMAINS TO BE DONE
EPA leadership needs to demonstrate commitment to verify the quality of data and adequately fill data
gaps. To demonstrate this commitment, the agency should show that it has the people and processes
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in place to deploy agency policies and procedures across all program data, 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.
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CHALLENGE: 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
CHALLENGE FOR THE AGENCY
Over the past 7 years, the EPA OIG has identified issues with EPA actions to inform the public of
potential environmental dangers. From unsafe drinking water in Flint, Michigan, to farmworkers
working near pesticides, citizens count on the EPA for timely and accurate risk communication
messages. EPA Administrator Andrew Wheeler identified 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 thatthey
face, that their families face and that their children face." This is the first year the OIG has identified
risk communication as a management challenge. The agency has taken important steps to address this
important issue, but recent audits indicate more work is needed.
BACKGROUND
The EPA 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 potential hazards. Risk communication tools can be written, verbal or
visual statements containing information about risk.
THE AGENCY'S PROGRESS
In his July 2018 speech to EPA employees, Administrator Wheeler promised to assemble a working
group to look at risk communication across the EPA. By giving added certainty to the public and
regulated community, he said "we can dramatically enhance environmental protections and give the
private sector the clarity and transparency it needs." Following are some examples of how the agency
is taking action to improve risk communication.
• The EPA's FYs 2018-2022 Strategic Plan discusses the importance of risk communication with
respect to radiation and states 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 PFAS (Per- and polyfluoroalkyl substances) National Leadership Summit in
May 2018 that brought together state, tribal and federal partners; as well as key stakeholders,
including industry, utilities, congressional staff and nongovernmental organizations. The
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summit provided an opportunity to share information on ongoing efforts, identify specific near-
term actions, and address risk communication challenges.
• In an October 2018 memo to EPA employees, Administrator Wheeler stated, "The EPA Office of
Children's Health Protection plays an essential leadership role in protecting children through
engagement on key children's health issues. OCHP will continue to work with internal and
external stakeholders in risk communication and training, as well as scientific and policy
analyses."
The following reports issued within the last 5 years show the continued prevalence of the issue and the
actions the EPA has taken or plans to take.
Relevant OIG Reports
• In February 2018 (18-P-0080). we found that the state-led worker protection standard outreach
to stakeholders was incomplete. Pursuant to the EPA's cooperative agreements with states to
implement the Federal Insecticide, Fungicide and Rodenticide Act, states are responsible for
educating their stakeholders about worker protection standard compliance. As of June 14,
2017, the Office of Chemical Safety and Pollution Prevention said that, based on its
communication with states, only five or six states had completed revised worker protection
standard outreach activities with their regulated communities (i.e., the agricultural
establishments that employ farmworkers and pesticide handlers). Of the three states in which
we interviewed staff, California and Minnesota conducted outreach with their regulated
communities to facilitate worker protection standard compliance. North Carolina staff said that
they were unable to add the standard to the agenda for their annual meetings with growers in
early 2016 because the revised standard was published in late 2015; therefore, they did not
begin discussions with growers until early 2017. Corrective actions are pending.
Boiling YOUR Water
DOES NOT REMOVE LEAD
E In July 2018 (1S-P-Q221), we found that communication weaknesses contributed to a delayed
federal response to water contamination in Flint, Michigan. For effective oversight,
management needs accurate and complete
information and clear communication. However, the
communication between the EPA and the Michigan
Department of Environmental Quality did not convey
key information about human health risks from lead
contamination in Flint. Communication within the EPA
was also problematic. These issues limited the EPA's
knowledge about risks and contributed to the delayed
federal response. Corrective actions are pending. a billboard in the city of Flint, (oig photo)
• In November 2018 (19-P-0002). we found that the EPA's controls over the land application of
sewage sludge (biosolids) were incomplete or had weaknesses and may not fully protect human
health and the environment. The EPA consistently monitored biosolids for nine regulated
pollutants, but lacked the data or risk assessment tools needed to make a determination onthe
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safety of 352 pollutants found in biosolids. Our analysis determined that the 352 pollutants
included 61 designated as acutely hazardous, hazardous or priority pollutants in other
programs. The EPA's risk communication regarding the unknown risks from the 352 identified
pollutants in biosolids should be transparent. Past reviews showed that the EPA needed more
information to fully examine the health effects and ecological impacts of land-applied biosolids.
Although the EPA could obtain additional data to complete biosolids risk assessments, it is not
required to do so. Without such data, the agency cannot determine whether biosolids
pollutants with incomplete risk assessments are safe. The EPA's website, public documents and
biosolids labels do not explain the full spectrum of pollutants in biosolids and the uncertainty
regarding their safety. Consequently, the biosolids program is at risk of not achieving its goal to
protect public health and the environment. Some recommendations are pending, but others-
including recommendations related to transparent risk communication—are unresolved.
• In April 2017 (17-P-0174). we found that some subsistence fishers, tribes, sport fishers and
other groups consumed large amounts of contaminated fish without health warnings.
Although most states and some tribes had fish advisories in place, this information was
often confusing, complex and did not effectively reach the segments of the population that
need the advisories. Fish advisories differ from state to state, between states and tribes,
and across state and tribal borders, which in some cases leads to multiple advisories with
conflicting advice for a single
waterbody. In addition, although the EPA's risk communication guidance recommended
evaluations of fish advisories, we found that less than half of states, and no tribes, had
evaluated the effectiveness of their fish advisories. Under the Clean Water Act, the EPA can
take a stronger leadership role in working with states and tribes to ensure that effective
fish advisory information reaches all such segments of the population. Corrective actions
are pending.
WHAT REMAINS TO BE DONE
Despite increased awareness of the importance of risk communication strategies, EPA leadership
needs to demonstrate an organizational commitment to correcting problems with such strategies,
designed 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.
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Agency Response to Office of Inspector General-Identified Key Management Challenges
Challenge #1 - EPA Needs to Improve Oversight of States, Territories and Tribes Authorized to
Accomplish Environmental Goals
Agency Response: In 2017, an EPA workgroup tasked with improving the oversight of state-delegated
programs determined that EPA lacks a framework for assessing the effectiveness of its oversight activities.
This results in inconsistent application of oversight activities across the Regions of environmental programs
delegated to states.
In October 2018, the Acting Administrator issued a memo to Agency leadership, emphasizing key principles
for EPA's oversight of programs delegated to states and tribes. EPA is working with two programs to pilot a
method for ensuring programmatic reviews adhere to the principles of this memo and a core set of
standardized work elements designed to effectuate a more consistent approach to oversight activities.
The Agency has taken the following efforts to address this management challenge:
Regions are using a template to organize discussions with states on NPDES real-time reviews, and an
SOP for CAA Title V programmatic reviews.
EPA is working with states to identify the next program areas to target for oversight reviews.
The Agency is developing a national permitting oversight policy to standardize its review of the
quality and timeliness of federal permits issued by states.
EPA has a long-term performance goal supporting Goal 2/Objective 2.1, Enhance Shared Accountability in
the FY 2018 - 2022 EPA Strategic Plan: "By September 30, 2022, increase the use of alternative shared
governance approaches to address state, tribal, and local community reviews" and a supporting FY 2020
annual performance goal "Number of alternative shared governance approaches to address state, tribal, and
local community reviews." This measure tracks the number of program areas where EPA has used the
oversight framework for EPA's oversight of state implemented federal programs and/or where EPA has
worked with the states to solve a jointly identified issue. EPA will define, develop, pilot, evaluate, and launch
a comprehensive system to evaluate state and local implementation of federal environmental programs by
2020. The "comprehensive system" is defined as the overarching principles as laid out in the principles
memo, coupled with a template or checklist populated with state-and regional specific details on the review
activity in question. The purpose of this effort is twofold: to begin to standardize EPA's oversight work
across EPA regions, and to maximize state and federal resources by focusing on the most important work.
Responsible Agency Official: Robin Richardson, Principal Deputy Associate Administrator,
Office of Congressional and Intergovernmental Relations
Challenge #2 - EPA Needs to Improve Its Workload Analysis to Accomplish Its Mission Efficiently and
Effectively
Agency Response: EPA believes it has addressed the Human Capital Management workforce requirements
and effectively used workload analyses to help plan workforce levels and examine critical processes. EPA
evaluates what skills its workforce needs to complete their tasks and evaluates how much time, expressed in
FTE, is needed to complete selected activities.
Pursuant to 5 CFR Part 250, Human Resources Management in Agencies, the Office of Personnel
Management requires agencies to conduct workforce analyses that: 1) describe the current state; 2) project
human resources needed to achieve organizational goals; and 3) identify potential shortfalls.
To continue to satisfy these requirements, EPA is drafting an updated Workforce Plan, reflective of our
contemporary strategies/tools, to replace its previous version. The Plan applies to all full-time and part-time
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classified, "at will," and wage employees and presents an overview of current and projected workforce
trends along with profiles of core occupations. It also includes proposed gap analyses and strategies to
mitigate future gaps in both skills and occupations. Implementation of this Plan, once finalized, will support
EPA in acquiring, engaging, developing, and retaining the workforce talent necessary to meet Agency goals
and objectives, now and in the future.
In addition, to facilitate workforce planning, EPA established a SharePoint web application to aid in
conducting competency assessments. The application is called the Talent Enterprise Diagnostic and
provides for the collection of information to track, update, and assess the current skills required for
positions throughout EPA along with the corresponding skills of incumbents in those positions. Two TED
pilots were completed over the past two years. Updates were made based on feedback. The Agency will
implement TED via a phased approach concentrating on its Mission Critical Occupations. The
implementation schedule will begin in the 1st Quarter of FY20 with cybersecurity positions, one of the
Agency's priority MCOs.
To further advance workforce planning, EPA implemented a Workforce Diversity Dashboard and a
Workforce Demographics Dashboard for use throughout the EPA. Both tools are comprised of a visually
dynamic and integrated series of reports presenting snapshots of the Agency's workforce in their various
demographic categories. The data presented in the dashboards are updated monthly and compiled from the
EPA's Federal Personnel and Payroll System and the Office of Management and Budget's approved Applicant
Race and National Origin questionnaire. Data include, but are not limited to, aggregate self-identified
information on race, sex, national origin, age, targeted disability status, and education level as well as
aggregate information on employees' retirement eligibility, grade, salary, and program/office location. The
dashboards provide managers with essential tools to both view the current state of their workforce and plan
for future needs. Both actions are vital to workforce planning and succession management, which are
currently two very high-profile processes within the federal government and EPA.
EPA has conducted targeted workload analyses to help plan workforce levels and examine critical processes.
As the Agency has deployed the Lean Management System, there has been an increased focus on
understanding the factors influencing the Agency's ability to sustain its workload across offices and
programs. This includes standardizing work where possible. Leadership intends to have programs and
regional offices undertake a more comprehensive look across the Agency FTE allocations in FY 2020 to build
on EPA's ongoing Lean Management System implementation. The recently implemented multi-year
planning initiatives also support workload considerations as the agency streamlines and focuses Agency
efforts on priority work. Related Kaizen efforts include state oversight, EPA's field presence, state and tribal
assistance flexibility, community and infrastructure investments, FOIA responses, reporting requirements,
and EPA laboratories, environmental permitting, and acquisitions.
EPA's largest recent workload analysis effort examined Superfund remedial long-term staffing levels. The
Superfund program reviewed and assessed the Army Corps of Engineers and Naval Facilities Engineering
Command workload management, FTE distribution practices, and methods of evaluating site work to
strategically manage geographic FTE allocations. The program used this work to design a national risk-
based site prioritization methodology for EPA to inform the distribution of regional remedial vacancies to
the areas of greatest need. Also, in the Superfund program, the Agency launched a Lean Kaizen effort to
streamline the Superfund billing process and looked at how to facilitate specialists in one region providing
expertise to other regions.
Since grants represent the largest type of Agency spending with the most direct effect on EPA state and
tribal partners, grants management workload analyses continue to be an Agency priority. In FY 2019, the
Agency surveyed all the agency programs' grants Project Officers to better understand the time required to
complete major components of Project Officer work and major challenges faced by POs at different stages of
the grants process. The Agency analyzed the results to inform continuing efforts to streamline work and
update policies, processes, and procedures. This analysis and previous workload reviews were presented to
the Agency's Grants Management Council.
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The Agency believes that the IG's proposal "to determine workforce levels based upon analysis of the agency's
workload" doesn't consider the reality that the Agency must operate within the detailed constraints of each
year's Congressional appropriations. As the OIG has acknowledged, EPA's highly variable, multi-year, and
non-linear functions and activities complicate development of FTE-based workload analyses that are
practical tools to determine precise FTE levels.
EPA also believes that the agency chose to discontinue using comprehensive workload models for reasons
other than those cited by the IG.
• "In the 1980s, the EPA conducted comprehensive workload analyses to determine appropriate
workforce levels and, each year, with regional consensus, evaluated need and allocated its human
resources accordingly. In 1987, the EPA decided it would discontinue these analyses and instead
focus on marginal changes to full-time equivalent (FTE) distribution."
The Agency believes that the choice to discontinue using comprehensive workload analyses was not made to
focus on marginal changes, but rather because the comprehensive analyses and negotiations required
substantial work and executive-level attention, but the resulting changes were limited in scope and did not
provide the insight commensurate to the level of effort needed. EPA would also like to stress that each year's
budget formulation processes include extensive programmatic involvement
In conclusion, the Agency believes it complies with the workforce planning requirements of 5 CFR Part 250,
Subpart B, Strategic Human Capital Management through the agency workforce planning efforts outlined
above. The Agency also believes it is important to design workload efforts that support priorities but are
also cognizant of existing Congressional constraints on flexibility.
Responsible Agency Official: Maria Williams, Acting Director, Office of Budget
Challenge #3 - EPA Needs to Enhance Information Technology Security to Combat Cyber Threats
Agency Response: The Agency is committed to protecting its information and technology assets. EPA
understands the prevalence and complexity of the ever-growing cyber security attacks and is aware of the
potential impact to the Agency's mission if information assets are compromised. The Agency has established
and implemented processes for monitoring and managing contractor support actions to address concerns
associated with this management challenge. At a high level this includes:
Working with the Office of General Counsel (OGC) to develop standard security language into the
Agency's Environmental Protection Agency Acquisitions Guide (EPAAG) Section 39.1.2.
Incorporating into the Federal Information Technology Acquisition Reform Act (FITARA) process, a
verification for the cybersecurity requirements identified in the EPAAG 39.1.2.
Developing training for contract officers and contract officer representatives on their
responsibilities for identifying contracts that require EPAAG Section 39.1.2 tasks.
Establishing a tracking and reporting process that ensures all contractors with access to 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:
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.
Responsible Agency Official: Robert McKinney, Director, Office of Information Security and Privacy
Challenge #4 - EPA Needs to Improve on Fulfilling Mandated Reporting Requirements
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Agency Response: EPA has taken the corrective actions identified in the 2018 OIG Report regarding the
BEACH Act Report to Congress. That Report has since been issued to Congress. The Agency continues to
implement the OIG's recommendations. For example, a memorandum was issued in March 2018 to remind
EPA's Assistant Administrators and Associate Administrators that the Agency's standard practice is to track
Reports to Congress by using the Action Development Process Tracker. The Agency is addressing issues
related to the upcoming replacement of the ADP Tracker. Additionally, EPA continues to provide a list of the
unnecessary and duplicative reports that we suggest eliminating from our statutes to OMB, in consultation
with Congress. The Agency continues to implementthe corrective actions identified in the 2018 OIG Report,
which will improve the tracking of Reports to Congress so that statutory requirements are not missed in the
future.
The Agency has taken the following efforts to address this management challenge:
In March 2018, a memorandum was issued reminding program offices of their tracking
requirements for Reports to Congress.
In September 2018, EPA consulted with Congress about eliminating the reporting requirements for
the 14 Reports to Congress that the Agency had identified as duplicative or unnecessary.
Throughout 2018 and 2019, EPA coordinated management of the Agency's inventory of Reports to
Congress. The Agency identified the appropriate tracking system when the ADP Tracker is replaced,
and the potential for a having a single means of tracking statutorily-mandated Reports to Congress
and those required by appropriations law.
In August 2019, EPA is preparing to issue a memorandum identifying new Reports to Congress that
should be included in ADP Tracker, if not already identified by program offices.
In August-September 2019, EPA will update the list of unnecessary or duplicative reports as part of
the upcoming FY 2021 budget proposal.
Responsible Agency Official: Robin Richardson, Principal Deputy Associate Administrator,
Office of Congressional and Intergovernmental Relations
Challenge #5 - EPA Needs to Improve Data Quality for Program Performance and Decision-Making
Agency Response: Under the Clinger Cohen Act (1996), EPA's Chief Information Officer has delegated
authority for information quality including oversight responsibility for EPA's mandatory Quality Program.
EPA issues the Quality Policy and Procedure for Environmental Programs that mandate implementation of a
Quality Management System for all agency programs involved with environmental data operations and
organizations funded by EPA submitting data and information for EPA's use in programmatic decisions. The
Agency's quality program is decentralized and implemented by the National Program Offices and Regions
with specific responsibilities for assuring the quality of data produced and used are appropriate for their
programmatic decisions.
EPA does not view the data quality issue raised by the OIG as a management challenge. It is critical that the
data supporting enforcement, regulatory and other program decisions be based on sound, defensible data.
EPA has begun revising the Agency's Quality Directives to clarify that it is the responsibility of program and
regional offices senior management to ensure that these data are of the appropriate quality for those uses.
The revised Directives will include a requirement for Assistant Administrators and Regional Administrators
to certify annually that their organizations are implementing the Agency's Quality Directives and that the
quality of data supporting their programmatic decisions are appropriate for the intended uses.
EPA annually assesses conformance to the Agency's Quality Directives and effectiveness of management
controls and Quality Assurance (QA) practices for assuring the quality of data produced and used by the
organization. These Quality System Assessments (QSA) identify findings requiring corrective actions;
innovative practices for continuous improvement; and, potential vulnerabilities that may impact
performance of the Agency-wide Quality Program. EPA develops tools and processes to guide consistent
implementation of quality across the Agency. One such tool is the Quality Assurance Project Plan (QAPP)
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that defines a documented, systematic approach for planning, collecting and using QA data and information
at the project level. The QAPP assists the organization determine "fitness for use" of the project results.
Program and regional offices routinely conduct internal assessment to improve effectiveness of their
implemented QA programs and report annually to the Office of Mission Support on their accomplishments.
Cross-cutting Agency issues including risks, successes, opportunities for improvement and resource needs
are reported to the CIO.
Responsible Agency Official: Vincia Holloman, Director, Enterprise Quality Management Division
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:
EPA has established a cross-agency Risk Communication Workgroup charged with institutionalizing a
thoughtful, cohesive approach to how EPA plans for, pays for, and conducts risk communication across the
agency. The goal is to identify next steps that will inform and contribute to the development of better risk
communications processes, strategies and training. The strategy includes hiring a highly experienced Senior
Risk Communication Advisor in the agency.
The Agency has taken the following efforts to address this management challenge:
Issued agency-wide questionnaire to survey all EPA offices and regions to identify ongoing risk
communications activities, adherence to existing agency risk communications practices, and
consistency of practices across offices.
Distributed agency-wide communications plan template that includes consideration of risk
communication messaging for all actions.
Presented risk communications charge to Children's Health Protection Advisory Committee. Key
Recommendation: know your audience, know who the best messenger is for each audience, and
measure and track results.
Presented risk communications charge to Local Government Advisory Committee. Key
Recommendation: Improve relationships with state, local, tribal officials before there is a risk to
public health; having these relationships in place in advance will make it easier to coordinate and
provide the public with one consistent message.
Coordinated with E-Enterprise Leadership Council to form a new team on risk communications to
include state and tribal representatives.
In EPA's 2019 PFAS Action Plan the Agency committed to developing a risk communication toolbox
that includes materials and messaging for federal, state, tribal and local officials to use to inform the
public.
The following performance information is related to this management challenge:
August 2019 meeting with National Environmental Justice Advisory Committee to establish
feedback mechanisms.
Identify specific resource needs - both FTE and extramural funding - to develop training and to
implement risk communications efforts agency-wide.
Continue efforts under the Risk Communications Workgroup to identify and conduct case studies
that are diverse, address different stages in the risk communication process, and represent different
offices and regions (e.g., tire crumb report, ethylene oxide, Superfund sites, PFAS, emergency
response, lead and copper rule, fish advisories, harmful algal blooms).
Based on feedback from the case studies and a review of advice from external groups, generate an
agency-wide risk communications best practices document to include checklists, playbooks and
measurement tools (anticipated completion Winter 2019/2020).
Develop risk communications training for EPA staff (Spring 2020) including mandatory on-line
training for all EPA employees, targeted classroom training for key program and communications
staff, and ongoing practice drills.
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Responsible Agency Officials: Rosemarie Kelley, Director, Office of Civil Enforcement; and Nancy
Grantham, Principal Deputy Associate Administrator, Office of Public Affairs
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PROGRESS IN ADDRESSING FY 2019 WEAKNESSES
In FY 2019, the agency did not identify any new material weaknesses and completed corrective actions for
one previously identified material weakness. During the FY 2019 Financial Statement audit, OIG identified
one material weakness related to the preparation of the agency's financial statements.
Material Weaknesses
EPA's Accounting for Unearned Revenue
During the FY 2016 financial statement audit, OIG identified a material weakness related to the recording
and reconciliation of unearned revenue for Superfund special accounts.
To address this material weakness, the Agency engaged in deliberations with 0MB and the Department of
Treasury to develop a new process for managing and accounting for Special Account collections and
receivables. In January 2017, 0MB provided final approval on the revised process, including updated
posting models for recording special account transactions. EPA approved the business case for making
changes to the accounting system, and in November 2018, updated accounting posting models in the
accounting system. EPA also conducted an extensive review and completed the process of converting prior
accounting data into the approved process. The process of reviewing the accounts and postings to ensure
the correct accounting treatment in the system has been finalized. On May 30, 2019, EPA completed
reconciliation of the general ledger to the special accounts database used for special accounts collected for
future costs.
The Agency has completed and implemented all corrective actions for this material weakness.
EPA's Financial Statement Preparation Process
During the FY 2019 financial statement audit, OIG identified a material weakness related to the preparation
of the agency's financial statements. OIG found instances where the agency had major misstatements of its
financial transactions and financial statements.
To address this material weakness, the Agency will continue to review its processes for preparing
financial statements and identify process improvements to further strengthen the preparation process.
The Agency expects the corrective actions for this weakness to be completed in FY 2020.
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Summary of Financial Statement Audit
Audit Opinion
Unmodified
Restatement
Yes
Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Ending
Balance
Financial Statement
Preparation Process
0
1
0
0
1
Unearned Revenue
1
0
1
0
0
Total Material Weaknesses
1
1
1
0
1
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
Total Material Weaknesses
0
0
0
0
0
0
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 System 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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REDUCE THE FOOTPRINT
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
FY 2015 Baseline
FY 2018
Change
Square Footage ("SF")
5,364,495
4,963,447
[401,048]
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
Reduce the Footprint offset square footage is composed of office and warehouse assets reported as excess
to GSA. EPA's RTF total in FY 2018 was 4,963,447 SF, a reduction of 401,048 SF from the baseline.
Reporting of Operation & Maintenance Costs-Owned and Direct Lease Buildings
FY 2015 Reported Cost
FY 2018
Change
Operations &
Maintenance Costs
$1,106,924.21
$3,525,429.46
$2,418,505.25
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, EPA will continue to explore options for teleworking office sharing and hoteling as
alternative work strategies once associated costs and impacts are identified.
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PAYMENT INTEGRITY
The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments
Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery
Improvement Act of 2012 (IPERIA), 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
EPA is dedicated to reducing fraud, waste, and abuse and presents the following improper payment
information in accordance with IPIA, as amended; OMB implementing guidance in Circular A-123,
Appendix C, Requirements for Payment Integrity Improvement; and IPIA reporting requirements contained
in OMB Circular A-136, Financial Reporting Requirements.
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 under statutory, contractual, administrative, or other legally applicable requirements.
Incorrect amounts are overpayments or underpayments that are made to eligible recipients (including
inappropriate denials of payment or service, any payment that does not account for credit for applicable
discounts1, payments that are for the incorrect amount, and duplicate payments). An improper payment
also includes any payment that was made to an ineligible recipient for an ineligible good or service, or
payments for goods or services not received (except for such payments authorized by law). In addition,
when an agency's review is unable to discern whether a payment was proper as a result of insufficient or
lack of documentation, this payment must also be considered an improper payment
The term "payment" means any payment or transfer of federal funds (including a commitment for future
payment, such as cash, securities, loans, loan guarantees, and insurance subsidies) to any non-federal
person, non-federal entity, or 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. The
term "payment" includes federal awards subject to the Single Audit Act Amendments of 1996 thatare
expended by both recipients and sub-recipients.
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, 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
1 As footnoted in OMB Circular A-123, Appendix C, "Applicable discounts are only those discounts where it is both
advantageous and within the agency's control to claim them."
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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.
In the Office of Inspector General's annual report of the agency's IPERA compliance, the EPA's OIG stated
"...the EPA complied with IPERA in that it reported all required information on improper payments but went
on to say that EPA can improve the accuracy and completeness of the information". The OIG made two
recommendations to the Office of the Chief Financial Officer.
• EPA revise the Office of the Chief Financial Officer's grant improper payments review process to
include internal controls for training reviewers and annually verifying that reviewers are
knowledgeable and proficient in the identification and reporting of improper payments.
• The Office of the Chief Financial Officer comply with the EPA's sampling and estimation plan
annually submitted to the Office of Management and Budget
The OIG noted in its final report, "The agency agreed with our recommendations and indicated that
corrective actions were implemented in April 2019. We consider the recommendation resolved until we
confirm completion during next year's audit".
The following is a summary of current risk levels in EPA programs. Notably, in FY 2019, the EPA's
Hurricane Sandy funding was granted relief from annual reporting and is no longer considered
susceptible to significant improper payments. EPA now 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 $2 billion of annual estimated improper payments.
Table 1 summarizes the risk level for each of the Agency's payment streams.
Table 1: Risk Level
Payment Stream
Not Susceptible
to Significant IPs
Susceptible to
Significant IPs
High Priority
Commodities
X
Contracts
X
CWSRF
X
DWSRF
X
Grants
X
Hurricane Sandy
X
Payroll
X
Purchase Cards
X
Travel
X
2018 Disaster Relief
X
I. Payment Reporting
Table 2 provides information about EPA's reportable programs. The website
https: //paymentaccuracv.gov/ contains more detailed information on improper payments and also
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includes all of the information reported in prior year AFRs that is not included in the FY 2019 AFR.
Table 2. Improper Payment Reduction Outlook
($ in millions)
Grants
Hurricane Sandy
Totals
$ Outlays
2,659.54
23.15
2,682.69
CO
$ Proper
2,659.23
23.15
2,68238
o
$ Improper
0.31
0.00
0.31
>
h
IP%
0.01%
0.00%
0.01%
Proper %
99.99%
100%
99.99%
$ Outlays
1,798.34
n/a
1,798.34
$ Proper
1,775.85
n/a
1,775.85
$ Improper
22.49
n/a
22.49
IP%
1.25%
n/a
1.25%
Proper %
98.75
n/a
98.75
&
$ Overpay
6.40
n/a
6.40
o
$ Underpay
0.00%
n/a
0.00%
Sx
h
$ Insufficient Documentation
16.09
n/a
16.09
% Overpaid
0.36%
n/a
0.36%
% Underpaid
0.00%
n/a
0.00%
% Insufficient Documentation
0.89%
n/a
0.89%
Sampling Timeframe Start
Oct 1,2017
n/a
Oct 1, 2017
Sampling Timeframe End
Sept 30, 2018
n/a
Sept 30, 2018
o
Estimated $ Outlays
1,653.12
n/a
1,653.12
o
Estimated $ Improper
20.66
n/a
20.66
>
h
Estimated IP % Target
1.25%
n/a
1.25%
(1] EPA is maintaining the FY 2019 improper payment rate as the FY 2020 target rate. Further reductions are not anticipated
at this time, given the Agency has become more proficient at identifying improper payments.
(2] In FY 2019, the agency's Hurricane Sandy program was granted relief from the annual requirement to measure and report
improper payments, as it is no longer susceptible to significant improper payments.
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
6.40
0.00
6.40
0.00
16.09
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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
Totals
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
6.40
Medical Necessity
Insufficient Documentation to Determine
16.09
Other Reason
Totals
6.40
0.00
16.09
22.49
II. Recapture of Improper Payments Reporting
IPERA requires agencies to conduct payment recapture audit reviews in any program expending more than
$1 million annually. Past experience has demonstrated that the low dollar value of improper payments
recovered by an external payment recapture auditor resulted in an effort that was not cost-effective for the
Agency or the contractor. Therefore, EPA no longer uses a payment recapture audit firm to conduct formal
payment recapture audits.
Nevertheless, the Agency performs payment recapture activities internally, leveraging the work of agency
employees and Agency resources. As part of this process, each payment stream is routinely monitored to
assure the effectiveness of internal controls and identify issues that could give rise to overpayments. The
Agency's payment recapture activities are part of its overall program of internal control over
disbursements, which includes establishing and assessing internal controls to prevent improper payments,
reviewing disbursements, assessing root causes of error, developing corrective action plans where
appropriate, and tracking the recovery of overpayments.
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The following table quantifies the Agency's efforts to identify and recapture overpayments across all
payment streams.
Table 5: Overpayments Recaptured Outside of Payment Recapture Audits (i)
($ in millions]
Program
Amount Identified
In FY 2019
Amount Recovered
in FY 2019
Commodities (2)
0.72
0.65
Contracts (2)
0.20
0.26
CWSRF
0.40
0.40
DWSRF
0.85
0.85
Grants
2.09
1.19
Hurricane Sandy
0.00
0.00
Payroll
1.26
3.32
Purchase Cards
0.00
0.00
T ravel
0.019
0.004
2018 Disaster Relief
0.00
0.00
Other (3)
5.41
5.41
Total
10.95
12.08
Recapture Rate -110%
(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) "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
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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) 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, 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). 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 2019 reporting, improper payments stemming from lost discounts totaled $26 K 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. 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 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, 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.
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EPA identifies overpayments in grants both through statistical sampling and through non-statistical means.
The statistical sampling process is described further in Section IV, "Sampling and Estimation." As part of its
non-statistical activity, the Agency conducts transaction testing of active grant recipients through Advanced
Administrative Monitoring reviews. 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.
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. 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 closeout 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.
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. 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. EPA continues to conduct oversight of SRF-
related Hurricane Sandy funds through ongoing transaction testing. In FY 2019, 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 EPA following
separation. EPA establishes the debt and tracks recovery status. A small portion of 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.
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F) Purchase Cards
The purchase card program is not susceptible to significant improper payments, and no improper
payments were identified in FY 2019.
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.
III. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative
Enactment of the Improper Payments Elimination and Recovery Improvement Act of 2012 codified
requirements for federal agencies to implement the Do Not Pay (DNP) initiative, which is a government-
wide solution designed to prevent payment errors and detect waste, fraud, and abuse in programs
administered by the federal government.
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 EPA payments against the following DNP data sources on a post-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, 2019, approximately $1.56 billion of
EPA payments were screened, and no improper payments were identified. In addition, 58,781 EPA
payments totaling $4.2 billion were made 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. Sampling and Estimation
A) Grants
The sampling methodology for grants is statistically valid and robust, providing a sample size sufficient to
estimate the proportion of erroneous payments within a margin of error of plus or minus 2.5 percent and a
95 percent confidence level. The sample size consists of seventy-five recipients with active grant awards in
which drawdowns occurred during the sampling timeframe from October 1, 2017 to September 30, 2018.
EPA used a two-stage random sampling approach to draw the sample. Stage 1 stratified the recipients by
recipient type and resulted in the selection of seventy-five recipients using probability proportionate to
size. Stage 2 used simple random sampling to select three draws per recipient for a total of 225 draws.
At least once every three years2, agencies are required to conduct risk assessments of their programs or
activities to determine whether they are susceptible to significant improper payments. The risk assessment
can be either a quantitative or qualitative evaluation. For programs that are identified as susceptible to
significant improper payments, statistical sampling is required.
2 OMB Circular A-123, Appendix C, Part I.C.1
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A quantitative risk assessment can consist of a true statistical sample or a non-statistical assessment where
a subset of the population is sampled non-randomly, for which the ratio of improper payments is projected
to the annual outlays.
A qualitative risk assessment is an evaluation of risk factors that could contribute to the occurrence of
significant improper payments. The EPA utilizes both qualitative and quantitative methods to assess the
risk of improper payments in its payment streams. The following risk factors are addressed in the Agency's
qualitative risk assessments:
• The age of the payment stream;
• The complexity of the payment stream with respect to determining correct payment amounts;
• Whether the number of payments increased substantially since the previous risk assessment was
conducted;
• Whether annual outlays increased substantially since the previous risk assessment was conducted;
• The percentage of payment eligibility decisions made outside the Agency;
• Recent major changes in program funding, authorities, practices, or procedures;
• The level, experience, and quality of training for personnel responsible for making program
eligibility determinations or certifying that payments are accurate;
• Significant deficiencies in the audit reports of the agency including, but not limited to, 01G or
Government Accountability Office audit report findings, or other relevant management findings
that might hinder accurate payment certification;
• The impact of any significant changes in technology used to support the payment process;
• Whether the Agency uses effective systems, techniques, and technologies to prevent or identify
illegal, improper, or erroneous purchases;
• Whether control activities are monitored and tested to determine their effectiveness in mitigating
fraud risk;
• The inherent risks of improper payments due to the nature of the payment stream or its operations;
• The level of risk associated with prior year improper payment work.
• Whether the agency has adequately addressed the risk factors identified in the Government Charge
Card Abuse Prevention Act of 2012;
Qualitative risk assessments consist of a questionnaire designed to evaluate these risk factors in
consideration of existing internal controls. Directions for completion are provided to the program manager
of each payment stream, who assigns a score to each risk factor and provides supporting information. An
overall risk rating is then calculated for the payment stream.
In FY 2019, a qualitative risk assessment was performed for EPA's 2018 Disaster Relief funding, which was
appropriated by the Bipartisan Budget Act of 2018. The risk assessment confirmed that this payment
stream is not susceptible to significant improper payments. Expenditures were well below the $10 million
IPERA threshold, and the Agency is incorporating Disaster Relief funding into its three-year risk
assessment cycle.
V. Conclusion
The EPA maintains a robust payment integrity program, which continues to achieve low improper
payment rates.
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FRAUD REDUCTION REPORT
Fraud Reduction and Data Analytics Act of 2015
The Fraud Reduction and Data Analytics Act of 2015 requires agencies to improve financial and
administrative controls to identify and assess fraud risks. In accordance with 0MB Circular A-123,
"Management's Responsibility for Enterprise Risk Management and Internal Control/' the EPA incorporated
leading practices identified in the "GAO Framework for Managing Fraud Risks in Federal Programs/' and the
Agency will continue to use a risk-based approach to design and implement controls to mitigate identified
fraud risks.
To increase fraud awareness and create an organizational culture that is committed to combating fraud, the
Agency continued to build on progress made in FY 2018 to incorporate the consideration of fraud risk
when determining the overall effectiveness of internal controls. In the Agency's FY 2019 Guidance for
Strategic Reviews and Internal Controls, which integrates strategic review and internal control processes,
national program managers and regional offices were required to consider fraud when identifying,
assessing, and responding to risks. The Office of the Chief Financial Officer conducted agency-wide
technical training that included a discussion on fraud and the key elements of the fraud risk assessment
process highlighted in the GAO Framework.
The Agency conducted internal control reviews and utilized the GAO standards and principles as the basis
for determining whether controls are designed, implemented, and operating effectively. Senior managers
complied with principle 8 of the Standards for Internal Control in the Federal Government and documented
controls in place to address fraud risks associated with the strategic objectives as well as for administrative
and financial processes. EPA management annually certifies annually their system of internal controls, and
no indications of potential fraud were reported in these annual certifications,
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 Improper Payment Elimination and Recovery Act 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, EPA continues to work with the OIG to identify as improper payments any confirmed fraud cases
resulting in criminal restitution.
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,
partnering with the Office of the Inspector General to present an overview on fraud awareness for EPA's
Management Integrity advisors. The presentation focused on common fraud schemes, fraud indicators,
and best practices for preventing and identifying potential fraud.
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CIVIL MONETARY PENALTY ADJUSTMENT
FOR INFLATION
Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, 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. This year, EPA did not meet that deadline
because the Office of Federal Register (OFR) was unable to publish the rule due to the lapse in
appropriations from December 22, 2018, to January 25, 2019. After EPA and OFR resumed operations,
the Office of Civil Enforcement (OCE) requested that OFR change references to the effective date in the
rule from January 15, 2019, to February 6, 2019, to align with the publication date. The "Civil Monetary
Penalty Inflation Adjustment Rule" (2019 Rule) was published on February 6, 2019, and was effective
the same day.3 However, OFR did not make all of OCE's requested edits. To resolve these errors, OFR
published a correction on February 25, 2019, which changed the remaining January 15, 2019 references
in the 2019 Rule to February 6, 2019.4 The 2019 Rule and February 25, 2019 correction are codified in
Table 2 of 40 CFR § 19.4. EPA will amend 40 CFR § 19.4 in January 2020 to adjust penalty levels to
reflect changes in inflation since the last adjustment.
Current Statutory Maximum/Minimum Civil Penalties under
EPA's 2019 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
February 6,2019
7 U.S.C. 136/.(a)(l)
FEDERAL INSECTICIDE,
FUNGICIDE, AND
RODENTICIDE ACT (FIFRA)
1972
2019
$19,936
7 U.S.C. 136/.(a)(2)
FIFRA
1972
2019
$2,924
7 U.S.C. 136/.(a)(2)
FIFRA
1978
2019
$2,924/$l,884
15 U.S.C.
2615(a)(1)
TOXIC SUBSTANCES
CONTROL ACT (TSCA)
2016
2019
$39,873
15 U.S.C. 2647(a)
TSCA
1986
2019
$11,463
15 U.S.C. 2647(g)
TSCA
1990
2019
$9,472
31 U.S.C.
3802(a)(1)
PROGRAM FRAUD CIVIL
REMEDIES ACT (PFCRA)
1986
2019
$11,463
31 U.S.C.
3802(a)(2)
PFCRA
1986
2019
$11,463
33 U.S.C. 1319(d)
CLEAN WATER ACT (CWA)
1987
2019
$54,833
33 U.S.C.
1319(g)(2)(A)
CWA
1987
2019
$21,933/$54,833
33 U.S.C.
1319(g)(2)(B)
CWA
1987
2019
$21,933/$274,159
1 84 Fed. Reg. 2056 (February 6, 2019).
2 84 Fed. Reg. 5955 (February 25, 2019).
182
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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
February 6,2019
33 U.S.C.
1321(b)(6)(B)(i)
CWA
1990
2019
$18,943/$47,357
33 U.S.C.
1321(b)(6)(B)(ii)
CWA
1990
2019
$18,943/$236,783
33 U.S.C.
1321(b)(7)(A)
CWA
1990
2019
$47,357/$l,895
33 U.S.C.
1321(b)(7)(B)
CWA
1990
2019
$47,357
33 U.S.C.
1321(b)(7)(C)
CWA
1990
2019
$47,357
33 U.S.C.
1321(b)(7)(D)
CWA
1990
2019
$189,427/$5,683
33 U.S.C.
1414b(d)(l)
MARINE PROTECTION,
RESEARCH, AND
SANCTUARIES ACT (MPRSA)
1988
2019
$1,262
33 U.S.C. 1415(a)
MPRSA
1972
2019
$199,361/$262,982
33 U.S.C. 1901
note (see
1409(a)(2)(A))
CERTAIN ALASKAN CRUISE
SHIP OPERATIONS (CACSO)
2000
2019
$14,535/$36,334
33 U.S.C. 1901
note (see
1409(a)(2)(B))
CACSO
2000
2019
$14,535/$181,669
33 U.S.C. 1901
note (see
1409(b)(1))
CACSO
2000
2019
$36,334
33 U.S.C.
1908(b)(1)
ACT TO PREVENT POLLUTION
FROM SHIPS (APPS)
1980
2019
$74,552
33 U.S.C.
1908(b)(2)
APPS
1980
2019
$14,910
42 U.S.C. 300g-
3(b)
SAFE DRINKING WATER ACT
(SDWA)
1986
2019
$57,317
42 U.S.C. 300g-
3(g)(3)(A)
SDWA
1986
2019
$57,317
42 U.S.C. 300g-
3(g)(3)(B)
SDWA
1986/1996
2019
$ll,463/$39,936
42 U.S.C. 300g-
3(g)(3)(C)
SDWA
1996
2019
$39,936
42 U.S.C. 300h-
2(b)(1)
SDWA
1986
2019
$57,317
42 U.S.C. 300h-
2(c)(1)
SDWA
1986
2019
$22,927/$286,586
42 U.S.C. 300h-
2(c)(2)
SDWA
1986
2019
$ll,463/$286,586
183
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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
February 6,2019
42 U.S.C. 300h-
3(c)
SDWA
1974
2019
$19,936/$42,530
42 U.S.C. 300i(b)
SDWA
1996
2019
$23,963
42 U.S.C. 300i-l(c)
SDWA
2002
2019
$139,483/$ 1,394,837
42 U.S.C.
300j(e)(2)
SDWA
1974
2019
$9,967
42 U.S.C. 300j-4(c)
SDWA
1986
2019
$57,317
42 U.S.C. 300j-
6(b)(2)
SDWA
1996
2019
$39,936
42 U.S.C. 300j-
23(d)
SDWA
1988
2019
$10.519/$ 105.194
42 U.S.C.
4852d(b)(5)
RESIDENTIAL LEAD-BASED
PAINT HAZARD REDUCTION
ACT OF 1992
1992
2019
$17,834
42 U.S.C.
4910(a)(2)
NOISE CONTROL ACT OF 1972
1978
2019
$37,687
42 U.S.C.
6928(a)(3)
RESOURCE CONSERVATION
AND RECOVERY ACT (RCRA)
1976
2019
$99,681
42 U.S.C. 6928(c)
RCRA
1984
2019
$60,039
42 U.S.C. 6928(g)
RCRA
1980
2019
$74,552
42 U.S.C.
6928(h)(2)
RCRA
1984
2019
$60,039
42 U.S.C. 6934(e)
RCRA
1980
2019
$14,910
42 U.S.C. 6973(b)
RCRA
1980
2019
$14,910
42 U.S.C.
6991e(a)(3)
RCRA
1984
2019
$60,039
42 U.S.C.
6991e(d)(l)
RCRA
1984
2019
$24,017
42 U.S.C.
6991e(d)(2)
RCRA
1984
2019
$24,017
42 U.S.C. 7413(b)
CLEAN AIR ACT (CAA)
1977
2019
$99,681
42 U.S.C.
7413(d)(1)
CAA
1990
2019
$47,357/$378,852
42 U.S.C.
7413(d)(3)
CAA
1990
2019
$9,472
42 U.S.C. 7524(a)
CAA
1990
2019
$47,357/$4,735
42 U.S.C.
7524(c)(1)
CAA
1990
2019
$378,852
42 U.S.C.
7545(d)(1)
CAA
1990
2019
$47,357
184
-------
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
February 6,2019
42 U.S.C.
9604(e)(5)(B)
COMPREHENSIVE
ENVIRONMENTAL RESPONSE,
COMPENSATION, AND
LIABILITY ACT (CERCLA)
1986
2019
$57,317
42 U.S.C.
9606(b)(1)
CERCLA
1986
2019
$57,317
42 U.S.C.
9609(a)(1)
CERCLA
1986
2019
$57,317
42 U.S.C. 9609(b)
CERCLA
1986
2019
$57,317/$171,952
42 U.S.C. 9609(c)
CERCLA
1986
2019
$57,317/$171,952
42 U.S.C. 11045(a)
EMERGENCY PLANNING AND
COMMUNITY RIGHT-TO-
KNOW ACT (EPCRA)
1986
2019
$57,317
42 U.S.C.
11045(b)(1)(A)
EPCRA
1986
2019
$57,317
42 U.S.C.
11045(b)(2)
EPCRA
1986
2019
$57,317/$171,952
42 U.S.C.
11045(b)(3)
EPCRA
1986
2019
$57,317/$171,952
42 U.S.C.
11045(c)(1)
EPCRA
1986
2019
$57,317
42 U.S.C.
11045(c)(2)
EPCRA
1986
2019
$22,927
42 U.S.C.
11045(d)(1)
EPCRA
1986
2019
$57,317
42 U.S.C.
14304(a)(1)
MERCURY-CONTAINING AND
RECHARGEABLE BATTERY
MANAGEMENT ACT
(BATTERY ACT)
1996
2019
$15,976
42 U.S.C. 14304(g)
BATTERY ACT
1996
2019
$15,976
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BIENNIAL REVIEW OF USER FEES
In accordance with OMB Circular A-25, User Charges, and the Chief Financial Officer's Act of 1990, EPA
biennially conducts reviews of its programs to assess the Agency's activities that convey special benefits to
recipients beyond those accruing to the general public. The purpose of these reviews are to:
a) Ensure that each service, sale, or use of Government goods or resources provided by the EPA to
specific recipients be self-sustaining;
b) Promote efficient allocation of the Nation's resources by establishing charges for special
benefits provided to the recipient that are at least as great as costs to the Government of
providing the special benefits; and
c) Allow the private sector to compete with the Government without disadvantage in supplying
comparable services, resources, or goods where appropriate.
The review may also make recommendations to adjust existing fees to reflect unanticipated changes in cost
or market price.
There were no assessments scheduled for FY 2019. The next biennial user fee review will take place in FY
2020 and will include (1) assurance that existing charges are adjusted to reflect unanticipated changes in
costs or market values; and (2) a review of all other agency programs to determine whether fees should be
assessed for Government services or the user of Government goods or services.
EPA is also continuing to explore options and opportunities for programs where collecting fees may be
appropriate. For instance, in the FY 20202 President's Budget, EPA outlined the following legislative proposals
to authorize EPA to collect (or adjust existing) fees:
1. The FY 2020 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 2020 Budget included a proposal to expand the range of activities that EPA can fund with
existing pesticide registrations service fees and maintenance fees.
3. The FY 2020 Budget requests authorization for the EPA Administrator to collect and obligate fees 185
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 31 l(j) of the Federal Water
Pollution Control Act. Allowing these facilities to voluntarily request and pay for a service whereby 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.
4. The FY 2020 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 EPA conducts an onsite, 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.
186
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APPENDIX A
PUBLIC ACCESS
188
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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 EPA's historical database.
EPA newsroom: www.epa.gov/newsroom
News releases: www.epa.gov/newsroom/news-releases
Regional newsrooms: https://www.epa.g0v/newsroom/browse-news-releases#regions
Laws, regulations, guidance and dockets: http s: / /www, epa. gov /laws- re gulatio ns
Major environmental laws: https://www.epa.gov/laws-
re gulatio ns/laws-and-executive-orders
EPA's Federal Register website: www.epa.gov/fedrgstr
Where you live: https: //www.epa.gov/children/where-you-live
Community Information: https: //www.epa.gov/nutrientpollution/what-you-can-do-
your-community
EPA regional offices:
https://www.epa.gov/aboutepa/visiting-
regional-office
Information sources: https://www.epa.gov/quality/epa-information-
qualitv-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 www.epa.gov/korean
189
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APPENDIX B
ACRONYMS AND ABBREVIATIONS
190
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ACE
ADA
ADP
AFR
AICPA
APPS
APR
ASAP
B&F
BFS
CAA
CACSO
CERCLA
CFO
CO CSRS
CWA
Affordable Clean Energy
Anti-deficiency Act
Action Development Process
Agency Financial Report
American Institute of
Certified Public Accountants
Act to Prevent Pollution from
Ships
Annual Performance Report
Automated Standard
Application for Payments
Building and Facilities
Bureau of Fiscal Services
Clean Air Act
Certain Alaskan Cruise Ship
Operations
Comprehensive
Environmental Response
Compensation and Liability
Act
Chief Financial Officer
Contracting Officer
Civil Service Retirement
System
Clean Water Act
LUST
MOU
MPRSA
NPL
NRDA
OCE
OCFO
OFR
OIG
OMB
OPA
0PM
ORD
PFCRA
PMA
PO
Leaking Underground Storage Tank
Memorandum of Understanding
Marine, Protection, Research, and
Sanctuaries Act
National Priorities List
Natural Resource Damages
Assessment
Office of Civil Enforcement
Office of the Chief Financial Officer
Office of the Federal
Register
Office of Inspector
General
Office of Management Budget
Oil Pollution Act
Office of Personnel Management
Office of Research and
Development
Program Fraud Civil
Remedies Act
President's Management Agenda
Project Officer
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CWSRF Clean Water State Revolving
Fund
DATA Data Accountability and
T ransparency Act
DCAA Defense Contract Audit
Agency
DM&R Deferred Maintenance and
Repairs
DNP Do Not Pay
DWH Deepwater Horizon
DWSRF Drinking Water State
Revolving Fund
PP&E
PRASA
PRIA
PROMESA
PRP
RCRA
R&I
RTF
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
EPA U.S. Environmental Protection
Agency
EPCRA Emergency Planning and
Community Right-to-know
Act
EPM Environmental Programs and
Management
FAS Fixed Assets Subsystem
RTP
SARA
SDWA
SFFAS
SOP
Research Triangle Park
Superfund Amendments and
Reauthorization Act
Safe Drinking Water Act
Statement of Federal Financial
Accounting Standards
Standard Operating Procedures
FASAB Federal Accounting Standards
Advisory Board
FBWT Fund Balance with Treasury
FECA Federal Employees
Compensation Act
FERS Federal Employees
Retirement System
FFMIA Federal Financial
Management Improvement
Act of 1996
SRF
SSC
S&T
STAG
TED
TSCA
USSGL
State Revolving Fund
Superfund State Contracts
Science & Technology
State and Tribal Assistance Grants
Talent Enterprise Diagnostic
Toxic Substance Control Act
U.S. Standard General Ledger
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FIFRA
FMFIA
FR
FRPP
FY
GAAP
GAO
GMO
G-PP&E
GSA
GTAS
HVAC
IA
IBC
IPERA
IPIA
IPP
Working Capital Fund
Water Infrastructure Finance and
Innovation Act
Financial Report
Federal Real Property Profile
Fiscal Year
Generally Accepted
Accounting Principles
Government Accountability
Office
Grants Management Office
General - Plant, Property and
Equipment
U.S. General Services
Administration
Governmentwide Treasury
Accounting Symbol Adjusted
Trial Balance System
Heating, Ventilation, and Air
Conditioning
Interagency Agreement
Interior Business Center
Federal Insecticide, Fungicide WCF
and Rodenticide Act
WIFIA
Financial Integrity Act of
1982
Improper Payments
Elimination Act
Improper Payments
Information Act
Invoice Processing Platform
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WE WELCOME YOUR COMMENTS!
Thank you for your interest in the U.S. Environmental Protection Agency's Fiscal Year 2019 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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