Agency F
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ABOUT THIS REPORT
The U.S. Environmental Protection Agency (EPA)
is pleased to present the Fiscal Year 2021 Agency
Financial Report (AFR). This report provides an
overview of the financial and performance
results for the fiscal year (FY) spanning
October 1, 2020 through September 30, 2021.
The information, data, and analyses presented in
this AFR provides assistance to the President,
Congress, and the American people in evaluating
the agency's yearly activities and
accomplishments towards its mission of
protecting human health and the environment.
The FY 2021 AFR encompasses the EPA's FY
2021 Financial Statements Audit Report and the
Agency's FY 2021 Federal Managers' Financial
Integrity Act Report, including the
Administrator's statement assuring the
soundness of the agency's internal controls.
The AFR reports information in accordance with
the Chief Financial Officers (CFO) Act and Office
of Management and Budget (OMB)
Circular A-136, Financial Reporting
Requirements, and fulfills the requirements set
forth in OMB Circular A-11, Preparation,
Submission and Execution of the Budget, and the
Government Performance and Results Act
Modernization Act of 2010 (GPRAMA).
The AFR is one of two annual reports on the
EPA's programmatic and financial activities. The
financial information within the AFR will be
supplemented by the EPA's Annual Performance
Report (APR), which will present the agency's FY
2021 performance results as measured against
the targets established in its FY 2021
Performance Plan and Budget and the goals
established in its FY 2018-2022 Strategic Plan.
The EPA's FY 2021 APR will be included with the
agency's FY 2023 Congressional Budget
Justification submission and will be posted on the
agency's website.
Collectively, the AFR and APR present a
complete summary of the agency's activities,
accomplishments, progress, and financial
information for each fiscal year. Both prior year
reports are available at:
http://www.epa.gov/planandbudget/results.
How the Report Is Organized
The EPA's FY 2021 AFR is organized into
three sections to provide clear insight into
the agency's financial results.
Section I—Management's Discussion and
Analysis
This section contains an overview on the EPA's
mission and organizational structure; a summary
of performance results; an analysis of the
financial statements and stewardship data;
information on systems, legal compliance, and
controls; and other management initiatives.
Section II—Financial Section
This section includes the agency's
independently audited financial statements,
which comply with the CFO Act, the related
Independent Auditors' Report and other
information on the agency's financial
management
Section III—Other Accompanying Information
This section contains additional material as
specified under OMB Circular A-136, Financial
Reporting Requirements¦, and the Reports
Consolidation Act of 2000. The subsection titled
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"Management Integrity and Challenges" describes
the EPA's progress toward strengthening
management practices to achieve program results
and presents OIG's list of top management
challenges and the agency's response.
Appendices
The appendices include links to relevant
information on the agency website and a
glossary of acronyms and abbreviations.
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Table of Contents
ABOUT THIS REPORT 1
Message from the Administrator 5
SECTION I - Management's Discussion and Analysis
ABOUT EPA 8
History and Purpose 8
Mission 8
Organization 9
Regional Map 10
Collaborating with Partners and Stakeholders 10
FY 2021 PROGRAM PERFORMANCE 11
FINANCIAL ANALYSIS AND STEWARDSHIP INFORMATION 12
Sound Financial Management: Good for the Environment, Good for the Nation 12
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 22
Federal Financial Management Improvement Act (FFMIA) 23
Fiscal Year 2021 Annual Assurance Statement 24
SECTION II - Financial Section
Message from the Chief Financial Officer 26
EPA'S FISCAL YEARS 2021 AND 2020 CONSOLIDATED FINANCIAL STATEMENTS
(WITH RESTATEMENT) 28
AUDIT OF EPA'S FISCAL YEARS 2021 AND 2020 CONSOLIDATED FINANCIAL
STATEMENTS 84
SECTION III - Other Accompanying Information
MANAGEMENT INTEGRITY AND CHALLENGES 125
Overview of EPA's Efforts 125
2021 KEY MANAGEMENT CHALLENGES 126
Office of Inspector General-Identified Key Management Challenges 126
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FY 2021 EPA KEY MANAGEMENT CHALLENGES (OIG Report) 127
Agency Response to Office of Inspector General-Identified Key Management Challenges
183
PROGRESS IN ADDRESSING FY 2021 WEAKNESSES 184
Material Weakness 184
Summary of Financial Statement Audit 185
Summary of Management Assurances 185
PAYMENT INTEGRITY 186
Payment Reporting 186
Risk Assessment 188
Improper Payments and Recoveries 189
Agency Improvement of Payment Accuracy with the Do Not Pay Initiative 194
CIVIL MONETARY PENALTY ADJUSTMENT FOR INFLATION 195
BIENNIAL REVIEW OF USER FEES 199
GRANTS PROGRAM 200
SECTION IV - Appendices
APPENDIX A PUBLIC ACCESS 202
APPENDIX B ACRONYMS AND ABBREVIATIONS 204
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Message from the Administrator
November 15, 2021
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
It is my privilege to present the U.S. Environmental Protection
Agency's Fiscal Year 2021 Agency Financial Report. This report
outlines how the EPA utilized its financial resources to advance the
Administration's environmental priorities, ensure accountability and
demonstrate our financial integrity. 2021 marks the 22nd consecutive
year 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
EPA's career staff.
The EPA gained new authority with the enactment of the American Innovation and
Manufacturing Act of 2020 on December 27, 2020, to address climate change by phasing down
production and consumption of hydrofluorocarbons in the United States by 85 percent during
the next 15 years. The new authority enables the agency to address hydrofluorocarbons in
three ways: phasing down production and consumption; maximizing reclamation and
minimizing releases from equipment; and facilitating the transition to next-generation
technologies through sector-based restrictions. The EPA issued in September 2021 a final rule
establishing a comprehensive program to cap and phase down the production and
consumption of hydrofluorocarbons in the United States.
Harmful perfluoroalkyl and polyfluoroalkyl substances are an urgent public health and
environmental issue facing communities across the United States. As one of my earliest actions
as EPA Administrator, I established the EPA Council on PFAS and charged it with developing an
ambitious plan of action. We have accelerated progress since January 2021, demonstrating the
EPA's leadership role at the national level to address this emerging environmental concern. I
announced in October a comprehensive national strategy to confront PFAS pollution that will
increase the EPA's investments in research, further restrict PFAS chemicals from being
released into the environment and accelerate the cleanup of PFAS contamination.
With the President's signing the American Rescue Plan Act of 2021 into law March 11, 2021,
the EPA received $100 million to address health outcome disparities from pollution and the
COVID-19 pandemic. The agency announced in June 2021 that it will provide $50 million of this
funding for environmental justice initiatives, including programs that improve air quality,
drinking water, revitalization of brownfields and diesel emissions from buses in low-income
communities and communities of color. A month later, the EPA announced that it will provide
$50 million in ARP funding to improve ambient-air-quality monitoring for communities across
the United States and outlined the major components of its plan to enhance monitoring that
would build on measures to improve air quality and reduce emissions. The EPA is drawing on
its many years of experience working with communities and organizations to ensure these
funds will deliver real-world results for those who need it most
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We are helping communities comply with visibility obligations by improving the efficiency and
effectiveness of the Clean Air Act's state-implementation-plan process and working to reduce
the SIP backlog. The EPA acted in FY 2021 on more than 370 SIPs, 180 of which were
backlogged. Not only is this good for the health and well-being of American citizens, but it also
supports economic growth. To help highlight the importance of this work, the implementation
of SIPs from 1970-2019 contributed to the combined emissions of six key pollutants dropping
by 77 percent.
The EPA is committed to partnering with states, tribes and territories to invest in
infrastructure projects and protect surface waters in communities across the United States,
ensuring that all Americans, especially those living in underserved communities, have access to
safe and clean water and opportunities for economic growth. On March 22, 2021 - World
Water Day - the agency announced the availability of $2.7 billion for state revolving funds to
assist states, tribes and territories with infrastructure projects that help provide safe drinking
water and protect surface waters in communities across the United States. The EPA made
available more than $1.1 billion in new federal grant funding for the Drinking Water SRF to
help drinking-water systems remove lead service lines, strengthen cybersecurity, improve
system resiliency to climate-driven disasters such as floods, and install treatment for emerging
contaminants, like PFAS. In addition, the EPA also provided approximately $1.6 billion in new
federal grant funding for the Clean Water SRF for a wide range of water infrastructure projects,
including modernizing aging wastewater infrastructure, implementing water reuse, and
recycling and addressing stormwater.
Furthermore, the Water Infrastructure Finance and Innovation Act program has become one of
the most effective tools used to upgrade our nation's drinking water and wastewater
infrastructure by providing low-interest loans with flexible repayment options for qualified
borrowers. With a small expenditure of federal funds, the WIFIA program creates powerful
leverage, resulting in significant funding for water-infrastructure projects that protect public
health and deliver environmental benefits while supporting local economies and creating jobs.
As of September 2021, the WIFIA program has closed 59 loans totaling $11.5 billion in credit
assistance to help finance more than $24 billion for water infrastructure projects and create
69,000 jobs.
I take pride in providing this report knowing that the EPA's financial and performance data is a
reliable, complete and accurate reflection of our efforts to continue improving the agency's
financial management, performance, transparency 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, including our management challenges as identified by the Office
of Inspector General. We will use the OIG's findings and recommendations as a guide to strive
for continuous improvement. More results for FY 2021 will be highlighted in the upcoming FY
2022 Annual Performance Plan and Budget.
It is my honor to work with 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.
Respectfully,
Michael S. Regan
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Section I
Management's
D iscussion and Analysis
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ABOUT EPA
History and Purpose
Since its establishment in 1970, the EPA has worked for over five decades to identify, evaluate, and
execute sustainable solutions to existing and emerging environmental and public health concerns. The
negative impact and hazards of environmental pollution warrant continued EPA involvement The
American people deserve a clean, healthy, and safe environment where they live, work, and play.
The EPA incorporates environmental research, monitoring, standard-setting, and enforcement
functions under the guidance of a single, independent agency. As a result, the agency ensures
environmental protection remains an integral part of all U.S. policies, whether related to economic
growth, climate change, environmental justice, natural resource use, energy, transportation,
agriculture, or human health.
The EPA has made and continues to make great strides in providing a cleaner, safer, and healthier
environment for all Americans and future generations. Focused cleanup efforts have helped remedy
the practices of the past, and the EPA continuously works to monitor andregulate pollutants, evaluate
new chemicals, and inspire better decision- making to safeguard our environmental future.
The EPA is committed to collaboration. Identifying and addressing the complex environmental issues
affecting the nation and the world requires consistent, efficient cooperation and communication
among a diverse group of partnerships, ranging from state, tribal, and local governments to foreign
governments and international organizations throughout the world.
Mission
The mission of the EPA is to protect human health and the
environment
To accomplish this mission, the EPA works to ensure that
Americans have clean air, land, and water for present and future
generations. This includes the EPA's commitment to take brave
steps and align its actions to respond to the climate crisis and
continue engaging the global community. Also, the EPA will take
critical actions to advance environmental justice and enforce civil
rights laws that impact underserved and overburdened
communities. The EPA relies on accurate scientific information to
identify human health and environmental matters that affect
policy decisions and enforcement actions. The EPA works to
ensure all communities, individuals, businesses, and state, local
and tribal governments have access to accurate sufficient
information to effectively participate in delivering a cleaner, safer,
and healthier environment. The EPA is committed to effectively
and efficiently serving the American people and conducting
business with transparency in a manner worthy of the public's
trust and confidence.
What EPA Does
¦S Enforce environmental laws
¦S Responds to the release of
hazardo us substances
¦S Gives grants to states, local
communities, and tribes
¦S Studies environmental issues
¦S Sponsors partnerships
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Organization
The EPA's headquarters is located in Washington, D.C. Together, the EPA's headquarters offices, 10
regional offices, and more than a dozen laboratories and field offices across the country employ a
diverse, highly educated, and technically trained workforce of roughly 14,000 people.
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Regional Map
EPA Offices and Facilites
EPA National Headquarters ^ EPA Regional Headquarters • EPA Regional and Program Laboratories and Facilities
Collaborating with Partners and Stakeholders
The EPA's partnerships with states, tribes, local governments, and the global community are central
to the success of protecting human health and the environment. For five decades, this collaboration
has strengthened federal environmental protection laws that are implemented within state, tribal,
and local jurisdictions. The EPA recognizes that improvements to protecting human health and the
environment can be achieved when the states, tribes, and the EPA, in conjunction with affected
communities, work together in a spirit of trust, collaboration, and partnership. This foundation
involves active platforms for public participation, including building the capacity for the most
vulnerable community stakeholders to provide input and has improved the EPA's ability to fulfill its
mission locally and internationally.
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FY 2021 PROGRAM PERFORMANCE
Detailed FY 2021 performance results will be presented in the EPA's FY2021 Annual Performance
Report (APR). The EPA will include its FY2021 APR with its FY2023 Annual Performance Plan and
Budget. These reports, along with FY 2021 performance results will be posted at
http://www.epa.gov/planandbudget concurrent with the publication of the FY2023 President's
Budget.
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FINANCIAL ANALYSIS AND STEWARDSHIP
INFORMATION
Sound Financial Management: Good for the Environment, Good for the Nation
The financial management overview below highlights some of the EPA's most significant financial
achievements carried out during the agency's efforts to execute its mission to protect human health
and the environment during FY 2021:
• Agency Financial Statements. For the 22nd consecutive year, EPA's OIG issued a "clean",
unmodified, audit opinion for 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.
• Water Infrastructure Finance and Innovation Act (WIFIA). In FY 2021, EPA invited borrowers
to apply for WIFIA loans totaling approximately $6.5 billion in water infrastructure funding to help
finance over $13 billion in water infrastructure investments, while creating more than 40,000 jobs.
The selected projects will go towards investing in water infrastructure, reducing lead and
emergent contaminants in drinking water and supporting water reuse or recycling. To date, EPA's
49 WIFIA loans are providing over $9.3 billion in credit assistance to help finance nearly $20
billion for water infrastructure, while creating approximately 49,000 jobs and saving ratepayers
over $4 billion.
• Superfund Billing. Another notable effort the Office of the Chief Financial Officer (OCFO) leads is
the improvement of the agency's Superfund Cost Recovery Program. In FY 2019, a group of subject
matter experts came together to design a new and more efficient billing methodology.
Implemented in FY 2020, the success of the new billing process allowed the agency to send
additional cost recovery bills totaling over $20 million dollars to the primary responsible parties.
In FY 2021 Superfund Billing project continued to produce efficiencies - to include reducing
Superfund Billing lead time from 120 days to 100 days for 94% of agency Superfund Bills leaving
the agency within 100 days (previously the requirement was 120 days and this historically, was
exceeded). Additionally, the use ofPay.gov for electronic bill collection has increased almost 300%
from FY 2020, further simplifying and automating the process. For phase 2 of this project, the
Research Triangle Park Finance Center (RTP-FC) transitioned the Superfund Redistribution
Program from the RTP-FC to the regions and headquarters. All regions have been trained, and
workload responsibilities have fully transitioned. This transition shifted Superfund accountability
for cost recovery documentation to responsible program offices.
• Working Capital Fund Financial Statements. The EPA's Working Capital Fund (WCF) 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 2021, the WCF began
its 25th year of operation. The WCF is not mandated to be audited by a third-party; however, the
EPA's WCF has contracted with an external Certified Public Accounting firm to conduct an annual
audit. For the 18th 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.
• OCFO Technical Training Conference. In June 2021, the OCFO held its annual Technical Training
Conference for EPA employees virtually. This year's conference surpassed previous conferences in
attendance, with over 600 employees registered. The OCFO offered a range of 40+ professional
development and Continuing Learning Credit courses. These courses offered agency employees the
opportunity to learn various financial tools and processes, which expanded their financial skills.
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Upon course completion, conference participants were encouraged to complete online course
surveys. This feedback will serve as a critical factor in determining future conference course
offerings. In addition, each course was recorded, offering substantial training materials for agency
reference.
Invoicing Processing Platform. The EPA continues to make great strides in providing a more
shared services approach to our financial tools and processes. In October 2019, the agency
launched the Invoice Processing Platform (IPP) as an electronic invoicing system for all invoices
that are currently processed through the agency's Contract Payment System. The IPP is a web-
based system used to efficiently manage government invoicing from contract award through
payment notification. The IPAA provides a secure online platform that vendors use to submit
invoices, while centralizing all invoice transaction data and documents in one place. During FY
2021, the EPA increased IPP use significantly, paying over 20,000 vendor invoices (approximately
$860M) through IPP. This represents approximately 90% of all agency contract invoices. The EPA
continues to work with vendors to ensure their use of the IPP system and is planning to process
simplified acquisitions payments in IPP in late FY 2022.
EPA's Management Integrity Program. In FY 2021, the OCFO kicked-off the Management
Integrity Program with the issuance of the annual internal control process guidance. The guidance
provides instruction for assessing and reporting on internal controls and promotes maintaining
effective internal controls as part of good management It also helps promote an employees'
stewardship responsibility for ensuring internal controls are designed, implemented, and
operating effectively. As part of the Management Integrity Program, OCFO began conducting
accountability reviews in selected program and regional offices and spoke with front-line
supervisors about their internal control responsibilities. Online training on EPA's Management
Integrity Program was also made available for senior managers and staff.
EPA's Resource Management Directive System 2520, Funds Control Manual. The OCFO led an
official, agencywide update of our Resource Management Directive System (RMDS) 2520, Financial
Resource Operating Guide. Per the EPA RMDS 2520, the agency's Senior Resource Officials (SRO),
National Program Managers (NPM) and resource community are responsible for ensuring that
agency funds are spent in a legal, appropriate, and efficient manner. Therefore, in continuing to
support our SROs, NPMs and resource community, the OCFO provided the agency's financial
management community and stakeholders with the opportunity to review and provide comments
during the update via the agency's Directives Clearance Review process.
In preparation for the review, the OCFO managed to successfully condense the document into a
more efficient and streamlined version. The revised version satisfied the OMB's requirement to
include items mandated in OMB Circular A-11, Attachment H. In addition, all other explanations
and directions were moved to another agency guidance document. Due to these and other changes,
the EPA will no longer require OMB clearance on the agency's Operating Guide. In addition to
becoming compliant with OMB's Circular A-11 requirements, the agencywide update was
successful in including OCFO's implementation of a new process to document risk assessments, as
requested by the Office of the Inspector General. The agencywide update was also successful in
capturing the agency's updated multiple appropriation policies needed to manage the American
Rescue Plan, as well as the new anticipated infrastructure funding. Lastly, the agencywide update
included changes to the Data Act sections; introduced the Coronavirus Aid, Relief, and Economic
Security Act; and provided updated guidance for the agency's Junior Resource Official positions.
The OCFO and our stakeholders are looking forward to using the more efficient and streamlined
updated RMDS 2520 in FY 2022.
American Rescue Plan. In FY 2021, the EPA received $100 million in American Rescue Plan
funding, with $50 million to accelerate environmental justice efforts towards addressing health
outcome disparities from pollution and the COVID-19 pandemic, and $50 million to improve
ambient air quality monitoring for communities across the United States. In July of 2021, EPA
announced that the major components of the plan to enhance ambient air monitoring in
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communities would be a grant competition for community monitoring, direct awards to air
agencies for continuous monitoring of PM2.5 Monitoring and Other Common Air Pollutants,
enhanced regional capacity for short-term community monitoring needs, and administrative
support to administer the funding.
• CARES Act. In FY 2021, the agency continued to use funds received under the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act), to support Environmental Program Management,
Science and Technology, Building and Facilities, and Superfund program efforts in response to the
COVID-19 pandemic. This includes cleaning and disinfecting EPA equipment and facilities, as well
as maintaining the operational continuity of EPA programs and related activities.
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Financial Condition and Results
Financial statements are formal financial records that document the EPA's activities at the transaction level,
where a "financial event" occurs. A financial event is any occurrence having financial consequences to the
federal government related to the receipt of appropriations or other financial resources; acquisition of
goods or services; payments or collections; recognition of guarantees, benefits to be provided, and other
potential liabilities; or other reportable financial activities.
The EPA prepares four consolidated statements (a
balance sheet, a statement of net cost, a statement of
changes in net position, and a statement of custodial
activity) and one combined statement, the
Statement of Budgetary Resources. Together, these
statements with their accompanying notes provide
the complete picture of the EPA's financial situation.
The complete statements with accompanying notes,
as well as the auditors' opinion, are available in
Section II of this report.
The balance sheet displays assets, liabilities, and net
position as of September 30, 2021, and September
30, 2020. The statement of net cost shows the EPA's
gross cost to operate, minus exchange revenue
earned from its activities. Together, these two
statements provide information about key
components of the EPA's financial condition—
assets, liabilities, net position, and net cost of
operations. The balance sheet trend chart depicts
the agency's financial activity levels since FY 2019.
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)
$25
$20
$15
$10
$5
$-
¦H
III III
Assets Liabilities Net Position Net Cost of
Operations
¦ 2019 122020 ¦ 2021
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EPA Resources and Spending
The figure below depicts the EPA's aggregate budgetary resources (congressional appropriations and
some agency collections), obligations (authorized commitment of funds), and total outlays (cash
payments) for each of the last five fiscal years. The Statement of Budgetary Resources in Section II
provides more information on the makeup of the agency's resources.
EPA Financial Trends
(dollars in billions)
$24
$22
$20
$18
$16
$14
$12
$10
$8
2017 2018
I Budgetary Resources •
2019 2020 2021
I—Obligations —sfe^Total Outlays
Assets—What EPA Owns and Manages
The EPA's assets totaled $20.03 billion at the end of FY 2021, an increase of $1.64 billion from the
FY 2020 level. In FY 2021, approximately 90 percent of the EPA's assets fall into two categories: fund
balance with Treasury and investments. All of the EPA's investments are backed by U.S. government
securities. The graph below compares the agency's FY 2021 and FY 2020 assets by major categories.
FY 2021 COMPOSITION OF ASSETS
Other
Assets
4%
Investments
31%
Fund Balance
with Treasury
59%
Accounts Receivable (Net) 3%
Property, Plant,
and
(Net)
3%
FY 2020 COMPOSITION OF ASSETS
Accounts Receivable (Net) 3%
Property, Plant,
and
Other
Assets
Investments
32%
Fund Balance
with T reasury
59%
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Liabilities—What EPA Owes
The EPA's liabilities were $5.70 billion at the end of FY 2021, an increase of $0.63 billion from the
FY 2020 level. In FY 2021, the EPA's largest liability (66 percent] was advances from others and
deferred revenue. Additional categories include accounts payable, federal employee benefits, and debt.
The graphs compare FY 2021 and FY 2020 liabilities by major categories.
Net Cost of Operations—How EPA Used Its Funds
FY 2021 COMPOSITION OF LIABILITIES
Accounts Payable
FY 2020 COMPOSITION OF LIABILITIES
Federal Employee
Benefits
Other
13%
Debt
13%
Other, 14%
Federal Employee
Benefits, 5% —.
Debt
\dvances from Others
and Deferred Revenue
66%
Accounts Payable,
4% '
Advances from Others
and Deferred Revenue,
73%
The graph that follows show how the EPA's funds are expended among five expenditure accounts in
FY 2021 and FY 2020.
FY 2021 NET COST BY PROGRAM FY 2020 NET COST BY PROGRAM
State and Tribal
Leaking
Underground
Storage Tanks
1%
Assistance Agreements
44%
Environmental
Programs &
Management
33%
Science &
Technology
9%
Leaking
Underground
Storage Tanks
1%
State and Tribal
Assistance Agreements
Environmental
Programs &
Management
32%
Science &
Technology
8%
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Stewardship Funds
The 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 2021, The EPA devoted a total of $3.8 billion to its stewardship activities.
FY 2021 STEWARDSHIP FY 2020 STEWARDSHIP
Per the Federal Accounting Standards Advisory Board (FASAB), stewardship investments consist of
expenditures made by the agency for the long-term benefit of the nation that do not result in the
federal government acquiring tangible assets.
The largest infrastructure programs are the Clean Water State Revolving Fund (CWSRF) and
Drinking Water State Revolving Fund (DWSRF) programs that provide grant funds to states for
water infrastructure projects, such as the construction of wastewater and drinking water
treatment facilities. States lend the majority of these funds to localities or utilities to fund the
construction and or upgrade of facilities (some may also be used for loan forgiveness or given
as grants). Loan repayments then revolve at the State level to fund future water infrastructure
projects. The EPA's budget included nearly $2.61 billion in FY 2021 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 the EPA to identify and assess important risks to
human health and the environment. This critical research investment provides the basis for the
EPA's regulatory work, including regulations to protect children's health and at-risk
communities, drinking water, and the nation's ecosystems.
Land includes contaminated sites to which the EPA acquires title under the Superfund
authority. This land needs remediation and cleanup because its quality is well below any usable
and manageable standards. To gain access to contaminated sites, the EPA may acquire
easements that are in good and usable condition. These easements may also serve to isolate the
site and restrict usage while the cleanup is taking place.
The agency's investment in human capital through training, public awareness, and research
fellowships are components of many of the agency's programs and are effective in achieving the
agency's mission of protecting public health and the environment.
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Financial Management for the Future
During times of environmental challenges, sound stewardship of the EPA's financial resources
continues to be critical to the agency's ability to protect the environment and human health. Reliable,
accurate, and timely financial information is essential to ensure cost-effective decisions for addressing
land, water, air, and ecosystem issues. To strengthen the EPA's financial stewardship capabilities, the
agency focuses on the fundamental elements of financial management: people and systems.
People: The EPA leverages every available tool to recruit the best people with the necessary skills to
meet tomorrow's financial challenges. Staff members are trained in financial analysis and forecasting
to understand financial data and what it means.
Systems: The EPA is integrating financial information into everyday decision-making so that it
maximizes the use of its resources. The EPA's core financial system, Compass, is based on a
commercial-off-the-shelf software solution. Compass has improved the EPA's financial stewardship by
strengthening accountability, data integrity, and internal controls, on the following business areas:
• General ledger
• Accounts payable
• Accounts receivable
• Property
• Project cost
• Intra-governmental transactions
• Budget execution
Compass provides core budget execution and accounting functions and facilitates more efficient
transaction processing. The system posts updates to ledgers and tables as transactions are processed
and generates source data for the preparation of financial statements and budgetary reports.
The Office of Management and Budget has outlined several planned solutions to assist agencies with
modernizing and maximizing information technology while retiring aging administrative systems. The
implementation of OMB's solutions will allow EPA to continue efforts already begun to streamline and
enhance the delivery of financial management information and services. Currently, as part of the
Compass Consolidated Upgrade (C2U) project, EPA is implementing a version upgrade with the Unique
Entity Identifier (UEI) incorporated, along with implementing G-Invoicing (for government
interagency agreements) and the Invoice Processing Platform (IPP) (for government contracts). The
latter two initiatives will be guided by the Department of the Treasury. This upgrade effort will require
significant investment in updating and preparing existing systems for new interfaces, as well as
changing business processes and migrating data.
Limitations of the Principal Financial Statements
The EPA prepared the principal financial statements to report the financial position and results of its
operations of the reporting entity, pursuant to the requirements of 31 U.S.C. 3515 (b). The EPA has
prepared the statements from the books and records of the entity in accordance with federal generally
accepted accounting principles and the formats prescribed by OMB. Reports used to monitor and
control budgetary resources are prepared from the same books and records. The financial statements
should be read with the realization that they are for a component of the U.S. government.
19
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IMPROVING MANAGEMENT AND RESULTS
Office of Inspector General Audits, Evaluations, and Investigations
The OIG contributes to the EPA's mission to protect human health and the environment by assessing
the efficiency and effectiveness of the agency's program management and results. The OIG ensures that
agency resources are used as intended, develops recommendations for improvements and cost
savings, and provides oversight and advisory assistance in helping the EPA carry out its objectives. The
OIG detects and prevents fraud, waste, and abuse to help the agency protect human health and the
environment more efficiently and cost effectively. The OIG performs its mission through independent
oversight of the programs and operations of the EPA. The OIG also contributes to the oversight
integrity of and public confidence in the agency's programs and to the security of its resources by
preventing and detecting possible fraud, waste, and abuse and pursuing judicial and administrative
remedies.
In FY 2021, the OIG identified key management challenges and internal control weaknesses. OIG
audits, evaluations, and investigations resulted in:
• 227 recommendations accounting for over $149,632,858 in potential savings and recoveries.
• 122 actions taken by the agency for improvement from OIG recommendations; and
• 134 criminal, civil, or administrative enforcement actions.
Grants Management
The EPA has two major grants management metrics, one for grant competition, the other for grants
closeout. During FY 2021, the agency met the 99 percent target for grants closed out and exceeded the
grants competition metric by 4 percent. The agency missed the 90 percent target for grants that
expired in FY 2021 by one percentage point (89 percent).
Grants Management Performance Measures for EPA
Performance Measure
Target
Progress in FY 2021
Progress in FY 2020
Percentage of grants
closed out
90%*
89% of grants that expired in
2021
90% of grants that expired
in 2020
99%**
99.3% of grants that expired
in 2020 and earlier
99.5% of grants that
expired in 2019 and earlier
Percentage of new grants
subject to the
competition policy
that are competed***
90%
94%
95%
* Percentage of open grants that expired in 2021 that were closed in performance year.
** Percentage of open grants that expired in 2 02 0 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 annual evaluations of their internal controls over programs
operations and financial activities and report the results to the President and Congress. In addition,
agencies are required to assess and report whether financial management systems comply with
federal standards.
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 statement
of assurance on the overall effectiveness of the EPA's internal controls over operations and financial
management systems.
FY 2021, the EPA did not identify any new material weaknesses related to effectiveness and efficiency
of operations. However, the Agency continues to address one existing material weakness related to the
financial statement preparation process. The Agency has established a plan of action to evaluate and
improve its financial statement preparation process and to provide accurate and reliable supporting
documentation for adjustments and corrections. The Agency expects to complete all correctives for
this weakness in FY 2022. Section III of this report provides details about the EPA's corrective actions
underway. The EPA remains committed to eliminating its weaknesses and continues to emphasize the
importance of maintaining effective internal controls 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, EPA did not identify any new material weaknesses. Subsequent to the Agency's review,
EPA's OIG identified no new material weaknesses during the FY 2021 financial statement audit
Internal Controls Over Financial Management Systems
The Federal Financial Management Improve Act requires agencies to ensure that financial
management systems consistently provide reliable data that comply with government-wide principles,
standards, and requirements. Based on the Agency's evaluation of its financial management systems,
no material weaknesses were identified. The assessment included a review of the Agency's core
financial system, Compass Financials, as well as those considered as financially related or mixed
systems that support or interface with the core financial system. 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 2021 evaluations, the Administrator can provide
reasonable assurance on the adequacy and effectiveness of EPA's internal controls over financial
management systems.
21
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The Digital Accountability and Transparency Act (DATA)
The DATA Act of 2014 was designed to increase the standardization and transparency of federal
spending. It requires agencies to report data, consistent with data standards established by 0MB and
the Department of the Treasury, for publication on USASpending.gov.
In FY 2017, the EPA certified compliance with 0MB guidance and provided reasonable assurance that
internal controls support the reliability and validity of account-level and award-level data reported on
USASpending.gov. This level of assurance in the internal controls was enabled through three elements
of the EPA DATA Act submission process: 1) establishment of the DATA Act Evaluation and Approval
Repository Tool (DEAR); 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 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 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 Senior Accountable Official 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 considered the issues in the
larger context of the DATA Act submission.
In FY 2 021, 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. Moving into FY2022, the agency aims to continue to focus on improving data quality and
streamlining the review processes to ensure that it continues to maintain exemplary transparency to
the public on spending.
22
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Federal Financial Management Improvement Act (FFMIA)
FFMIA requires that agencies implement and maintain financial management systems that comply
with the following:
federal financial management system requirements,
applicable federal accounting standards, and
U.S. Standard General Ledger (USSGL) at the transaction level.
The agency evaluated its financial management systems and has determined they comply with FFMIA
requirements. Additionally, FFMIA requires independent auditors to report on agency compliance with
the three requirements as part of financial statement audit reports.
Federal Information Security Modernization Act (FISMA)
FISMA directs federal agencies to annually evaluate the effectiveness of their information security
programs and practices and submit a report—including an independent evaluation by the OIG—to the
Department of Homeland Security (DHS), OMB, and Congress. Agencies also report quarterly and
monthly to DHS and OMB on the status of particular aspects of the information security program.
On October 29, 2021 the EPA submitted its annual Federal Information Security Modernization Act
(FISMA) in accordance with the Office of Management and Budget's Memorandum M-21-02: Fiscal
Year 2020-2021 Guidance on Federal Information Security and Privacy Management Requirements.
Cybersecurity remains a top priority for the EPA, and our Information Technology Leadership is
dedicated to continuously strengthening the security posture of EPA's Cybersecurity and Privacy
Program to ensure we are proactive in responding to threats and implement proper safeguards to
protect our information and systems.
The EPA made significant progress towards accomplishing its Cybersecurity and Privacy program
goals and in achieving or exceeding the Cybersecurity Cross Agency Priority goals, most notably in our
ability to manage hardware and software, improvements in our anti-virus coverage and threat
protection for mobile devices. In FY 2022, the agency will continue to mature the hardware and
software management functions. Additional work is also needed with regards to privileged account
management In FY 2021, EPA's Computer Security Incident Response Capability (CSIRC) reported
112 incidents to the Department of Homeland Security (DHS) US-CERT, none of which were
categorized as a major incident.
23
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Fiscal Year 2021 Annual Assurance Statement
The U.S. Environmental Protection Agency's management is responsible for managing risk and
maintaining effective internal control to meet the objectives of the Federal Managers' Financial
Integrity Act.
In accordance with Section 2 of the FMFIA and the Office of Management and Budget's Circular A-12 3,
"Management's Responsibility for Enterprise Risk Management and Internal Control," the EPA
assessed the effectiveness of its internal control to support the effectiveness and efficiency of
operations, reliable financial reporting, and compliance with applicable laws and regulations. Section 4
of the FMFIA and the Federal Financial Management Improvement Act of 1996 requires management
to ensure financial management systems provide reliable, consistent disclosure of financial data. In
accordance with Appendix D of the OMB's Circular A-12 3, the agency evaluated whether financial
management systems substantially comply with the FFMIA requirements.
The EPA did not identify any new material weaknesses during FY 2021. The agency continued to make
progress in addressing one previously identified weakness related to the financial statement
preparation process and expects to implement and validate all corrective actions in Fiscal Year 2022.
More information on the previously identified material weakness is provided in Section III, "Other
Accompanying Information," of the Agency Financial Report
Although no new material weaknesses were identified, the EPA will continue to monitor its
programmatic, financial, and administrative controls to ensure compliance with laws and regulations.
Based on the results of the agency's assessments and recent program improvements, I can provide
reasonable assurance that the agency's internal control over operations are effective and the EPA's
financial management systems conform to governmentwide standards as of September 30, 2021. The
agency's internal controls over financial reporting are operating effectively as well.
November 15, 2021
Michael S. Regan
Administrator
Date
24
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Section II
-------
Message from the Chief Financial Officer
•M
¦ -sr9 ^
On behalf of the Office of the Chief Financial Officer, I am pleased to
presentthe U.S. Environmental Protection Agency's Fiscal Year 2021
Agency Financial Report. Like most of FY 2020, this past fiscal year was
unique and unprecedented, as the EPA successfully continued operations
during the COVID-19 pandemic, adapting and innovating as necessary.
This report summarizes the agency's financial results and presents the
EPA's Assurance Statement and Financial Statement Audit Report In
addition, this report outlines FY 2021 accomplishments, including
innovations and improvements undertaken to ensure the agency has
effectively used the resources entrusted to the EPA by the American
people to finance and fulfill our mission to protect human health and the
environment.
This past fiscal year, the EPA achieved, for the 22nd consecutive year, an unmodified "clean" audit
opinion on its FY 2021 financial statements from the Office of Inspector General. We are extremely
proud to be one of a small number of federal agencies to have achieved this milestone and attribute the
achievement to the agency's dedicated staff's consistent attention to the financial integrity of the EPA
year after year. FY 2021 also marked the 2 5 th year of the agency's Working Capital Fund, which
provides various administrative services to the EPA and other federal agencies on a fee-for-service
basis. Although the WCF is not required to be audited by a third party, the agency uses an external
certified public accounting firm to audit the financial management of these funds. For the 18th
consecutive year, the EPA's WCF received a "clean" opinion indicating the WCF financial statements
were presented fairly, in all material respects, in accordance with United States Generally Accepted
Accounting Principles.
The agency received Coronavirus Aid, Relief, and Economic Security Act funding in March 2020 and
American Rescue Plan Act funding a year later. The EPA continues to oversee and manage these funds
to ensure they address pandemic challenges and critical program achievements important to our
country. The OCFO has worked with EPA offices to support awarding supplemental funding to
programs like the agency's State Environmental Justice Cooperative Agreement program that awarded
its first set of competitive grants that focused to address the unequal COVID-19 pandemic impacts on
low-income communities, communities of color, and other vulnerable populations. These projects fund
training, citizen-science tools development, pollution monitoring, and educational campaigns to enable
EJ community leadership, scientists, and decisionmakers to address pollution impacts and foster
environmentally healthy and thriving communities.
The EPA's Brownfields Revolving Loan Fund grants also make it possible for communities to provide
loans and sub-grants for cleanup activities atbrownfield sites. The RLF has been instrumental in
helping revitalize underutilized areas across the country, whether it be by creating job centers,
community centers, or housing options, and have improved economic, social, and health well-being in
our communities. When loan recipients and grantees repay their loans, the amount is re-lent to other
borrowers, providing an ongoing source of capital within communities. To date, the agency's RLF
grantees across the country have completed 794 cleanups and generated approximately 48,000 jobs.
Since 1995, the EPA's Brownfields Program has provided nearly $1.6 billion in Brownfield Grants to
assess and clean up contaminated properties and return blighted properties to productive reuse, and
leveraged more than 176,800 jobs from both public and private sources. In FY 2021, the OCFO's staff
conducted a pilot program to review with the Office of Land and Emergency Management's staff for
internal control and compliance with the Federal Managers' Financial Integrity Act, and the results of
the pilot review indicated controls are sufficient and operating as intended to ensure compliance with
policies and procedures.
26
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FY 2021 saw efficiency improvements across a variety of agency operations. A key example has been
the use of the Invoice Processing Platform, the Department of the Treasury's a web-based system that
provides a secure online platform for vendors to submit invoices to the EPA and centralizes all invoice
transaction data and documents in one place. During FY 2021, the agency saw a significant increase in
the use of the IPP. As of the end of FY 2021, over 20,000 vendor invoices, totaling $860 million and
representing 90 percent of all contract invoices, were processed using the IPP, from a starting point of
only 30 percent The OCFO also oversaw agencywide continuous improvement efforts using Lean
methodologies, which improved 409 processes by an average of 65 percent, and implemented 3,864
employee ideas, more than doubling the number reported in FY 2020.
The OCFO remains committed to ensuring progress towards achieving the goals and objectives of the
agency's Strategic Plan and led the EPA's effort to prepare the draft FY 2022-2026 Strategic Plan,
which was recently issued for public review and comment and tribal consultation and will be issued in
February 2022. The updated plan will articulate the desired goals and objectives of President Biden's
Administration and includes the EPA's first-ever EJ and climate change goals.
This is an extraordinary time to be a part of the OCFO and its dedicated and highly esteemed team
committed to providing quality products, tools, and services to our many internal and external
stakeholders. My office continues supporting the EPA's mission of protecting human health and the
environment, remaining steadfast in our efforts to strengthen and maintain the highest financial
management and operational standards.
Sincerely,
Faisal Amin
Chief Financial Officer
November 15, 2021
27
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EPA'S FISCAL YEARS 2021 AND 2020
CONSOLIDATED FINANCIAL STATEMENTS
(WITH RESTATEMENT)
28
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Table of Contents
Principal Financial Statements 30
Notes to Financial Statements 37
Note 1. Summary of Significant Accounting Policies 37 - 40
Note 2. Fund Balance with Treasury (FBWT) 40-41
Note 3. Cash and Other Monetary Assets 45
Note 4. Investments, Net 45
Note 5. Accounts Receivable, Net (Restated) 46
Note 6. Other Assets 46
Note 7. Loans Receivable, Net 46-48
Note 8. Accounts Payable (Restated) 49
Note 9. General Property, Plant and Equipment, Net 49 - 51
Note 10. Debt 51
Note 11. Stewardship Property, Plant and Equipment 52
Note 12. Liability to the General Fund for Custodial Assets 52
Note 13. Other Liabilities 53 - 54
Note 14. Leases 54 - 55
Note 15. Other Deferred Revenue 55
Note 16. Commitments and Contingencies 55 - 57
Note 17. Funds from Dedicated Collections (Unaudited) (Restated) 57 - 60
Note 18. Environmental and Disposal Liabilities 61
Note 19. State Credits 61 - 62
Note 20. Preauthorized Mixed Funding Agreements 62
Note 21. Custodial Revenues and Accounts Receivable 62
Note 22. Reconciliation of President's Budget to the Statement of Budgetary Resources 62
Note 23. Recoveries and Resources Not Available, Statement of Budgetary Resources 63
Note 24. Unobligated Balances Available 63
Note 25. Undelivered Orders at the End of the Period 64
Note 26. Offsetting Receipts 64
Note 27. Transfers-In and Out, Statement of Changes in Net Position 64-65
Note 28. Imputed Financing (Restated) 65
Note 29. Federal Employee Benefits Payable 66
Note 30. Other Adjustments, Statement of Changes in Net Position 66
Note 31. Non-Exchange Revenue, Statement of Changes in Net Position 67
Note 32. Reconciliation of Net Cost of Operations to Net Outlays (Restated) 68-70
Note 33. Amounts Held by Treasury (Unaudited) 71 - 74
Note 34. COVID-19 Activity 74
Note 35. Reclassified Financial Statements for Government-wide Reporting 75 - 79
Note 36. Restatement 79
Required Supplementary Information (Unaudited) 80 - 83
Deferred Maintenance 80
Supplemental Statement of Budgetary Resources 83
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Principal Financial Statements
United States Environmental Protection Agency
Consolidated Balance Sheet
As of September 30,2021 and 2020 (Restated)
(Dollars in Thousands)
Restated
2021
2020
ASSETS
Intragovernmental:
Fund Balance With Treasury (Note 2)
$
11,778,430
$
10,823,112
Investments, Net (Note 4)
6,155,838
5,969,666
Accounts Receivable, Net (Restated) (Note 5 and 36)
7,602
28,001
Advances and Prepayments
245.934
198.268
Total Intragovernmental
18.187.804
17.019.047
With the Public:
Cash and Other Monetary Assets (Note 3)
10
10
Accounts Receivable, Net (Restated) (Note 5 and 36)
580,736
503,725
Loans Receivable, Net (Note 7)
586,138
196,470
General Property, Plant and Equipment, Net (Note 9)
670,637
659,668
Other Assets (Note 6)
7.726
8.209
Total With the Public:
1.845.247
1.368.082
Total Assets
$
20.033.051
$
18.387.129
Stewardship Property Plant and Equipment (Note 11)
LIABILITIES
Intragovernmental:
Accounts Payable (Restated) (Note 8 and 36)
$
151,102
$
127,139
Debt (Note 10)
746,839
221,652
Advances from Others and Deferred Revenue
154,235
102,699
Other Liabilities
Liability to the General Fund for Custodial Assets (Note 12)
51,241
72,018
Other (Note 13)
60.827
55.084
Total Intragovernmental
1.164.244
578.592
With the Public:
Accounts Payable (Note 8)
56,319
52,696
Federal Employee Benefits Payable (Note 29)
232,635
235,230
Environmental and Disposal Liabilities (Note 18)
25,723
38,383
Advances from Others and Deferred Revenue
125,526
141,368
Other Liabilities
Deferred Revenue (Note 15)
3,476,737
3,472,784
Other (Note 13)
618.667
550.719
Total With the Public:
4.535.607
4.491.180
Total Liabilities
$
5.699.851
$
5.069.772
Commitments and Contingencies (Note 16)
NET POSITION
Unexpended Appropriations - Funds from Dedicated Collections (Note 17)
$
187
$
(189)
Unexpended Appropriations - Funds from Other than Dedicated Collections
10.400.345
9.600.037
Total Unexpended Appropriations
10,400,532
9,599,848
Cumulative Results of Operations - Funds from Dedicated Collections
(Note 17)
3,551,640
3,307,079
Cumulative Results of Operations - Funds from Other than Dedicated Collections
381.028
410.430
Total Cumulative Results of Operations
3.932.668
3.717.509
Total Net Position
14.333.200
13.317.357
Total Liabilities and Net Position
$
20.033.051
$
18.387.129
The accompanying notes are an integral part of these financial statements.
30
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United States Environmental Protection Agency
Consolidated Statement of Net Cost
For the Fiscal Years Ending September 30, 2021 and 2020
(Dollars in Thousands)
(Restated)
2021 2020
COSTS
Gross Costs (Note 36)
$
9,138,699 $
9,422,484
Earned Revenue
555.481
514.164
NET COST OF OPERATIONS (Note 32 and 36)
$
8.583.218 S
8.908.320
The accompanying notes are an integral part of these financial statements.
31
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United States Environmental Protection Agency
Statement of Net Cost by Major Program
For the Fiscal Year Ending September 30, 2021
(Dollars in Thousands)
Costs:
Gross Costs
WCF Elimination
Total Costs
Environmental
Programs &
Leaking
Underground
Science &
State &
Tribal
Assistance
Management Storage Tanks Technology Superfund Agreements Other
Totals
$ 2,820,994 $
2,820,994
86,157 $ 765,510 $ 1,364,410 $ 3,710,627 $ 698,694 $ 9,446,392
^ - - - (307.6931 (307.6931
86,157 765,510 1,364,410 3,710,627 391,001 9,138,699
Less:
Earned Revenue
WCF Elimination
Total Earned Revenue
79,315
79,315
5,001
5,001
295,471
295,471
483,387 863,174
(307.6931 (307.6931
175,694 555,481
NET COST OF
OPERATIONS
2-741.679
86.157
760.509 SI. 068.939 S 3.710.627 S 215.307 S 8.583.218
Costs:
Gross Costs (Note 36)
WCF Elimination
Total Costs
United States Environmental Protection Agency
Statement of Net Cost by Major Program
For the Fiscal Year Ending September 30, 2020 (Restated)
(Dollars in Thousands)
Environmental Leaking
Programs & Underground
Science &
State &
Tribal
Assistance
Management Storage Tanks Technology Superfund Agreements
$ 2,793,833 $ 97,770 $ 721,616 $ 1,520,983 $ 3,999,283
Other
2.793.833
97.770
721.616 1.520.983 3.999.283
Totals
S 563,190
(274.1911
288.999
I 9,696,675
(274.1911
9.422.484
Less:
Earned Revenue
WCF Elimination
Total Earned Revenue
NET COST OF
OPERATIONS
26,615
26,615
2.767.218
97.770
6,978
6,978
362,342
362,342
714.638 S 1.158.641 S 3.999.283
392,420
(274.1911
118,229
788,355
(274.1911
514,164
170.770 S 8.908.320
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, 2021
(Dollars in Thousands)
Funds from
Dedicated
Collections
Funds from
Other than
Dedicated
Collections
Consolidated
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 31)
Nonexchange Revenue - Other (Note 31)
Transfers In/Out
$ 3,307,079 $ 410,430 $ 3,717,509
Unexpended Appropriations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Appropriations Received
Other Adjustments (Note 30)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
(376)
6,421
270,567
(72,312)
1.153.462
8,351,063
70,871
8,350,687
6,421
270,567
(1,441)
Total Budgetary Financing Sources
1,357,762
7,268,472
8,626,234
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 28)
26,006
146,137
172,143
Other Financing Sources
769
(769)
-
Total Other Financing Sources
26,775
145,368
172,143
Net Cost of Operations
$ (1,139,976)
$ (7,443,242)
$ (8,583,218)
Net Change
244.561
(29.402)
215.159
Cumulative Results of Operations
S 3.551.640
S 381.028
S 3.932.668
Funds from
Funds from
Other than
Dedicated
Dedicated
Consolidated
Collections
Collections
Total
(189) $ 9,600,037 $ 9,599,848
376
376
187
S 3.551.827
9,200,494
(49,123)
(8.351.063)
800,308
10,400,345
S 10.781.373
9,200,494
(49,123)
(8.350.687)
800,684
10,400,532
S 14.333.200
The accompanying notes are an integral part of these financial statements.
33
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United States Environmental Protection Agency
Consolidated Statement of Changes in Net Position (Restated)
For the Fiscal Year Ending September 30, 2020
(Dollars in Thousands)
Cumulative Results of Operations:
Net Position - Beginning of Period
Budgetary Financing Sources:
Other Adjustments
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 31)
Nonexchange Revenue - Other (Note 31)
Transfers In/Out
Transfers In/Out - Nonmonetary
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 28 and 36)
Other Financing Sources
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
Other Adjustments (Note 30)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
Funds from
Dedicated
Collections
Funds from
Other than
Dedicated
Collections
Consolidated
Total
$ 3,170,594
$ 497,399
$
3,667,993
(1,072)
.
(1,072)
(3)
8,458,703
8,458,700
90,116
-
90,116
239,795
-
239,795
(26,636)
47,609
20,973
544
(325)
219
1.076.535
(1.076.535)
-
1,379,279
7,429,452
8,808,731
24,250
124,855
149,105
415
(415)
-
24,665
124,440
149,105
$ (1,267,459)
$ (7,640,861)
$
(8,908,320)
136.485
(86.969)
49.516
S 3.307.079
S 410.430
$
3.717.509
Funds from
Funds from
Other than
Dedicated
Dedicated
Consolidated
Collections
Collections
Total
(1,264) $ 8,929,585 $ 8,928,321
1,072
3
1,075
(189)
9,148,119
(18,964)
(8.458.703)
670,452
9,148,119
(17,892)
(8.458.700)
671,527
9,600,037 9,599,848
S 3.306.890 S 10.010.467 S 13.317.357
The accompanying notes are an integral part of these financial statements.
34.
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United States Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Fiscal Years Ending September 30, 2021 and 2020
(Dollars in Thousands)
2021
2020
BUDGETARY RESOURCES
Unobligated Balance From Prior Year Budget
Authority, Net (discretionary and mandatory)
(Note 23)
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): (Note 24)
Total Status of Budgetary Resources
OUTLAYS, NET AND DISBURSEMENTS, NET
Outlays, Net (total) (discretionary and mandatory)
Distributed Offsetting Receipts (-) (Note 26)
Agency Outlays, Net (discretionary and mandatory)
Disbursements, Net (total) (mandatory)
Budgetary
Non-
Budgetary
Credit Reform
Financing
Account Budgetary
Non-
Budgetary
Credit Reform
Financing
Account
$ 5,951,313 $ 615,240 $ 5,808,190 $ 20,914
10,832,321
463,239
4,726,214
141,081
10,737,950
398,507
3,576,684
5,805
S 17.246.873 S 5.482.535 S 16.944.647 S 3.603.403
$ 11,874,288 $ 5,482,535 $ 11,304,380 $ 2,988,163
615,240
5,279,575
1,996
91.014
5,372,585
5,446,701
4,562
189.004
5,640,267
615,240
S 17.246.873 $ 5.482.535 S 16.944.647 S 3.603.403
$ 9,852,094
(1.481.411)
$ 8.370.683
$ 10,092,803
(1.369.396)
$ 8.723.407
$ 494.357
$ 221.381
The accompanying notes are an integral part of these financial statements.
35.
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United States Environmental Protection Agency
Statement of Custodial Activity
For the Fiscal Years Ending September 30, 2021 and 2020
(Dollars in Thousands)
2021
2020
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties
$
41,035
$
171,950
Other
22.085
(16.486)
Total Cash Collections
63,120
155,464
Accrual Adjustment
(20.623)
13.714
Total Custodial Revenue (Note 21)
$
42.497
$
169.178
Disposition of Collections:
Transferred to Others (General Fund)
$
21,273
$
155,055
Increases/Decreases in Amounts to be Transferred
21.224
14.123
Total Disposition of Collections
$
42.497
$
169.178
Net Custodial Revenue Activity
$
-
$
-
The accompanying notes are an integral part of these financial statements.
36.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(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 2021 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 (e-Manifest) to recover the full cost of providing the hazardous
waste electronic manifest fund system related services.
The EPA receives two-year appropriated funds to carry out the Frank R. Lautenberg Chemical Safety for the 21st
Century Act. Under the Act, the Agency is authorized to collect users fees (up to $25 million annually) from chemical
manufacturers and processors. Fees collected will defray costs for new chemical reviews and a range of Toxic
Substances Control Act Service Fee Fund (TSCA) implementation activities for existing chemicals.
The Water Infrastructure Finance and Innovation Act of 2014 (WIFIA) established a Federal credit program
administered by the EPA for eligible water and wastewater infrastructure projects. The program is financed from
appropriations to cover the estimated long-term cost of the loan. The long-term cost of the loans is defined as the net
present value of the estimated cash flows associated with the loans. A permanent indefinite appropriation is available
to finance the costs of re-estimated loans that occur in subsequent years after the loans are disbursed. The Agency
received two-year appropriations in fiscal years 2021 and 2020 to finance the administrative 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.
37.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Funds transferred from other federal agencies are processed as non-expenditure transfers. Clearing accounts and
receipt accounts receive no appropriated funds. Amounts are recorded to the clearing accounts pending further
disposition. Amounts recorded to the receipt accounts capture amounts collected for or payable to the Treasury
General Fund.
II. Revolving Funds
Funding of the Reregistration and Expedited Processing Fund (FIFRA) and Hazardous Waste Electronic Manifest
System Fund (e-Manifest) 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. The
Pesticide Registration Improvement Act Fund (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. The Toxic Substances Control Act Fund (TSCA) collects user fees to defray costs for new chemical reviews and
range of implementation activities for existing chemicals.
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 (GTAS).
V. Trust Funds
Congress enacts an annual appropriation for the Hazardous Substance Superfund, Leaking Underground Storage Tank
(LUST) and the Inland Oil Spill Programs accounts to remain available until expended. Transfer accounts for the
Superfund and LUST Trust Funds have been established to record appropriations moving from the Trust Fund to
allocation accounts for purposes of carrying out the program activities. As the Agency disburses obligated amounts
from the expenditure account, the Agency draws down monies from the Superfund and LUST Trust Funds held at
Treasury to cover the amounts being disbursed. The Agency draws down all the appropriated monies from the
Principal Fund of the Oil Spill Liability Trust Fund when Congress enacts the Inland Oil Spill Programs appropriation
amount to the EPA's Inland Oil Spill Programs account.
In 2015, the EPA established a receipt account for Superfund special account collections. Special accounts are
comprised of reimbursements from other federal agencies, state cost share payments under Superfund State Contracts
(SSCs), and settlement proceeds from Potentially Responsible Parties (PRPs) under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) Section 122(b)(3). This allows the Agency to
invest the funds until drawdowns are needed for special accounts disbursements.
38.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
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 a
receiving (child) entity. Allocation transfers are legal delegations from 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. The EPA allocates funds, as the parent, to the Center for Disease Control. The
EPA receives allocation transfers, as the child, from the Bureau of Land Management.
D. Basis of Accounting
Generally Accepted Accounting Principles (GAAP) for federal entities is the standard prescribed by the Federal
Accounting Standards Advisory Board (FASAB), which is the official standard-setting body for the Federal
Government, and the American Institute of Certified Public Accountants (AICPA). The financial statements are
prepared in accordance with GAAP for federal entities.
Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the accrual method, revenues
are recognized when earned and expenses are recognized when liabilities are incurred, without regard to receipt or
payment of cash. Budgetary accounting facilitates compliance with legal constraints and controls over the use of
federal funds posted in accordance with OMB directives and the U.S. Treasury regulations.
EPA uses a modified matching principle since federal entities recognize unfunded liabilities (without budgetary
resources) in accordance FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 5 Accounting
for Liabilities of the Federal Government.
E. Revenues and Other Financing Sources
The following EPA policies and procedures to account for inflow of revenue and other financing sources are in
accordance with SFFAS No. 7, Accounting for Revenues and Other Financing Sources.
I. Superfund
The Superfund program receives most of its funding through appropriations that may be used within specific statutory
limits for operations 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.
39.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
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 operations and capital expenditures.
The WIFIA program receives additional funding to support awarding, servicing and collecting loans 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 and can obligate collections up to the amount of anticipated collections within the fiscal year on the approved
letter of apportionment. The Hazardous Waste Electronic Manifest System Fund receives funding through fees
collected for use of the Hazardous Waste Electronic Manifest System and can obligate collections up to the amount of
anticipated collections on the approved letter of apportionment. The Toxic Substances Control Act Fund (TSCA)
collects user fees to defray costs for new chemical reviews and arrange of implementation activities for existing
chemicals and can obligate collections up to the amount of anticipated collections on the approved letter of
apportionment. The WCF receives revenue through fees collected from the Agency program offices for services
provided. 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. (See Note 2.)
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 or premiums. Discounts or premiums 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.
40.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
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 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. (See Note 5.)
J. Advances and Prepayments
Advances and prepayments represent funds paid to other entities both internal and external to the Agency for which a
budgetary expenditure has not yet occurred.
K. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. Loans receivable resulting from loans
obligated on or after October 1, 1991, are reduced by an allowance equal to the present value of the subsidy costs
associated with these loans. The subsidy cost is calculated based on the interest rate differential between the loans and
Treasury borrowing, the estimated delinquencies and defaults net of recoveries offset by fees collected, and other
estimated cash flows associated with these loans. Loan proceeds are disbursed pursuant to the terms of the loan
agreement. Interest is calculated semi-annually on a per loan basis. Repayments are made pursuant to the terms of the
loan agreement with the option to repay loan amounts early.
L. Appropriated Amounts Held by Treasury
Cash available to the Agency that is not needed immediately for current disbursements of the Superfund and LUST
Trust Funds and amounts appropriated from the Superfund Trust Fund to the OIG and Science and Technology
appropriations, remains in the respective Trust Funds managed by Treasury.
M. Property, Plant, and Equipment
The EPA accounts for its personal and real property accounting records in accordance with SFFAS No. 6, Accounting
for Property, Plant and Equipment as amended. For EPA-held property, the Fixed Assets Subsystem (FAS) maintains
the official records and automatically generates depreciation entries monthly based on in-service dates.
A purchase of EPA-held or contractor-held personal property is capitalized if it is valued at $25 thousand or more and
has an estimated useful life of at least two years. For contractor-held property, depreciation is taken on a modified
straight-line basis over a period of six years depreciating 10 percent the first and sixth year, and 20 percent in years
two through five. For contractor-held property, detailed records are maintained and accounted for in contractor
systems, not in EPA's FAS. Acquisitions of EPA-held personal property are depreciated using the straight-line method
over the specific asset's useful life, ranging from two to fifteen years.
Personal property includes capital leases. To be defined as a capital lease, a lease, at its inception, must have a lease
term of two or more years and the lower of the fair value or present value of the projected minimum lease payments
must be $75 thousand or more. Capital leases containing real property (therefore considered in the real property
category as well), have a $150 thousand capitalization threshold. In addition, the lease must meet one of the following
criteria: transfers ownership at the end of the lease to the EPA; contains a bargain purchase option; the lease term is
41.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
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 a 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. This property is retained in EPA's FAS and 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 five years.
N. Liabilities
Liabilities represent the amount of monies or other resources that are more likely than not to be paid by the Agency as
the result of an Agency transaction or event that has already occurred and can be reasonably estimated. However, no
liability can be paid by the Agency without an appropriation or other collections authorized for retention. Liabilities
for which an appropriation has not been enacted are classified as unfunded liabilities and there is no certainty that the
appropriations will be enacted. Liabilities of the Agency arising from other than contracts can be abrogated by the
Government acting in its sovereign capacity.
O. Debt
Debt payable to Treasury results from loans from Treasury to fund the non-subsidy portion of the WIFIA direct loans.
The Agency borrows the funds from Treasury when the loan disbursements agreed upon in the loan agreement are
made. Principal payments are made to Treasury periodically based on the collection of loan receivables. (See Note 10)
42.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
P. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Annual leave earned but not taken at the end
of the fiscal year is accrued as an unfunded liability. Accrued unfunded annual leave is included in the Balance Sheet
as a component of "Payroll and Benefits Payable." Sick leave earned but not taken is not accrued as a liability; it is
expensed as it is used.
Q. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January 1, 1987, may
participate in the Civil Service Retirement System (CSRS). On January 1, 1987, the Federal Employees Retirement
System (FERS) went into effect pursuant to Public Law 99-335. Most employees hired after December 31, 1986, are
automatically covered by FERS and Social Security. Employees hired prior to January 1, 1987, elected to either join
FERS and Social Security or to 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.
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 British Petroleum (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 Natural Resource Damage Assessments (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. As additional projects are identified, the EPA may continue to receive funding through
the 2016 Consent Decree to implement its DWH NRDA Trustee responsibilities in the Agency's Damage Assessment
and Restoration Revolving Trust Fund.
T. 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.
43.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
U. Reclassifications and Comparative Figures
Certain reclassifications have been made to the prior year's financial statements to enhance comparability with the
current year's financial statements in accordance with Office of Management and Budget (OMB) Circular No. A-136,
Financial Reporting Requirements revised August 10, 2021. As a result the form and content of the Balance Sheet and
Statement of Changes in Net Position has changed to conform with OMB Circular No. A-136.
Note 2. Fund Balance With Treasury (FBWT)
Fund Balance with Treasury as September 30, 2021 and 2020 consists of the following:
2021 2020
Entity
Assets
Non-Entity
Assets
Total
Entity
Assets
Non-Entity
Assets
Total
Trust Funds:
Superfund
$ 138,254
$
$ 138,254
$ 152,246
$
-
$ 152,246
LUST
43,540
-
43,540
28,191
-
28,191
Oil Spill & Misc.
27,351
-
27,351
12,643
-
12,643
Revolving Funds:
FIFRA/Tolerance
38,362
-
38,362
52,574
-
52,574
Working Capital
109,800
-
109,800
87,215
-
87,215
E-Manifest
19,312
-
19,312
10,790
-
10,790
NRDA
2,161
-
2,161
1,916
-
1,916
WIFIA
30,837
-
30,837
6
-
6
Appropriated
10,798,706
-
10,798,706
9,936,774
-
9,936,774
Other Fund Types
566.449
3.658
570.107
535.447
5.310
540.757
Total
X 11.774.772
X 3.658
X 11.778.430
X 10.817.802
$
5.310
X 10.823.112
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 33)
Obligated Balance not yet Disbursed
Non-Budgetary FBWT
Total
2021
2020
$ 5,278,005 $ 6,094,950
97,541
(5,055,979)
29,603
10,876,050
553,210
191,669
(5,033,099)
19,840
9,025,670
524,082
X 11.778.430 X 10.823.112
44.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
The funds available for obligation may be apportioned by OMB for new obligations at the beginning of the following
fiscal year. Funds unavailable for obligation are mostly balances in expired funds, which are available only for
adjustments of existing obligations. For September 30, 2021 and 2020, no differences existed between Treasury's
accounts and the EPA's statements for fund balances with Treasury. See Note 1 paragraph F for additional
information.
Note 3. Cash and Other Monetary Assets
As of September 30, 2021 and 2020, the balance in the imprest fund was $10 thousand.
Note 4. Investments, Net
As of September 30, 2021 and 2020, 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 2021 $ 6,084,927 (64,613) 6,298 6,155,838 $ 6,155,838
Non-Marketable FY 2020 $ 5,828,179 (135,189) 6,298 5,969,666 $ 5,969,666
CERCLA, as amended by SARA, authorizes the EPA to recover monies to clean up Superfund sites from responsible
parties (RPs). Some RPs file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy settlements, the EPA is an
unsecured creditor and is entitled to receive a percentage of the assets remaining after secured creditors have been
satisfied. Some RPs satisfy their debts by issuing securities of the reorganized company. The Agency does not intend
to exercise ownership rights to these securities and instead will convert them to cash as soon as practicable. All
investments in Treasury securities are funds from dedicated collections (see Note 17).
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. See Note 1 paragraphs G and H for additional information.
45.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 5. Accounts Receivable, Net (Restated)
Accounts Receivable as of September 30, 2021 and 2020, consist of the following:
Restated
2021 2020
Intragovernmental:
Accounts & Interest Receivable
$
10,775
$
30,599
Less: Allowance for Uncollectible Accounts
(3.173)
(2.598)
Total
$
7.602
$
28.001
2021
2020
With the Public:
Unbilled Accounts Receivable
$
131,461
$
130,449
Accounts & Interest Receivable
2,664,810
2,556,734
Less: Allowance for Uncollectible Accounts
(2.215.535)
(2.183.458)
Total
$
580.736
$
503.725
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. See Note 1
paragraph I and Note 36 for additional information.
Note 6. Other Assets
Other Assets as September 30, 2021 and 2020, consist of the following:
2021 2020
With the Public:
Travel Advances
$
73
$
77
Other Advances
7,225
7,844
Inventory Purchased for Resale
428
288
Total
$
7.726
$
8.209
See Note 1 paragraph J for additional information.
Note 7. Loans Receivable, Net
Direct Loans Receivable disbursed from obligations made after FY 1991 are governed by the Federal Credit Reform
Act, which mandates that the present value of the subsidy costs (i.e., interest rate differentials, interest subsidies,
anticipated delinquencies, and defaults) associated with direct loans be recognized as a cost in the year the loan is
disbursed. The net loan present value is the gross loan receivable less the subsidy present value. EPA does not have
any loans obligated prior to 1992.
EPA administers the WIFIA Direct Loans program. In fiscal years 2021 and 2020, the Agency received borrowing
authority of $6.0 billion and $3.6 billion respectively for the non-subsidy portion of loan proceeds disbursed. The
cumulative loan limit for the WIFIA Loan Program through fiscal year 2021 is $41.1 billion. For the fiscal year ended
September 30, 2021 and 2020, the Agency closed $5.7 billion and $3.2 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,
2021 and 2020, the WIFIA program has incurred $38.2 and $9.7 million in administrative expenses, respectively.
46.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Obligated after FY 1991
Direct Loan Program
WIFIA
2021 Loans
Receivable,
Gross
734,357
Interest and
Fees
Receivable
566
Foreclosed
Property/
Allowance
for
Loan Losses
Allowance for
Subsidy
Cost
Value of Assets
Related to
Direct
Loans, Net
(148,785) $
586,138
Direct Loan Program
WIFIA
2020 Loans
Receivable,
Gross
220,970
Interest
Receivable
Foreclosed
Property/
Allowance
for
Loan Losses
Allowance for
Subsidy
Cost
Value of Assets
Related to
Direct
Loans, Net
(24,500) $
196,470
Total Amount of Direct Loans Disbursed (Post-1991)
Direct Loan Program 2021 2020
WIFIA $ 545,668 $ 220,970
Subsidy Expense for Direct Loans by Program and Component
Subsidy Expense for New Direct Loans Disbursed
2021 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA $ - - - (2,577) $ (2,577)
2020 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA $ - - - (1,043) $ (1,043)
Modifications and Reestimates
2021 Interest
Total Rate Technical Total
Direct Loan Program Modifications Reestimates Reestimates Reestimates
WIFIA $ - 7,226 114,482 $ 121,708
2020 Interest
Total Rate Technical Total
Direct Loan Program Modifications Reestimates Reestimates Reestimates
WIFIA $ - - (23,459) $ (23,459)
47.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Total Direct Loans Subsidy Expense
Direct Loan Program 2021 2020
WIFIA $ 26,448 $ TJhT
Budget Subsidy Rates for Direct Loans for the Current Year Cohort
2021 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA -.03% 0.83% 0% 0% 0.80%
2020 Interest Fees and Other Other Subsidy
Direct Loan Program Differential Defaults Collections Costs Total
WIFIA 0% 0.75% 0% 0% 0.75%
The subsidy rates disclosed pertain to the current year's cohort. The rates cannot be applied to the direct loans
disbursed during the current reporting year to yield the subsidy expense. The subsidy expense for new loans reported
in the current year could result from disbursement of loans from both current year cohorts and prior year cohorts. The
subsidy expense reported in the current year also includes modifications and re-estimates.
Schedule for Reconciling Subsidy Cost Allowance Balances
Beginning Balance, Changes and Ending Balance 2021 2020
Beginning Balance of the Subsidy Allowance $ (24,500)$ 2
Add: Subsidy Expense for Direct Loans Disbursed During the Reporting Years
by Component
Default Costs (Net of Recoveries)
Fees and Other Collections
Other Subsidy Costs $ ("2.577') $ (1.043)
Total of the Above Subsidy Expense Components (2,577) (1,043)
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
(7,226)
(114.482) $_
(23.459)
$_
(121.708)
(23.459)
(148.785) $=
(24.500)
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 2021 loan disbursements
were higher than the interest rate assumptions used during the budget formulation process at loan origination. See
Note 1 paragraph K for additional information.
48.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 8. Accounts Payable (Restated)
The Accounts Payable are current liabilities and consist of the following amounts as of September 30, 2021
and 2020:
Restated
2021 2020
Intragovernmental:
Accounts Payable $ 3,367 $ 3,216
Accrued Liabilities 144,640 121,142
Capital Lease Liabilities 2,325 2,369
Direct Loans Subsidy Liabilities 770 412
Total X 151.102 X 127.139
2021 2020
With the Public:
Accounts Payable $ 56,306 $ 52,693
Advances Payable (2) (2)
Interest Payable 15 5
Total X 56.319 X 52.696
See Note 36 for additional information.
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. See Note 1 paragraph M for additional information.
As of September 30, 2021, General PP&E Cost consisted of the following:
Balance,
Beginning of
Year
Additions
Dispositions
Revaluations
Balance,
September
30,2021
EPA-
Held
Equipment
321,002
23,898
(14,389)
68
Software
(production)
439,787
1,109
Software
(development)
2021
Contractor
Held
Equipment
45,865
11,959
(2,262)
(25)
33,895
12,010
(14,287)
Land
and
Buildings
$ 802,321
30,623
(4,228)
Capital
Leases
$ 24,485
Total
$ 1,667,355
79,599
(35,166)
43
X 330.579 X 440.896 X 55.537 X 31.618 X 828.716 X 24.485 X 1.711.831
49.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
As of September 30, 2021, General PP&E Accumulated Depreciation consisted of the following:
2021
EPA-
Contractor
Land
Held
Software
Software
Held
and
Capital
EauiDment
(production)
(development)
EauiDment
Buildings
Leases
Total
Balance,
Beginning of
Year
$ 217,928
$ 420,502
$
$ 26,484
$ 321,799
$ 20,948
$ 1,007,661
Additions
(14,481)
(63)
-
-
-
-
(14,544)
Dispositions
1,518
63
-
(3,742)
-
-
(2,161)
Revaluations
68
-
-
-
-
-
68
Depreciation
Expense
20.949
13.320
-
(2.891)
17.976
816
50.170
Balance,
September
30,2021
S 225.982
S 433.822
S
S 19.851
S 339.775
S 21.764
S 1.041.194
As of September 30, 2021, General PP&E, Net consisted of the following:
2021
EPA-
Contractor
Land
Held
Software
Software
Held
and
Capital
EauiDment
(production)
(development)
Eauipment
Buildings
Leases
Total
Balance,
September
30,2021
S 104.597
S 7.074
S 55.537
S 11.767
S 488.941
S 2.721
S 670.637
As of September 30, 2020, General PP&E Cost consisted of the following:
2020
EPA-
Contractor
Land
Held
Software
Software
Held
and
Capital
EauiDment
(production)
(development)
Eauipment
Buildings
Leases
Total
Balance,
Beginning of
Year
$ 304,453
$ 439,787
$
27,046
$
44,707
$ 794,192
$ 24,485
$ 1,634,670
Additions
36,393
-
18,794
1,581
18,184
-
74,952
Dispositions
(19,777)
-
-
(5,633)
(10,056)
-
(35,466)
Revaluations
-
-
-
(6.760)
-
-
(6.760)
Balance, End
of Year
S 321.069
S 439.787
$
45.840
$
33.895
S 802.320
S 24.485
S 1.667.396
50.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
As of September 30, 2020, General PP&E Accumulated Depreciation consisted of the following:
2020
EPA- Contractor Land
Held Software Software Held and Capital
Equipment (production) (development) Equipment Buildings Leases Total
Balance,
Beginning of
Year $ 212,886 $ 398,613 $ - $ 28,593 $ 303,239 $ 20,132 $ 963,463
Dispositions (18,780) - - ... (18,780)
Revaluations ... (2,825) - - (2,825)
Depreciation
Expense 23.889 21.889 - 716 18.560 816 65.870
Balance, End
of Year S 217.995 $ 420.502 $ - $ 26.484 S 321.799 S 20.948 S 1.007.728
As of September 30, 2020, General PP&E, Net consisted of the following:
2020
EPA-
Contractor
Land
Held
Software
Software
Held
and
Capital
Equipment
(production)
(development)
Equipment
Buildings
Leases
Total
Balance, End
of Year, Net
S 103.074
S 19.285
S 45.840
S 7.411
S 480.521
S 3.537
S 659.668
Note 10. Debt
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, 2021 and 2020, the EPA had debt due to Treasury consisting
entirely of funds borrowed to finance the non-subsidy portion of the WIFIA Direct Loan Program:
2020 2021
Beginning Net Ending Net Ending
Balance Borrowing Balance Borrowing Balance
Debt to the
Treasury S 266 $ 221.386 S 221.652 $ 525.187 S 746.839
See Note 1 paragraph O for additional information.
51.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 11. Stewardship Property, Plant and Equipment
The Agency acquires title to certain property and property rights under the authorities provided in Section 104(j)
CERCLA related to remedial clean-up sites. The property rights are in the form of fee interests (ownership) and
easements to allow access to clean-up sites or to restrict usage of remediated sites. The Agency takes title to the land
during remediation and transfers it to state or local governments upon the completion of clean-up. A site with "land
acquired" may have more than one acquisition property. Sites are not counted as a withdrawal until all acquired
properties have been transferred under the terms of 104(j).
As of September 30, 2021 and 2020, the Agency possessed the following land and land rights:
2021 2020
Superfund Sites with Easements:
Beginning Balance
43
40
Additions
2
3
Ending Balance
45
43
S iiperfund Sites with Land Acquired:
Beginning Balance
32 $
31
Additions
1
1
Withdrawals
(1)
-
Ending Balance
32
32
Note 12. Liability to the General Fund for Custodial Assets
Liability to the General Fund for Custodial Assets 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, 2021 and 2020, custodial liability is approximately $51,241 and $72,018 thousand, respectively.
52.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2021:
Covered by Not Covered
Budgetary by
Resources Resources Total
Current
Employer Contributions & Payroll Taxes
$
29,503 $
-
$
29,503
Liability for Deposit Funds
(2)
-
(2)
Non-Current
Unfunded FECA Liability
-
9,018
9,018
Unfunded Unemployment Liability
-
308
308
Payable to Treasury Judgement Fund
-
22.000
22.000
Total Intragovernmental
$
29.501 S
31.326
$
60.827
Other Liabilities - With the Public:
Current
Liability for Deposit Funds, With the Public
$
5,626 $
-
$
5,626
Grant Liabilities
369,003
-
369,003
Other Accrued Liabilities
147,393
-
147,393
Accrued Funded Payroll and Benefits
94,136
-
94,136
Employer Contributions Payable - Thrift Savings Plan
2.509
-
2.509
Total With the Public
$
618.667 S
_
$
618.667
53.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Other Liabilities consist of the following as of September 30, 2020:
Covered by Not Covered
Budgetary by
Resources
Resources
Current
Employer Contributions & Payroll Taxes
Non-Current
Unfunded FECA Liability
Unfunded Unemployment Liability
Payable to Treasury Judgement Fund
Total Intragovernmental
Other Liabilities - With the Public
Current
Liability for Deposit Funds, With the Public
Grant Liabilities
Other Accrued Liabilities
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable - Thrift Savings Plan
Commitment and Contingencies
Total With the Public:
23,764 $
$ 5,945 $
159,004
317,258
36,385
30,297
1,792
X 550.681 $"
9,223
97
22,000
Total
_38
.JS $_
23,764
9,223
97
22,000
X 23.764 S 31.320 X 55.084
5,945
159,004
317,258
36,385
30,297
1,792
38
550.719
Liabilities not covered by budgetary resources require future congressional action whereas liabilities covered by
budgetary resources reflect prior congressional action. Regardless of when the congressional action occurs, when the
liabilities are liquidated, Treasury will finance the liquidation in the same way that it finances all other disbursements,
using some combination of receipts, other inflows, and borrowing from the public (if there is a budget deficit).
Other Accrued Liabilities are mostly comprised of contractor accruals.
See Note 1 paragraph N for additional information.
Note 14. Leases
The value of assets held under Capital Leases as of September 30, 2021 and 2020, are as follows:
Capital Leases:
2021 2020
Summary of Assets Under Capital Lease:
Real Property
$
24.485
$
24.485
Total
24.485
24.485
Accumulated Amortization
$
21.764
$
20.948
54.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(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
2022 $ 786
2023 786
2024 786
2025 262
Total Future Minimum Lease Payments 2,620
Less: Imputed Interest (295)
Net Capital Lease Liability 2,325
Liabilities not Covered by Budgetary Resources $ 2.325
The capital lease payments have been adjusted to reflect payments in the lease agreement. Per the lease agreement,
yearly lease payments of $4,215 thousand are due for 20 years from 1995 until 2015. Upon exercise of a 10-year
renewal, the yearly lease payment will be $786 thousand from 2015 until 2024. Fiscal year 2025 is a partial year.
Note 15. Deferred Revenue
Other liabilities deferred revenue is fully comprised of cashout advances. 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, 2021 and 2020,
cash-out advances total $3,476,737 thousand and $3,472,784 thousand, respectively.
Note 16. 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, 2021, there was no accrued liabilities for commitments and potential loss contingencies. As of
September 30, 2020, there were $38 thousand of 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
55.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
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, 2021, 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 $314
million but they are only reasonably possible and the final outcomes are not probable.
B. Flint, Michigan
The EPA has received claims from over 9,400 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 amount 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 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 for two cases totaling $20.4 million. For these cases, they
are only reasonably possible and the final outcomes are not probable. These two cases are: Land O' Lakes (Hudson Oil
refinery Superfund Site) for $17.7 million (petition for reimbursement for not being liable under CERCLA); and
August Mack Environmental, Inc. v. EPA for $2.7 million. August Mack Environmental (AME) was a contractor for
Vertellus, one of three PRPs at the Big John Salvage Site in Fairmont, WV. The site was being cleaned up pursuant to
a consent decree which named Vertellus the performing defendant. There is a special account at the site funded by the
PRPs. Vertellus filed for bankruptcy and AME did not recover in bankruptcy the moneys it claimed it was owed by
Vertellus. AME made a claim against the Superfund and/or the Special Account. R3 denied the claim and AME
appealed to the ALJ who also denied it. AME then filed suit in district court. The court ruled in favor of EPA on a
Motion to Dismiss and AME appealed to the 4th Circuit. The 4th Circuit ruled in AME's favor and case was
remanded.
D. Environmental Liabilities
As of September 30, 2021, there are two cases pending against the EPA that are reported under Environmental
Liabilities. The first case is Bob's Home Service Landfill for $900 thousand but it is only reasonably possible and the
final outcome is not probable. The second case is for ThermalKem a.k.a. Phillip Services CERCLA Site. This is a
claim against several EPA regions for generator liability under CERCLA based on waste sent to site from other sites
being cleaned-up by EPA and/or under EPA oversight, which is also reasonably possible and the final outcome is not
probable. It also includes a claim for generator liability for waste sent to site from EPA's labs and research facilities.
For this second case, the estimate amount or range of potential loss is unknown.
E. Other Pending Cases
As of September 30, 2021, legal claims exist for which the potential loss could not be determined. These include
cases: United Affiliates Corp., et al. v. United States (involving alleged taking of property for which plaintiff is
seeking just compensation under the 5th Amendment); State of New York v. Regan (State and environmental plaintiffs
allege that EPA has unreasonably delayed issuance of regulations for sources in the oil and gas sector under Clean Air
56.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Act section 111(d)); Resort Center Associates, LLC v. Wheeler (Plaintiff alleges that EPA violated CERCLA and
failed to perform non-discretionary duties under CERCLA in connection with designating a portion of its development
property as part of the Richardson Flat Tailings Superfund site. The matter also includes 5th Amendment taking and
Federal Tort Claims Act allegations); and Hennis v. United States (EPA built and operates an interim water treatment
plant to treat ongoing discharge of mine impacted water from the Gold King Mine on plaintiffs property. Plaintiff
alleges that the Government's ongoing access to, occupation, and use of his property constitutes a physical taking
without just compensation).
In addition, as of September 30, 2021, legal claims exist for cases related to TSCA liability, for which the potential
loss could not be determined and the total amount claimed is not material to the financial statements.
F. 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 where 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 an $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, 2021, there is no other case pending in the court.
G. Other Commitments
EPA has a commitment to fund the U.S. Government's payment to the Commission of the North American Agreement
on Environmental Cooperation between the Government 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 $2.6 million to the
CEC in the period ending September 30, 2021 and $2.5 million in the period ending September 30, 2020.
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 30, 2021 and $8.3 million in the period ending September 30, 2020.
57.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 17. Funds from Dedicated Collections (Unaudited) (Restated)
Other Funds
Total Funds
Environmental
from Dedicated
from Dedicated
Services
LUST
Superfund
Collections
Collections
Balance Sheet for Fiscal Year Ended
2021
Assets
Fund Balance with Treasury
$ 546,001 $
43,540 !
S 138,254
$ 135,505
$ 863,300
Investments
-
1,037,121
5,118,717
-
6,155,838
Accounts Receivable, Net
-
85,921
406,184
129,593
621,698
Other Assets
-
228
42.321
589.987
632.536
Total Assets
S 546.001 $
1.166.810 f
S 5.705.476
S 855.085
S 8.273.372
Other Liabilities
.
93.864
3.806.220
821.461
4.721.545
Total Liabilities
S/5
I
S/5
93.864 !
S 3.806.220
S 821.461
S 4.721.545
Unexpended Appropriations
.
.
(104)
291
187
Cumulative Results of Operations
546.001
1.072.946
1.899.360
33.333
3.551.640
Total Liabilities and Net Position
S 546.001 $
1.166.810 f
S 5.705.476
S 855.085
S 8.273.372
Statement of Net Cost for Fiscal Year
Ended 2021
Gross Program Costs
-
86,157
1,364,410
137,107
1,587,674
Less: Earned Revenues
13
-
295.471
152.214
447.698
Net Costs of Operations
S/5
S/5
86.157 f
S 1.068.939
s (15.1 on
S 1.139.976
Statement of Changes in Net Position
for Fiscal Year Ended 2021
Net Position, Beginning of Period
$ 518,165 $
916,564 !
S 1,849,646
$ 22,511
$ 3,306,886
Nonexchange Revenue - Securities
Investments
-
476
5,927
18
6,421
Nonexchange Revenue
27,823
241,786
(2,759)
3,717
270,567
Other Budgetary Finance Sources
-
-
1,089,924
(8,774)
1,081,150
Other Financing Sources
-
277
25,457
1,046
26,780
Net Cost of Operations
13
(86.157s)
(1.068.939)
15.107
(1.139.976)
Change in Net Position
27.836
156.382
49.610
11.114
244.942
Net Position
S 546.001 $
1.072.946 f
S 1.899.256
S 33.625
S 3.551.828
58.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Environmental
Services
LUST
Superfund
Other Funds
from Dedicated
Collections
Total Funds
from Dedicated
Collections
Balance Sheet for Fiscal Year 2020
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other Assets
$ 518,165 $
28,191
895,016
82,281
424
$ 152,246
5,074,650
346,291
44.685
$ 95,212
27,135
201.757
$ 793,814
5,969,666
455,707
246.866
Total Assets
S 518.165 S
1.005.912
S 5.617.872
S 324.104
S 7.466.053
Other Liabilities
.
89.348
3.768.226
301.589
4.159.163
Total Liabilities
S - s
89.348
S 3.768.226
S 301.589
S 4.159.163
Unexpended Appropriations
Cumulative Results of Operations
Total Liabilities and Net Position
518.165
S 518.165 $
916.564
1.005.912
(2)
1.849.646
S 5.617.870
(187)
22.702
S 324.104
(189)
3.307.077
S 7.466.051
Statement of Net Cost for Fiscal Year
Ended 2020 (Restated)
Gross Program Costs (Note 36)
Less: Earned Revenues
-
97,770
1,520,983
362.428
116,583
105.449
1,735,336
467.877
Net Costs of Operations (Note 36) S S 97.770 S 1.158.555 S 11.134 S 1.267.459
Statement of Changes in Net Position
for the Fiscal Year Ended 2020
(Restated)
Net Position, Beginning of Period !|
> 491,972 $
788,492 $
1,863,347 $
25,519 $
3,169,330
Nonexchange Revenue - Securities
Investments
-
6,282
83,301
533
90,116
Nonexchange Revenue
26,193
219,210
3,225
(8,833)
239,795
Other Budgetary Finance Sources
-
-
1,033,974
15,697
1,049,671
Other Financing Sources (Note 36)
-
350
24,356
729
25,435
Net Cost of Operations (Note 36)
-
(97.770)
(1.158.555)
(11.134)
(1.267.459)
Change in Net Position
Net Position 3
26.193
128.072
(13.699)
(3.008)
137.558
5 518.165 $
916.564 $
1.849.648 $
22.511 $
3.306.888
A. Funds from Dedicated Collections
i. Environmental Services Receipt Account:
The Environmental Services Receipt Account, authorized by a 1990 act, "To amend the Clean Air Act (P.L. 101-
549)," was established for the deposit of fee receipts associated with environmental programs, including radon
measurement proficiency ratings and training, motor vehicle engine certifications, and water pollution permits.
Receipts in this special fund can only be appropriated to the S&T and EPM appropriations to meet the expenses of the
programs that generate the receipts if authorized by Congress in the Agency's appropriations bill.
ii. Leaking Underground Storage Tank (LUST) Trust Fund:
The LUST Trust Fund was authorized by the SARA as amended by the Omnibus Budget Reconciliation Act of 1990.
The LUST appropriation provides funding to prevent and respond to releases from leaking underground petroleum
tanks. The Agency oversees cleanup and enforcement programs which are implemented by the states. Funds are
allocated to the states through cooperative agreements and prevention grants to inspect and clean up those sites posing
the greatest threat to human health and the environment. Funds are used for grants to non-state entities including
Indian tribes under Section 8001 of the Resource Conservation and Recovery Act.
59.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
in. Superfund Trust Fund:
In 1980, the Superfund Trust Fund was established by CERCLA to provide resources to respond to and clean up
hazardous substance emergencies and abandoned, uncontrolled hazardous waste sites. The Superfund Trust Fund
financing is shared by federal and state governments as well as industry. The EPA allocates funds from its
appropriation to the Department of Justice to carry out CERCLA. Risks to public health and the environment at
uncontrolled hazardous waste sites qualifying for the Agency's National Priorities List (NPL) are reduced and
addressed through a process involving site assessment and analysis and the design and implementation of cleanup
remedies. NPL cleanups and removals are conducted and financed by the EPA, private parties, or other Federal
agencies. The Superfund Trust Fund includes Treasury's collections, special account receipts from settlement
agreements, and investment activity.
B. Other Funds from Dedicated Collections
i. Inland Oil Spill Programs Account:
The Inland Oil Spill Programs Account was authorized by the Oil Pollution Act of 1990 (OPA). Monies are
appropriated from the Oil Spill Liability Trust Fund to the EPA's Inland Oil Spill Programs Account each year. The
Agency is responsible for directing, monitoring and providing technical assistance for major inland oil spill response
activities. This involves setting oil prevention and response standards, initiating enforcement actions for compliance
with OPA and Spill Prevention Control and Countermeasure requirements, and directing response actions when
appropriate. The Agency carries out research to improve response actions to oil spills including research on the use of
remediation techniques such as dispersants and bioremediation. Funding for specific oil spill cleanup actions is
provided through the U.S. Coast Guard from the Oil Spill Liability Trust Fund through reimbursable Pollution
Removal Funding Agreements (PRFAs) and other inter-agency agreements.
ii. Pesticide Registration Fund:
The Pesticide Registration Fund was authorized by a 2004 Act, "Consolidated Appropriations Act (P.L. 108-199),"
and reauthorized until September 30, 2023, for the expedited processing of certain registration petitions and the
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.
Hi. 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 the reassessment of tolerances for pesticides used in or on food and animal feed,
as required by law.
iv. Tolerance Revolving Fund:
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees were paid by industry
for Federal services to set pesticide chemical residue limits in or on food and animal feed. Fees collected prior to
January 2, 1997 were accounted for under this fund. Presently, collection of these fees is prohibited by statute enacted
in the Consolidated Appropriations Act, 2004 (P.L. 108-199).
v. Hazardous Waste Electronic Manifest System
The Hazardous Waste Electronic Manifest System Fund, authorized in 2014, receives funding through fees collected
for use of the Hazardous Waste Electronic Manifest System.
60.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 18. Environmental and Disposal Liabilities
Annually, the EPA is required to disclose its audited estimated future costs associated with:
a) Cleanup of hazardous waste and restoration of the facility when it is closed, and
b) Costs to remediate known environmental contamination resulting from the Agency's operations.
The EPA has 30 sites for which it is responsible for clean-up costs incurred under federal, state, and/or local
regulations to remove, contain, or dispose of hazardous material found at these facilities.
The EPA is also required to report the estimated costs related to:
a) Clean-up from federal operations resulting in hazardous waste
b) Accidental damage to nonfederal property caused by federal operations, and
c) Other damage to federal property caused by federal operations or natural forces.
The key to distinguishing between future clean-up costs versus an environmental liability is to determine whether the
event (accident, damage, etc.) has already occurred and whether we can reasonably estimate the cost to remediate the
site.
The EPA has elected to recognize the estimated total clean-up cost as a liability and record changes to the estimate in
subsequent years.
As of September 30, 2021, the EPA has one site that requires clean up stemming from its activities. The claimants'
chances of success are characterized as reasonably possible with costs amounting to $900 thousand that may be paid
out of the Treasury Judgment Fund. Secondly, in January 2020, the CDPHE found several violations of Colorado
hazardous waste laws after inspecting an EPA lab where Region 8 and OECA's NEIC are co-located. $38 thousand of
the penalty amount has been accrued, which is categorized under probable.
The EPA has 30 sites for which it is required to fund the environmental cleanup. As of September 30, 2021, the
estimated costs for site clean-up were $25.7 million unfunded, and $971 thousand funded, respectively. In 2020 the
estimated costs for site clean-up were $38.4 million unfunded, and $1,836 thousand funded, respectively. Since the
clean-up costs associated with permanent closure were not primarily recovered through user fees, the EPA has elected
to recognize the estimated total clean-up cost as a liability and record changes to the estimate in subsequent years.
In FY 2021, the estimate for unfunded clean-up cost decreased by $12.7 million from the FY 2020 estimate. This is
primarily due decreased estimates of future lab cleanup actions.
Note 19. 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 with the public funds for remedial action.
61.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Once the EPA has reviewed and approved a state's claim for credit, the state must first apply the credit at the site
where it was earned. The state may apply any excess/remaining credit to another site when approved by the EPA. As
of September 30, 2021 and 2020, the total remaining state credits have been estimated at $17.9 million, and $20.2
million, respectively.
Note 20. 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, 2021, the EPA had three outstanding preauthorized mixed funding agreements with
obligations totaling $10.2 million. As of September 30, 2020, the EPA had three outstanding preauthorized mixed
funding agreements with obligations totaling $11.5 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 21. Custodial Revenues and Accounts Receivable
The EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.
Collectability by the EPA of the fines and penalties is based on the respondents' willingness and ability to pay. As of
September 30, 2021 and 2020 Custodial Revenues and Accounts Receivable are:
2021 2020
Fines, Penalties and Other Miscellaneous Receipts
$
42.497 $
169.178
Accounts Receivable for Fines, Penalties and Other Miscellaneous
Receipts:
Accounts Receivable
$
174,590 $
191,307
Less: Allowance for Uncollectible Accounts
(144.142)
(141.118)
Total
$
30.448 S
50.189
Note 22. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited FY 2021 Statement of Budgetary
Resources, will be reconciled to the amounts included in the FY 2021 Budget of the United States Government when
they become available. The Budget of the United States Government with actual numbers for FY 2021 has not yet
been published. We expect it will be published by early 2022, 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, 2020 are listed immediately below (dollars in
millions):
FY 2020 Budgetary Offsetting
Resources Obligations Receipts Net Outlays
Statement of Budgetary Resources $ 20.548 $ 14.293 $ 1.369 $ 10.093
Reported in the Budget of the U.S. Government $ 22.447 $ 16.314 $ 1.369 $ 10.316
62.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 23. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available, and Permanently Not Available on the Statement of
Budgetary Resources consist of the following amounts as of September 30, 2021 and 2020:
2021 2020
Unobligated Balance Brought Forward, Oct 1. S 5.640.267 S 5.460.757
Adjustments to Budgetary Resources Made During the Current Year
Downward Adjustments of Prior Year Undelivered Orders 335,603 339,024
Downward Adjustments of Prior Year Delivered Orders 19,061 26,546
Permanent Reduction Prior Year Balances (27,991)
Other Adjustments (15.627) (18.137)
Total 311,046 347,433
Unobligated Balance from Prior Year Budget Authority, Net
(discretionary and mandatory) S 5.951.313 S 5.808.190
Temporarily Not Available - Rescinded Authority $ (6,428) $ (2,000)
Permanently Not Available:
Rescinded Authority $ 6,428 $
Cancelled Authority 27.991 19.140
Total Permanently Not Available S 34.419 S 19.140
Note 24. 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, 202 land 2020:
2021 2020
Unexpired Unobligated Balance $ 5,281,571 $ 6,066,503
Expired Unobligated Balance 91.014 189.004
Total S 5.372.585 S 6.255.507
63.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 25. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders as of September 30, 2021 and 2020:
2021 2020
Intragovernmental:
Unpaid Undelivered Orders $ 617,433 $ 448,888
Paid Undelivered Orders 300,357 335,082
With the public:
Unpaid Undelivered Orders 20,650,862 14,213,791
Paid Undelivered Orders 297.852 820.475
Total S 21.866.504 S 15.818.236
Note 26. Offsetting Receipts
Distributed offsetting receipts are amounts that an agency collects from the public or from other Government
agencies that are used to offset or reduce an agency's budget outlays. Agency outlays are measured on both a
gross and net basis, with net outlays being reduced by offsetting receipts (and other amounts). As of
September 30, 2021 and 2020, the following receipts were generated from these activities:
2021 2020
Trust Fund Recoveries
$ 249,937
$ 237,778
Special Fund Services
76,466
51,502
Trust Fund Appropriation
1,153,462
1,076,535
Miscellaneous Receipt and Clearing Accounts
1.546
3.581
Total
S 1.481.411
S 1.369.396
Note 27. Transfers-In and Out, Statement of Changes in Net Position
A. Appropriations Transfers, In/Out:
As of September 30, 2021 and 2020, 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, 2021 and 2020:
2021 2020
Net Transfers from Invested Funds
Transfer to the Department of Transportation
Transfers to Another Agency
Total of Net Transfers on the Statement of Budgetary Resources
$ 1,525,315
$
1,396,692
-
101,700
29.854
809
S 1.555.169
$
1.499.201
64.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
B. Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2021 and 2020, 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, 2021 and
2020:
2021 2020
Funds From Funds From
Dedicated Dedicated
Type of Transfer/Funds: Collections Other Funds Collections Other Funds
Transfers-in (out) nonexpenditure, Earmark to
Science and Technology and Office of The
Inspector General funds $ - $ 28,624 $ (42,748) $ 42,081
Transfers-in (out) nonexpenditure, Oil Spill 20,098 - 19,581
Transfers-in (out) nonexpenditure, e-Manifest - - 23 -
Transfers-in (out), TSCA (28,624) - (5,528)
PRIA (708) - 389 -
National Resource Damage Assessment 1.229 - 1.647 -
Total Transfer in (out) without Reimbursement,
Budgetary X (8.005) S 28.624 X (26.636) X 42.081
Note 28. Imputed Financing (Restated)
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 2021 were $128.5
million. For FY 2020, the estimates were $115.2 million (Restated).
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 2021 total imputed costs were $32.6 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 2021, entries for Judgment Fund payments totaled $11 million. For FY 2020, entries for
Judgment Fund payments totaled $4.1 million.
65.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 29. Federal Employee Benefits Payable
Payroll and benefits payable to the EPA employees for the fiscal years ending September 30, 2021 and 2020, consist
of the following:
Covered by
Not Covered
Budgetary
by Budgetary
Resources
Resources
Total
FY 2021 Payroll and Benefits Payable
Actuarial FECA Liability
$
$ 51,143
$
51,143
Accrued Unfunded Annual Leave
-
181.492
181.492
Total - Current
S
S 232.635
$
232.635
Covered by
Not Covered
Budgetary
by Budgetary
Resources
Resources
Total
FY 2020 Payroll and Benefits Payable
Actuarial FECA Liability
$
$ 50,451
$
50,451
Accrued Unfunded Annual Leave
-
184.779
184.779
Total - Current
S
S 235.230
$
235.230
FECA provides income and medical cost protection to covered Federal civilian employees injured on the job,
employees who have incurred a work-related occupational disease, and beneficiaries of employees whose death is
attributable to a job-related injury or occupational disease. Annually, the EPA is allocated the portion of the long-term
FECA actuarial liability attributable to the entity. The liability is calculated to estimate the expected liability for death,
disability, medical and miscellaneous costs for approved compensation cases. The liability amounts and the
calculation methodologies are provided by the Department of Labor. The FY 2021 present value of these estimated
outflows is calculated using a discount rate of 2.414 percent in the first year, and 2.414 percent in the years thereafter.
The estimated future costs are recorded as an unfunded liability.
See Note 1 paragraph P for additional information.
Note 30. Other Adjustments, Statement of Changes in Net Position
The Other Adjustments under Budgetary Financing Sources on the Statement of Changes in Net Position consist of
rescissions to appropriated funds and cancellation of funds that expired 7 years earlier. These amounts affect
Unexpended Appropriations. Other Adjustments, Statement of Changes in Net Position for the years ended September
30, 2021 and 2020, consist of the following:
Other Other
Funds Funds
2021 2020
Cancelled General Authority $ 49.123 $ 18.964
Total Other Adjustments S 49.123 S 18.964
66.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 31. Non-Exchange Revenue, Statement of Changes in Net Position
Non-Exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net Position for the fiscal
years ended September 30, 2021 and 2020:
Interest on Trust Fund
Tax Revenue, Net of Refunds
Fines and Penalties Revenue
Special Receipt Fund Revenue
Total Nonexchange Revenue
2021
Funds from
Dedicated All Other
Collections Funds
$ 6,421 $
241,786
(2,740)
31.521 -
$ 276.988 S
2020
Funds from
Dedicated All Other
Collections Funds
$ 90,116 $
219,210
3,239
17.265 81
$ 329.830 S 81
67.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 32. Reconciliation of Net Cost of Operations to Net Outlays (Restated)
For the Fiscal Year Ended September 30,2021:
Intra- With the
governmental Public Total 2021
NET COST $ 1,500,235 $ 7,082,983 $ 8,583,218
Components of Net Cost That Are Not Part of Net Outlays:
Property, Plant and Equipment Depreciation 57,687 57,687
Property, Plant and Equipment Disposal & Revaluation 4,186 4,186
Applied Overhead/Cost Capitalization Offset (72,607) (72,607)
Increase/(Decrease) in Assets:
Accounts Receivable (20,495) 77,112 56,617
Loans Receivable 50 513,387 513,437
Investments (70,576) - (70,576)
Other Assets 47,670 (624) 47,046
(Increase)/Decrease in Liabilities:
Accounts Payable and Accrued Liabilities 29,710 3,623 33,333
Debt Due to Treasury 525,187 - 525,187
Environmental Cleanup Costs - (12,660) (12,660)
Payroll and Benefits Payable - (2,595) (2,595)
Other Liabilities 56,867 56,111 112,978
Other Financing Sources:
Other Imputed Financing (172,143) - (172,143)
Total Components of Net Cost That Are Not Part of Net
Outlays 1.896.505 7.706.603 9.603.108
Components of Net Outlays That Are Not Part of Net Cost:
Acquisition of Inventory - 375 375
Acquisition of Other Assets ...
Other Financing Sources:
Transfer Out (In) Without Reimbursement (25,286) - (25,286)
Total Components of Budget Outlays That Are Not Part of
Net Operating Cost (25.286) 375 (24.911)
Miscellaneous Items
Custodial/Non-Exchange Revenue 23 22,106 22,129
Appropriated Receipts for Trust Fund/Special Funds : 20.028 20.028
Other Temporary Timing Differences - 231,740 231,740
NET OUTLAYS S 1.871.242 S 7.980.852 S 9.852.094
68.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
For the Fiscal Year 2020: (Restated)
NET COST
Components of Net Cost That Are Not Part of Net Outlays:
Property, Plant and Equipment Depreciation
Property, Plant and Equipment Disposal & Revaluation
Year-end Credit Reform Subsidy Re-estimates
Other
Increase/(Decrease) in Assets:
Accounts Receivable (Restated)
Loans Receivable
Investments
Other Assets
(Increase)/Decrease in Liabilities:
Accounts Payable and Accrued Liabilities (Restated)
Debt Due to Treasury
Pensions and Other Actuarial Liabilities
Environmental Cleanup Costs
Cashout Advances, Superfund (Note 36)
Commitments and Contingencies
Payroll and Benefits Payable
Other Liabilities
Other Financing Sources:
Federal Employee Retirement Benefit Costs Paid by OPM and
Imputed to the Agency
Transfer Out (In) Without Reimbursement
Other Imputed Financing
Total Components of Net Cost That Are Not Part of Net
Outlays
Components of Net Outlays That Are Not Part of Net Cost:
Effect of Prior Year Agencies Credit Reform Subsidy Re-
estimates
Acquisitions of Capital Leases
Acquisition of Inventory
Acquisition of Other Assets
Other
Total Components of Net Outlays That Are Not Part of Net
Cost
Other Temporary Timing Differences
NET OUTLAYS
Intra-
governmental
With the
Public
Total 2020
$ 1,418,263 $ 7,490,057 $ 8,908,320
(23,459)
(6,802)
(27,990)
(12,323)
8,684
(221,385)
19,100
(115,246)
15,509
(33.859)
1,020,492
68,599
(1,373)
57,917
2,840
196,206
495
15,062
(8,408)
(5,573)
100,456
(38)
(49,269)
(9,132)
7,857,839
567
15,915
474,408
490,890
68,599
(1,373)
(23,459)
57,917
(3,962)
196,206
(27,990)
(11,828)
23,746
(221,385)
(8,408)
(5,573)
100,456
(38)
(49,269)
9,968
(115,246)
15,509
(33.859)
8,878,331
567
15,915
474,408
490,890
(645,814) (645,814)
1-020.492 S 7.702.915 S 8.723.407
69.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Budgetary and financial accounting information differ. Budgetary accounting is used for planning and control
purposes and relates to both the receipt and use of cash, as well as reporting the federal deficit. Financial accounting is
intended to provide a picture of the government's financial operations and financial position, so it presents
information on an accrual basis. The accrual basis includes information about costs arising from the consumption of
assets and the incurrence of liabilities. The reconciliation of net outlays, presented on a budgetary basis, and the net
cost, presented on an accrual basis, provides an explanation of the relationship between budgetary and financial
accounting information.
The reconciliation serves not only to identify costs paid for in the past and those that will be paid in the future, but
also to assure integrity between budgetary and financial accounting. The reconciliation explains the relationship
between the net cost of operations and net outlays by presenting components of net cost that are not part of net outlays
(e.g., depreciation and amortization expenses of assets previously capitalized, change in asset/liabilities), components
of net outlays that are not part of net cost (e.g., acquisition of capital assets), other temporary timing difference (e.g.,
prior period adjustments due to correction of errors). The analysis above illustrates this reconciliation by listing the
key differences between net cost and net outlays.
70.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 33. 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, 2021 and 2020. 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 2021 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance
$
-
$
3.917
$
3.917
Total Undistributed Balance
-
3,917
3,917
Interest Receivable
-
6,298
6,298
Investments, Net
4.970.058
142.361
5.112.419
Total - Assets
$
4.970.058
$
152.576
$
5.122.634
Liabilities and Equity
Equity
$
4.970.058
$
152.576
$
5.122.634
Total Liabilities and Equity
$
4.970.058
$
152.576
$
5.122.634
Receipts
Cost Recoveries
$
-
$
249,937
$
249,937
Fines and Penalties
-
1.656
1.656
Total Revenue
-
251,593
251,593
Appropriations Received
-
1,153,462
1,153,462
Interest Income
-
5.927
5.927
Total Receipts
$
-
$
1.410.982
$
1.410.982
Outlays
Transfers to/from EPA, Net $ 1.475.171
Total Outlays $.
Net Income $.
I 1.475.171
$
H.475.171)
S
! 1.475.171
$
(64.189)
S 1.410.982
71.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
In FY 2021, the EPA received an appropriation of $1.2 billion for Superfund. Treasury's Bureau of the Fiscal Service
(BFS), the manager of the Superfund Trust Fund assets, records a liability to the EPA for the amount of the
appropriation. BFS does this to indicate those trust fund assets that have been assigned for use and therefore are not
available for appropriation. As of September 30, 2021 and 2020, the Treasury Trust Fund has a liability to the EPA for
previously appropriated funds and special accounts of $5.1 billion and $5.2 billion, respectively.
SUPERFUND FY 2020 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance
$
-
$ 5.759
$
5.759
Total Undistributed Balance
-
5,759
5,759
Interest Receivable
-
6,298
6,298
Investments, Net
4.863.644
204.708
5.068.352
Total - Assets
$
4.863.644
S 216.765
$
5.080.409
Liabilities and Equity
Equity
$
4.863.644
$ 216.765
$
5.080.409
Total Liabilities and Equity
$
4.863.644
S 216.765
$
5.080.409
Receipts
Cost Recoveries
$
-
$ 237,778
$
237,778
Fines and Penalties
-
4.278
4.278
Total Revenue
-
242,056
242,056
Appropriations Received
-
1,076,535
1,076,535
Interest Income
-
83.302
83.302
Total Receipts
$
-
S 1.401.893
$
1.401.893
Outlays
Transfers to/from EPA, Net
$
1.548.747
$ (1.548.747)
$
-
Total Outlays
$
1.548.747
S M .548.747)
$
-
Net Income
$
1.548.747
S (146.854)
$
1.401.893
72.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
B. LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2021 and 2020, 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 2021 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance
$
-
$
25.686
$
25.686
Total Undistributed Balance
-
25,686
25,686
Investments, Net
85.921
951.201
1.037.122
Total - Assets
$
85.921
$
976.887
$
1.062.808
Liabilities and Equity
Equity
$
85.921
$
976.887
$
1.062.808
Total Liabilities and Equity
$
85.921
$
976.887
$
1.062.808
Receipts
Highway TF Tax
-
214,252
214,252
Airport TF Tax
-
28,268
28,268
Inland TF Tax
-
(734)
(7341
Total Revenue
-
241,786
241,786
Interest Income
-
476
476
Total Receipts
$
-
$
242.262
$
242.262
Outlays
Transfers to/from EPA, Net
$
92.203
$
(92.203)
$
-
Total Outlays
$
92.203
$
(92.203)
$
-
Net Income
$
92.203
$
150.059
$
242.262
73.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
LUST FY 2020
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance
$
-
$
14.081
$
14.081
Total Undistributed Balance
-
14,081
14,081
Investments, Net
82.270
812.746
895.016
Total - Assets
$
82.270
$
826.827
$
909.097
Liabilities and Equity
Equity
$
82.270
$
826.827
$
909.097
Total Liabilities and Equity
$
82.270
$
826.827
$
909.097
Receipts
Highway TF Tax
$
-
$
207,604
$
207,604
Airport TF Tax
-
11,575
11,575
Inland TF Tax
-
31
31
Total Revenue
-
219,210
219,210
Interest Income
-
6.282
6.282
Total Receipts
$
-
$
225.492
$
225.492
Outlays
Transfers to/from EPA, Net $ 101.700
Total Outlays $.
Net Income $.
; 101.700
$
nni.7nm
s
; 101.700
$
123.792
S 225.492
Note 34. COVID-19 Activity
On March 27, 2020, President Donald Trump signed into law The Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) in response to the economic fallout of the COVID-19 pandemic in the United States. The EPA
received a supplemental appropriation of $7.2 million to support Environmental Program Management, Science and
Technology, Building and Facilities, and Superfund program efforts related to the virus. As of September 30, 2021
$110.2 thousand remains available for obligation.
On March 11, 2021 President Joe Biden signed into law the American Rescue Plan Act (American Rescue Plan) also
called the COVID-19 Stimulus Package, to speed up the United States' recovery from the economic and health effects
of the COVID-19 pandemic and the ongoing recession. The EPA received a supplemental appropriation of $100
million to support Environmental Program Management and State and Tribal Assistance Grants program efforts
related to recovery from the virus. As of September 30, 2021, $86.1 million remains available for obligation.
Additional COVID-19 activities are discussed in Section I, Management's Discussion and Analysis, Financial
Analysis and Stewardship Information.
74.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Note 35. 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 2020 FR can be found here: https://www.fiscal.treasurv.gov/reports-statements/ and a copy
of the 2021 FR will be posted to this site as soon as it is released.
The term "intragovernmental" is used in this note to refer to amounts that result from other components of the Federal
Government.
The term "Non-Federal" is used in this note to refer to Federal Government amounts that result from transactions with
non-Federal entities. These include transactions with individuals, businesses, non-profit entities, and State, local, and
foreign governments.
75.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Reclassification of Balance Sheet to Line Items used for the Government-wide Balance Sheet as of September 30, 2021
FY 2021 EPA Balance Sheet
Line Items Used to Prepare the FY 2021 Government-wide Balance Sheet
Financial Statement Line
Amounts
Dedicated
Collections
Combined
Dedicated
Collections
Eliminations
All Other
Amounts
(with
Eliminations)
Eliminations
Between
Dedicated
and Other
Total
Reclassified Financial
Statement Line
ASSETS
ASSETS
Intra-Governmental Assets
Intra-Governmental Assets
FBWT
11,778,430
1,114,893
(251,593)
10,915,170
-
11,778,470
FBWT
Federal Investment
6,149,540
6,149,540
-
-
-
6,149,540
Federal Investments
Investments, Net
6,298
6,298
_
_
_
6,298
Interest Receivable -
Investments
Total Investments, Net
6,155,838
6,155,838
_
_
_
6,155,838
Total Reclassified
Investments, Net
Accounts Receivable,
Capital Transfers
_
5,055,979
(5,055,979)
_
_
_
Accounts Receivable,
Capital Transfers
Accounts Receivable, Net
7,602
124,014
-
(117,190)
-
6,824
Accounts Receivable, Net
Total Accounts Receivable
7,602
5,179,993
(5,055,979)
(117,190)
-
6,824
Total Reclassified - A/R
Interest Receivable - Loans
and Not Otherwise
Classified
516
515
(515)
Interest Receivable - Loans
and Not Otherwise
Classified
Advances to Others and
Prepayments
245,934
17,695
_
228,245
_
245,940
Advances to Others and
Prepayments
Total Other
246,450
18,210
-
227,730
-
245,940
Total Reclassified Other
Total Intra-Governmental
Assets
18,188,320
12,468,934
(5,307,572)
11,025,710
.
18,187,072
Total Intra-Governmental
Assets
Cash and Other Monetary
Assets
10
_
_
10
_
10
Cash and Other Monetary
Assets
Accounts Receivable, Net
580,736
497,683
-
82,492
"
580,175
Accounts Receivable, Net
Loans Receivable, Net
585,622
585,571
-
567
"
586,138
Loans Receivable, Net
Inventory and Related
Property, Net
428
_
_
428
_
428
Inventory and Related
Property, Net
General PP&E
670,637
27,996
-
657,376
"
685,372
General PP&E, Net
Other
7,298
777
-
6,521
"
7,298
Other
Total Assets
20,033,051
13,580,961
(5,307,572)
11,773,104
"
20,046,493
Total Assets
LIABILITIES
LIABILITIES
Intra-Governmental
Liabilities
Intra-Governmental
Liabilities
Accounts Payable
151,102
59,390
-
110,610
"
170,000
Accounts Payable
Accounts Payable, Capital
Transfers
_
5,085,447
(5,055,979)
(29,468)
_
_
Accounts Payable, Capital
Transfers
Debt
746,839
746,839
-
-
"
746,839
Debt
Other - Custodial Liability
51,241
22,362
-
28,109
"
50,471
Other - Custodial Liability
Other - Miscellaneous
Liabilities
_
_
_
32,600
_
32,600
Benefit Program
Contributions Payable
Advances from Others &
Deferred Credits
154,235
139,829
_
13,296
_
153,125
Advances from Others &
Deferred Credits
Interest Payable
-
-
-
-
"
-
Interest Payable
Other Liabilities
60,827
202
-
8,538
"
8,740
Other Liabilities
Total Other - Miscellaneous
Liabilities
215,062
140,031
_
54,434
_
194,465
Total Reclassified Other -
Miscellaneous Liabilities
Total Intra-Governmental
Liabilities
1,164,244
6,054,069
(5,055,979)
163,685
_
1,161,775
Total Intra-Governmental
Liabilities
Accounts Payable
56,319
32,989
-
23,196
"
56,185
Accounts Payable
Federal Employee Benefits
Payable
232,635
17,348
_
215,289
_
232,637
Federal Employee and
Veteran Benefits
Environmental and Disposal
Liabilities
25,723
_
_
25,723
_
25,723
Environmental and Disposal
Liabilities
Advances and Deferred
Revenue
3,602,263
3,568,981
_
11,978
_
3,580,959
Advances and Deferred
Revenue
Miscellaneous Liabilities
618,667
104,154
-
537,521
"
641,675
Other Liabilities
Total Miscellaneous
Liabilities
618,667
3,723,472
-
537,521
-
4,260,993
Total Reclassified
Miscellaneous Liabilities48
76.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Total Liabilities
5,699,851
9,777,541
(5,055,979)
977,392
-
5,698,954
Total Liabilities
NET POSITION
NET POSITION
Unexpended Appropriations
- Funds from Dedicated
Collections
187
187
187
Net Position - Funds from
Dedicated Collections
Unexpended Appropriations
- All Other Funds
10,400,345
10,395,591
10,395,591
Net Position - Funds Other
Than Those From Dedicated
Collections
Cumulative Results of
Operations - Funds from
Dedicated Collections
3,551,640
3,803,233
(251,593)
3,551,640
Cumulative Results of
Operations - All Other
381,028
_
_
400,121
_
400,121
Total Net Position
14,333,200
3,803,420
(251,593)
10,795,712
-
14,347,539
Total Liabilities & Net
Position
20,033,051
13,580,961
(5,307,572)
11,773,104
_
20,046,493
Total Liabilities & Net
Position
Reclassification of Statement of Net Cost to Line Items Used for the Government-wide Statement of Net Cost for
For the Year Ended September 30, 2021
FY 2021 EPA SNC
Line Items Used to Prepare the FY 2021 Government-wide SNC
Financial Statement Line
Amounts
Dedicated
Collections
Combined
Dedicated
Collections
Eliminations
All Other
Amounts
(with
Eliminations)
Eliminations
Between
Dedicated
and Other
Total
Reclassified Statement
Line
Gross Costs
9,138,699
Non-Federal Costs
-
1,165,442
-
6,397,382
-
7,562,824
Non-Federal Gross Costs
-
1,165,442
-
6,397,382
-
7,562,824
Total Non-Federal Costs
Intragovernmental Costs
-
90,956
-
346,188
-
437,144
Benefits Program Costs
-
26,006
-
113,575
-
139,581
Imputed Costs
-
282,533
-
664,256
-
946,789
Buy/Sell Costs
-
-
-
110
-
110
Purchase of Assets
_
22,737
_
_
_
22,737
Borrowing and Other
Interest Expense
_
_
_
(3,286)
_
(3,286)
Other Expenses (w/o
Reciprocals)
_
422,232
_
1,120,843
_
1,543,075
Total Intragovernmental
Costs
Total Gross Costs
9,138,699
1,587,674
_
7,518,225
_
9,105,899
Total Reclassified Gross
Costs
Earned Revenue
555,481
671,109
(249,937)
2,492
_
423,664
Non-Federal Earned
Revenue
Intragovernmental
Revenue
-
26,525
-
86,686
-
113,211
Buy/Sell Revenue
-
-
-
110
-
110
Purchase of Assets Offset
_
26,525
_
86,796
_
113,321
Total Intragovernmental
Earned Revenue
Total Earned Revenue
555,481
697,634
(249,937)
89,288
_
536,985
Total Reclassified Earned
Revenue
NET COST
8,583,218
890,040
249,937
7,428,937
-
8,568,914
NET COST
77.
-------
United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(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, 2021
FY 2021 EPA SCNP
Line Items Used to Prepare the FY 2021 Government-wide SCNP
Financial Statement Line
Amounts
Dedicated
Collections
Combined
Dedicated
Collections
Eliminations
All Other
Amounts
(with
Eliminations)
Eliminations
Between
Dedicated
and Other
Total
Reclassified Statement
Line
UNEXPENDED
APPROPRIATIONS
UNEXPENDED
APPROPRIATIONS
Unexpended appropriations,
Beginning Balance
9,599,848
(188)
_
9,593,529
_
9,593,341
Unexpended appropriations,
Beginning Balance
Appropriations Received
9,200,494
-
-
9,152,443
-
9,152,443
Appropriations Received
Other Adjustments
(49,123)
(70)
-
70
-
-
Other Adjustments
Appropriations Transferred
In/Out
_
_
_
_
_
_
Appropriations Transferred
In/Out
Appropriations Used
(8,350,687)
(376)
-
(8,350,451)
-
(8,350,827)
Appropriations Used
Total Unexpended
Appropriations
10,400,532
CUMUL. RESULTS OF
OPERATIONS
Cumulative Results,
Beginning Balance
3,717,509
3,285,516
_
435,966
_
3,721,482
Cumulative Results,
Beginning Balance
Other Adjustments
_
_
_
_
_
_
Other Budgetary Financing
Sources
Appropriations Used
8,350,687
376
-
8,350,451
-
8,350,827
Appropriations Used
Non-Federal Non-
Exchange Revenues
Nonexchange Revenue -
Securities Investment
6,421
6,421
_
_
_
6,421
Nonexchange Revenue -
Securities Investment
Nonexchange
-
-
-
61,939
-
61,939
Borrowings and other
interest revenue
_
769
_
9,933
_
10,702
Borrowings and other
interest revenue
Nonexchange Revenue -
Other
270,567
272,223
(1,656)
(28,781)
_
241,786
Other Taxes and Receipts
1,002,766
1,002,766
Collections Transferred to a
TAS other than the General
Fund
276,988
279,413
(1,656)
1,045,857
_
1,323,614
Total Non-Federal Non-
Exchange Revenues
_
_
_
_
_
_
Borrowings and Other
Interest Revenue
-
-
-
-
-
-
Other Taxes and Receipts
Transfers In/Out w/o
Reimbursement-Budgetary
(1,441)
1,102,649
(1,081,322)
21,327
Non-Expenditure Transfers-
In of Unexpended
Appropriations and
Financing Sources
(2,004)
(2,004)
Revenue and Other
Financing Sources -
Cancellations
Total Transfers In/Out w/o
Reimbursement-Budgetary
134
(2,004)
(1,870)
Total Reclassified Transfers
In/Out w/o Reimbursement-
Budgetary
Imputed Financing Sources
172,143
26,006
_
113,576
_
139,582
Imputed Financing Sources
(Federal)
Trust Fund Appropriations
(1,064,079)
(1,064,079)
Non-entity collections
transferred to the General
Fund of the U.S.
Government
_
_
_
21,182
_
21,182
Accrual of collections yet to
be trans, to the Gen. Fund
_
_
_
9,431
_
9,431
Other non-budgetary
financing sources
Total Financing Sources
172,143
26,140
-
(921,894)
-
(895,754)
Net Cost of Operations
(8,583,218)
(890,040)
(249,937)
(7,428,937)
-
(8,568,914)
Net Cost of Operations
78.
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United States Environmental Protection Agency
Notes to the Financial Statements
For the Fiscal Year Ending September 30, 2021 and September 30, 2020
(Dollars in Thousands)
Ending Balance -
Cumulative Results of
Operations
3,932,668
3,804,054
(251,593)
400,121
3,952,582
Total Net Position
14,333,200
3,803,420
(251,593)
10,795,712
-
14,347,539
Total Net Position
Note 36. Restatements
During FY 2021 EPA determined that OPM imputed costs related to Pension, Health and Life insurance were
materially understated for FY 2020. Only 4th quarter's costs of $28.1 million were recorded; the cost for the entire
year should have been $115 million, leaving Imputed Financing Sources on the Statement of Changes in Net Position
and Gross Costs on the Statement of Net Cost understated by approximately $87 million each.
The change impacts the FY2020 Gross Costs and Net Cost on the Statement of Net Costs and Other Financing
Sources (Non-Exchange) Imputed Financing Sources on the Statement of Changes in Net Position.
Previously Restated
For the Year Ended September 30,2020 Reported Restatement Amount
Gross Cost - Statement of Net Cost $ 9,335,328 87,156 $ 9,422,484
Net Cost of Operations - Statement of Net Cost $ 8,821,164 87,156 $ 8,908,320
Imputed Financing Sources - Statement of Changes in Net Position
$ 61,949 87,156 $ 149,105
During FY21 EPA did not eliminate the upward reestimate for the WIFIA loan program leaving Intragovernmental:
Accounts Receivable and Intragovernmental: Accounts Payable overstated by $23.9 million.
Previously Restated
For the Year Ended September 30,2020 Reported Restatement Amount
Accounts Receivable
Accounts Payable
See Note 1 paragraph R for additional information.
$ 31,474
$ 126,460
(23,872) $
23,872 $
7,602
150,332
79.
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Required Supplementary Information (Unaudited)
United States Environmental Protection Agency
September 30, 2021 and 2020
(Dollars in Thousands)
Deferred Maintenance
Deferred maintenance is maintenance that was not performed when it should have been, that was scheduled and not
performed, or that was delayed for a future period. Maintenance is the act of keeping property, plant, and equipment
(PP&E) in acceptable operating condition and includes preventive maintenance, normal repairs, replacement of parts
and structural components, and other activities needed to preserve the asset so that it can deliver acceptable
performance and achieve its expected life. Maintenance excludes activities aimed at expanding the capacity of an
asset or otherwise upgrading it to serve needs different from or significantly greater than those originally intended.
Deferred Maintenance is described as the act of keeping fixed assets in acceptable condition.
Such activities include: Preventive maintenance, replacement of parts, systems, or components, and other activities
needed to preserve or maintain the asset.
The deferred maintenance as of Fiscal Year:
2021 2020
Asset Category
Buildings
$
119.869
$
128.924
Total Deferred Maintenance
$
119.869
$
128.924
80.
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In Fiscal Year 2021, in accordance with SFFAS No. 42, Deferred Maintenance and Repairs: Amending Statements of
Federal Financial Accounting Standards 6, 14, 29 and 32, the EPA presents Deferred Maintenance and Repairs
(DM&R) information by asset category as follows:
Buildings:
Policy
Explanation
Maintenance and repairs policies and how they are
applied.
The maintenance and repair policy is to maintain facilities and
real property installed equipment to fully meet mission needs
at each site. Systems are maintained to function efficiently at
full capacity and to meet or exceed life expectancy of buildings
and building systems.
How we rank and prioritize maintenance and repair
activities among other activities.
Building and facility program projects are scored and ranked
individually based on seven weighted factors to determine
priority needs. High scoring projects are prioritized above
lower scoring projects. The seven factors considered are:
health and safety, energy conservation, environmental
compliance, program requirements, repair and upkeep, space
alteration, and operational urgency. Repair and Improvement
(R&I) projects are identified and prioritized on a local basis.
Factors considered in determining acceptable
condition standards.
The nine building systems must function at a level that fully
meet mission needs. The nine building systems are: structure,
roof, exterior components and finish, interior finish, HVAC,
electrical, plumbing, conveyance, and specialized program
support equipment. Each system is rated from 0 to 5 during
facility assessments. Ratings are used to determine facility
condition index and estimated deferred maintenance.
State whether DM&R relate solely to capitalized
general PP&E and stewardship PP&E or also to
non-capitalized or fully depreciated general PP&E.
Facilities assessments and the resulting DM&R estimates are
applied to capitalize PP&E only. Full facility assessments
using the NASA parametric model are used to determine
facilities and systems indices and deferred maintenance
estimates.
PP&E for which management does not measure
and/or report DM&R and the rationale for the
exclusion of other than non-capitalized or fully
depreciated general PP&E.
Buildings are not excluded from DM&R estimates.
Explain significant changes from the prior year.
No significant changes.
EPA 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.
81.
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Vehicles:
Policy
Explanation
Maintenance and repairs policies and how they are
applied.
Vehicle managers maintain vehicles owned by the EPA in
accordance with the recommendations of the manufacturer.
How we rank and prioritize maintenance and repair
activities among other activities.
The goal is to maintain the vehicle as built and as
recommended by the manufacturer. Repairs and maintenance
are also described as system critical or minor. System critical
repairs and maintenance are high priority and are immediately
taken care of. Minor repairs are lower priority and may be
taken care of at a later date (time/scheduling permitting).
These are not critical to in-field functionality, but the repairs
are needed to maintain the vehicle as built.
Factors considered in determining acceptable
condition standards.
The vehicle is inspected to ensure that it (the vehicle) and
related specialized equipment are in good working order. The
criteria being that the vehicle is being maintained as built and
as recommended by the manufacturer.
State whether DM&R relate solely to capitalized
general PP&E and stewardship PP&E or also to
non-capitalized or fully depreciated general PP&E.
All vehicles are capitalized.
PP&E for which management does not measure
and/or report DM&R and the rationale for the
exclusion of other than non-capitalized or fully
depreciated general PP&E.
None.
Explain significant changes from the prior year.
No significant changes.
Beginning in FY 2015, requirements for recognizing and reporting significant and expected-to-be-permanent
impairment of general PP&E (except Internal Use Software) remaining in use are in SFFAS No. 44, Accounting for
Impairment of General Property, Plant, and Equipment (G-PP&E) Remaining in Use.
This statement establishes accounting and financial reporting standards for impairment of general property, plant, and
equipment remaining in use, except for internal use software. G-PP&E is considered impaired when there is a
significant and permanent decline in the service utility of G-PP&E or expected service utility for construction work in
progress. A decline is permanent when management has no reasonable expectation that the lost service utility will be
replaced or restored.
This statement does not anticipate that entities will have to establish additional or separate procedures beyond those
that may already exist, such as those related to deferred maintenance and repairs, to search for impairments.
Impairments can be identified and brought to management's attention in a variety of ways. Although a presumption
exists that there are existing processes and internal controls in place to reasonably assure identification and
communication of potential material impairments, this statement does not require entities to conduct an annual or
other periodic survey solely for the purpose of applying these standards.
Management may determine that existing processes and internal controls are not sufficient to reasonably assure
identification of potential material impairments and impairments and implement appropriate additional processes and
internal controls.
82.
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Supplemental Combined Statement of Budgetary Resources (Unaudited)
United States Environmental Protection Agency
For the Fiscal Year Ended September 30, 2021
(Dollars in Thousands)
Leaking
Environmental Underground
Programs & Storage Science &
State Tribal
Assistance
Management
Tanks Technology Superfund Agreements
Other
Totals
BUDGETARY RESOURCES
Unobligated Balance From Prior Year Budget Authority, Net
Appropriations (discretionary and mandatory)
Borrowing Authority (discretionary and mandatory)
Spending Authority From Offsetting Collection
Total Budgetary Resources
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (total)
Unobligated Balance, End of Year:
Apportioned, Unexpired Accounts
Unapportioned, Unexpired Accounts
Expired Unobligated Balance, End of Year
Unobligated Balance, End of Year (total):
Total Status of Budgetary Resources
OUTLAYS, NET
Outlays, Net (total) (discretionary and mandatory)
Distributed Offsetting Receipts (-) (Note 26)
Agency Outlays, Net (discretionary and mandatory)
Disbursements, Net (total) (mandatory)
539,838
$
8,766
$
162,251
$
3,756,194
$ 1,104,803
$ 994,703
$ 6,566,555
2,835,674
92,203
729,329
1,471,761
4,368,401
1,334,951
10,832,319
-
-
-
-
-
4,726,214
4,726,214
("29.616")
-
40.360
23.171
-
570.405
604.320
; 3.345.896
$
100.969
$
931.940
$
5.251.126
$ 5.473.204
$ 7.626.273
$ 22.729.408
; 2,921,422
$
92,830
$
797,138
$
1,696,484
$ 4,557,270
$ 7,291,679
$ 17,356,823
353,252
8,139
118,440
3,554,042
915,934
329,768
5,279,575
-
-
-
600
-
1,396
1,996
71.222
-
16.362
-
-
3.430
91.014
424.474
8.139
134.802
3.554.642
915.934
334.594
5.372.585
3.345.896
$
100.969
$
931.940
$
5.251.126
$ 5.473.204
$ 7.626.273
$ 22.729.408
2,616,620
$
84,808
$ 737,246 $
1,382,313 $ 3,714,197 $ 1,316,911 $ 9,852,095
-
-
-
("1.403.399")
-
("78.012")
("1.481.411")
2.616.620
$
84.808
$
737.246
$
("21.086"! $ 3.714.197 $ 1.238.899 $ 8.
370.684
$ 494.357
$ 494.357
83.
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AUDIT OF EPA'S FISCAL YEARS 2021
AND 2020 CONSOLIDATED FINANCIAL
STATEMENTS
84
-------
CUSTOMER SERVICE * INTEGRITY ~ ACCOUNTABILITY
Operating efficiently and effectively
EPA's Fiscal Years 2021
and 2020 (Restated)
Consolidated Financial
Statements
Report No. 22-F-0007
November 15, 2021
-------
Abbreviations:
CFC
EPA
FFMIA
OCFO
OIG
OMB
U.S.C.
WIFIA
Cincinnati Finance Center
U.S. Environmental Protection Agency
Federal Financial Management Improvement Act
of 1996
Office of the Chief Financial Officer
Office of Inspector General
Office of Management and Budget
United States Code
Water Infrastructure Finance and Innovation Act
of 2014
Are you aware of fraud, waste, or abuse in an
EPA program?
EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW (2431T)
Washington, D.C. 20460
(888) 546-8740
(202) 566-2599 (fax)
OIG Hotline@epa.gov
Learn more about our OIG Hotline.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (2410T)
Washington, D.C. 20460
(202) 566-2391
www.epa.gov/oiq
Subscribe to our Email Updates
Follow us on Twitter @EPAoig
Send us your Project Suggestions
-------
Office of Inspector General
U.S. Environmental Protection Agency
At a Glance
22-F-0007
November 15, 2021
Why We Did This Audit
We performed this audit in
accordance with the Government
Management Reform Act of
1994, which requires the
U.S. Environmental Protection
Agency's Office of Inspector
General to audit the financial
statements prepared by the
Agency each year. Our primary
objectives were to determine
whether:
• The EPA's consolidated
financial statements were
fairly stated in all material
respects.
• The EPA's internal controls
over financial reporting were
in place.
• EPA management complied
with applicable laws,
regulations, contracts, and
grant agreements.
This 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 audit supports an EPA
mission-related effort:
• Operating efficiently and
effectively.
This audit addresses a top EPA
management challenge:
• Fulfilling mandated reporting
requirements.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBCOMMENTS@epa.gov.
List of OIG reports.
EPA's Fiscal Years 2021 and 2020 (Restated)
Consolidated Financial Statements
EPA Receives an Unmodified Opinion for Fiscal Years 2021 and
2020 (Restated)
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 2021 and 2020 (restated), meaning
they were fairly presented and free of material
misstatement.
Significant Deficiencies Noted
We noted the following significant deficiencies:
• The EPA did not reconcile cash differences with the U.S. Department
of the Treasury.
• The EPA did not recognize revenue for the Water Infrastructure
Finance and Innovation Act of 2014 fee fund expenses.
• Accounts receivable source documentation was not provided in a
timely manner by EPA regions.
• The Office of the Chief Financial Officer needs to conduct periodic
reviews of users' accounts within the EPA's Contract Payment
System.
Noncompliance with Laws, Regulations, Contracts, and Grant
Agreements Noted
We noted the following instance of noncompliance with laws and regulations:
the EPA did not comply with Office of Management and Budget Circular A-136
form and content requirements for the balance sheet.
Recommendations and Planned Agency Corrective Actions
The EPA generally agreed with our findings and recommendations but
disagreed with some findings. The EPA has already completed corrective
actions on several of our findings, and some corrective actions are ongoing.
-------
^£Dsrx
' O
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
November 15, 2021
MEMORANDUM
SUBJECT: EPA's Fiscal Years 2021 and 2020 (Restated) Consolidated Financial Statements
This is our report on the subject audit conducted by the Office of Inspector General of the
U.S. Environmental Protection Agency. The project number for this audit was QA-FY21-0170. This
report contains findings that describe the problems the OIG has identified and the corrective actions the
OIG recommends. Final determination on matters in this report will be made by EPA managers in
accordance with established audit resolution procedures.
The Office of the Chief Financial Officer and the Office of Enforcement and Compliance Assurance have
primary responsibility for the issues discussed in the report.
In accordance with EPA Manual 2750, your offices provided acceptable planned corrective actions and
estimated milestone dates in response to the OIG's recommendations. All recommendations are resolved, and
no final response to this report is required. If you submit a response, however, it will be posted on the OIG's
website, along with our memorandum commenting on your response. Your response should be provided as an
Adobe PDF file that complies with 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 j ustification.
We will post this report to our website at www.epa.gov/oig.
Attachments:
1. Significant Deficiencies.
2. Compliance with Laws and Regulations.
3. Status of Prior Audit Report Recommendations.
4. Status of Recommendations.
Report No. 22-F-0007
FROM: Paul C. Curtis, Director
Financial Directorate
Office of Audit
TO:
Faisal Amin, Chief Financial Officer
Lawrence Starfield, Acting Assistant Administrator
Office of Enforcement and Compliance Assurance
-------
EPA's Fiscal Years 2021 and 2020 (Restated)
Consolidated Financial Statements
22-F-0007
Table of C
Inspector General's Report on EPA's Fiscal Years
2021 and 2020 (Restated) Consolidated Financial
Statements
Report on the Financial Statements 1
Required Supplementary Information 2
Report on Internal Control over Financial Reporting 3
Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements 5
Other Governmental Reporting Requirements 6
Prior Audit Coverage 6
Attachments
1. Significant Deficiencies 7
EPA Did Not Reconcile Cash Differences with Treasury 8
EPA Did Not Recognize Revenue for Water Infrastructure Finance and Innovation Act
of 2014 Fee Fund Expenses 10
Accounts Receivable Source Documentation Not Provided Timely by Regions 11
Office of the Chief Financial Officer Needs to Conduct Periodic Reviews of Users'
Accounts Within EPA's Contract Payment System 14
2. Compliance with Laws and Regulations 16
EPA Did Not Comply with OMB Circular A-136 17
3. Status of Prior Audit Report Recommendations 20
4. Status of Recommendations 23
Appendixes
I. EPA's FYs 2021 and 2020 (Restated) Consolidated Financial Statements 24
II. Agency Response to Draft Report 80
III. Distribution 90
-------
Inspector General's Report on EPA's
Fiscal Years 2021 and 2020 (Restated)
Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of the U.S. Environmental
Protection Agency, which comprise the consolidated balance sheets, as of September 30, 2021, and
September 30, 2020 (restated), and the related consolidated statements of net cost, net cost by major
program, changes in net position, and custodial activity; the combined statement of budgetary
resources for the years then ended; and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States 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 consolidated financial statements based on our
audit. We conducted our audit in accordance with auditing standards generally accepted in the United
States of America; the standards applicable to financial statements contained in Government Auditing
Standards, issued by the comptroller general of the United States of America; and Office of
Management and Budget Bulletin 21-04, Audit Requirements for Federal Financial Statements. These
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order 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.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
22-F-0007
1
-------
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. Treasury is also responsible for investing amounts not needed for current
disbursements and transferring funds to the EPA as authorized in legislation. Since Treasury, and not the
EPA, is responsible for these activities, our audit work did not cover these activities.
The Office of Inspector General is not independent with respect to amounts pertaining to OIG
operations that are presented in the financial statements. The amounts included for 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, 2021 and 2020, in conformity with accounting principles
generally accepted in the United States of America.
Emphasis of Matter- Restatement of Fiscal Year 2020
As described in Note 36 to the financial statements, the fiscal year 2020 financial statements have been
restated to correct misstatements related to imputed costs for Pension, Health, and Life insurance and
to eliminate intragovernmental receivables and payables. Our opinion is not modified with respect to
this matter.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the information in
the Required Supplementary Information, Supplemental Information, and Management's Discussion and
Analysis sections be presented to supplement the EPA's financial statements. Such information,
although not a part of the basic consolidated financial statements, is required by the OMB and the
Federal Accounting Standards Advisory Board, which consider it to be an essential part of the financial
reporting that places the basic consolidated financial statements in an appropriate operational,
economic, or historical context.
We have applied certain limited procedures to the Required Supplementary Information, Supplemental
Information, and Management's Discussion and Analysis, in accordance with auditing standards
generally accepted in the United States 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 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.
22-F-0007
2
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Report on Internal Control over Financial Reporting
Opinion on Internal Control. In planning and performing our audit of the consolidated financial
statements as of and for the year ended September 30, 2021, in accordance with auditing standards
generally accepted in the United States of America, we considered the EPA's internal control over
financial reporting as a basis for designing our audit procedures that are appropriate in the
circumstances for the purpose of expressing an opinion on the financial statements and to comply with
the OMB's audit guidance, but not to express an opinion on the effectiveness of the EPA's internal
control. Accordingly, we do not express an opinion on the effectiveness of the EPA's internal control
over financial reporting.
Material Weakness and Significant Deficiencies. Our consideration of the internal control was for the
limited purpose of expressing an opinion on the EPA's financial statements and was not designed to
identify all deficiencies in internal control that might be material weaknesses or significant deficiencies;
therefore, such deficiencies in internal control may exist that were not identified during the course of
our audit. A deficiency in internal control over financial reporting exists when the design or operation of
a control does not allow management or employees, in the normal course of performing their assigned
functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the entity's financial statements will not be
prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control over financial reporting that is less severe than a material
weakness yet important enough to merit attention by those charged with governance.
Because of inherent limitations in internal control, misstatements, losses, or noncompliance may
nevertheless occur and not be detected. We noted certain matters, which we discuss below, involving
the internal control and its operation that we consider to be significant deficiencies. These issues are
summarized below and detailed in Attachment 1.
Significant Deficiencies
EPA Did Not Reconcile Cash Differences with Treasury
We found that the EPA did not reconcile $2,109,083.84 in cash differences between the EPA's and
Treasury's cash balances. These differences remained unreconciled for nine months—from
December 2020 through August 2021. Treasury requires agencies to perform timely reconciliations of
their Fund Balance with Treasury's accounts. The EPA adjusted these recurring cash differences to
comply with Treasury's monthly reporting requirements and agree with Treasury's balances. The EPA
reversed the adjustments the following month, restoring the unreconciled cash differences in the EPA's
balances. Not adequately reconciling all cash differences increases the risk of unrecorded transactions;
fraud, waste, and mismanagement of funds; and misstatement of EPA financial statements.
EPA Did Not Recognize Revenue for Water Infrastructure Finance and Innovation Act of
2014 Fee Fund Expenses
We found that the EPA did not recognize $4,513,689 and $2,057,300 in revenue for the WIFIA fee fund
for fiscal years 2021 and 2020, respectively. Federal accounting standards require agencies to recognize
revenue as expenses are incurred. This error occurred because the EPA did not establish the correct
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accounting model for WIFIA fee fund expenses to reduce unearned revenue and recognize earned
revenue. When the EPA does not properly recognize revenue, the financial statements could be
materially misstated.
Accounts Receivable Source Documentation Not Provided Timely by Regions
EPA regions did not timely submit supporting source documents to the Cincinnati Finance Center for
over $50.7 million in accounts receivable, which then delayed recording and processing those
receivables. In one case, Region 2 submitted receivable documentation over six months after the
consent decree for that case was effective. In another case, Region 9 did not timely submit
documentation for three receivables totaling approximately $8.1 million. As a result, the CFC did not
record these four receivables in the proper fiscal year. EPA policies state that responsible offices must
forward to the CFC source documents supporting an accounts receivable for settlements or orders
demonstrating a debt owed to the Agency within five business days as specified in the applicable EPA
Resource Management directives. The regional program office, the office of regional counsel, and the
regional legal enforcement office staff are responsible for providing these documents to the CFC. When
the CFC is unable to create receivables timely, the debtor may not be billed appropriately, interest may
not accrue, and the EPA may not collect all that it is owed. Furthermore, the EPA's delayed recording of
accounts receivable could result in a material misstatement of the financial statements.
Office of the Chief Financial Officer Needs to Conduct Periodic Reviews of Users'
Accounts Within EPA's Contract Payment System
The OCFO has not conducted periodic reviews of user accounts within the EPA's Contract Payment
System. The system reports and tracks contract payments and uploads the accounting data associated
with the payments into the EPA's core financial system. EPA users, such as contract officers, project
officers, and alternate project officers, have access rights in the Contract Payment System to enter,
approve, and disapprove contract invoices.
Attachment 3 contains the status of issues reported in prior years' reports on the EPA's consolidated
financial statements. The issues included in Attachment 3 should be considered among the EPA's
significant deficiencies for fiscal year 2021. 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 Federal Managers' Financial Integrity Act Report with Our
Evaluation of Internal Control
OMB Bulletin 21-04 requires the OIG to compare material weaknesses disclosed during the audit with
those material weaknesses reported in the Agency's Federal Managers' Financial Integrity Act 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 Federal Managers' Financial Integrity Act
report.
For financial statement audit and financial reporting purposes, OMB Bulletin 21-04 defines material
weaknesses in internal control as a deficiency or combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the
entity's financial statements will not be prevented or detected and corrected on a timely basis.
Details concerning our findings on significant deficiencies can be found in Attachment 1.
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Report on Compliance with Laws, Regulations, Contracts, and Grant
Agreements
EPA management is responsible for complying with laws, regulations, contracts, and grant agreements
applicable to the Agency. As part of obtaining reasonable assurance about whether the Agency's
financial statements are free of material misstatement, we performed tests of the Agency's compliance
with certain provisions of laws, including those governing the use of budgetary authority, regulations,
contracts, and grant agreements that have a direct effect on the determination of material amounts and
disclosures in the financial statements. We also performed certain other limited procedures as described
in Codification of Statements on Auditing Standards, AU-C 250.14-16, "Consideration of Laws and
Regulations in an Audit of Financial Statements." OMB Bulletin 21-04 requires that we evaluate
compliance with federal financial statement system requirements, including the requirements referred
to in the Federal Financial Management Improvement Act of 1996, or FFMIA. We limited our tests of
compliance to these provisions and did not test compliance with all laws and regulations applicable to
the EPA.
Opinion on Compliance with Laws, Regulations, Contracts, and Grant Agreements
Providing an opinion on compliance with certain provisions of laws, regulations, contracts, and grant
agreements was not an objective of our audit and, accordingly, we do not express such an opinion.
We did not identify any instances of noncompliance that would result in a material misstatement to the
audited financial statements.
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 OMB Memorandum M-09-06, Implementation Guidance for the Federal
Financial Management Improvement Act, dated January 9, 2009, to determine whether there was any
substantial noncompliance with FFMIA.
The results of our tests did not disclose any instances of noncompliance with FFMIA requirements,
including where the Agency's financial management systems did not substantially comply with the
applicable federal accounting standard.
We identified one significant matter involving compliance with laws and regulations that came to our
attention during the course of the audit. We found that the EPA did not comply with OMB Circular A-136.
Attachment 2 provides additional details, as well as our recommendations on actions that should be
taken on this matter. We will not issue a separate management letter.
EPA Did Not Comply with Office of Management and Budget Circular A-136
We found that the EPA did not comply with the required form and content on its fiscal year 2021
balance sheet. The OMB requires agencies to use line titles and the format detailed in its Circular A-136,
Financial Reporting Requirements, dated August 10, 2021. The EPA did not revise the line titles and
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format of its balance sheet to meet the requirements. As a result, the EPA did not comply with federal
financial reporting requirements.
Other Governmental Reporting Requirements
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. § 9611(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.
During previous financial statement audits, we reported weaknesses, as detailed in Attachment 3, that
impacted our audit objectives. Those weaknesses include that:
• The EPA did not capitalize lab renovation costs.
• 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 Treasury.
• The EPA improperly recorded e-Manifest receivables and earned revenue.
• The EPA needs to improve its financial statement preparation process.
This report is intended solely for the information and use of the management of the EPA, the OMB, and
Congress, and it is not intended to be and should not be used by anyone other than these specified
parties.
Paul C. Curtis
Certified Public Accountant
Director, Financial Directorate
Office of Audit
Office of Inspector General
U.S. Environmental Protection Agency
November 9, 2021
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Prior Audit Coverage
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Significant Deficiencies
Table of Contents
Attachment 1
1 EPA Did Not Reconcile Cash Differences with Treasury 8
2 EPA Did Not Recognize Revenue for Water Infrastructure Finance and Innovation
Act of 2014 Fee Fund Expenses 10
3 Accounts Receivable Source Documentation Not Provided Timely by Regions 11
4 Office of the Chief Financial Officer Needs to Conduct Periodic Reviews of Users'
Accounts Within EPA's Contract Payment System 14
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1 - EPA Did Not Reconcile Cash Differences
with Treasury
We found that the EPA did not reconcile $2,109,083.84 in cash differences between the EPA's and
Treasury's cash balances. These differences remained unreconciled for nine months—from
December 2020 through August 2021. Treasury requires agencies to perform timely reconciliations of
their Fund Balance with Treasury's accounts. The EPA adjusted these recurring cash differences to
comply with Treasury's monthly reporting requirements and agree with Treasury's balances. The EPA
reversed the adjustments the following month, restoring the unreconciled cash difference in the EPA's
balances. Not adequately reconciling all cash differences increases the risk of unrecorded transactions,
fraud, waste, mismanagement of funds, and misstatement of EPA financial statements.
The Treasury Financial Manual, Volume 1, Part 2, Chapter 5100, "Fund Balance with Treasury,"
Section 5125, states that:
Agency reconciliation of [Fund Balance with Treasury] accounts is a key internal
control process and it ensures the accuracy of the government's receipt and
disbursement data. Therefore, agencies must perform timely reconciliations of their
agency's United States Standard General Ledger (USSGL) account 101000 to Fiscal
Service [Central Accounting Reporting System Account] Statement and implement
effective and efficient reconciliation processes.
Section 5130.10 states that:
Agencies must post account transactions to the [United States Standard General
Ledger] and must prepare an adjusted trial balance at least monthly to verify that
debit and credit postings are equal and to validate the data. They also must ensure
that the balance in the [United States Standard General Ledger] account 101000 for
each fund symbol agrees with their internal supporting documents.
Additionally, Section 5130.20 states that federal agencies must compare their Fund Balance with
Treasury transactions in their general ledgers with the Fiscal Service reports and must reconcile any
differences. According to Section 5145, by not having a timely and effective reconciliation process,
agencies could increase the risk of fraud, waste, and mismanagement of funds, as well as affect their
ability to accurately measure the full cost of the government's programs.
The EPA's Resource Management Directive 2540-03-P1, Fund Balance with Treasury Management
Standard Form 224 Reconciliation, requires the Accounting and Cost Analysis Division to monthly review
the EPA's Fund Balance with Treasury in its financial system and report issues to the respective EPA
finance center. Every month, the finance centers and the Fees and Collection Branch are required to
reclassify the Budget Fiscal Service Fund Balance with Treasury to the EPA's Fund Balance with Treasury
in the accounting system of record for their respective agency location codes. Finance centers are also
required to provide comments, as needed, to the Accounting and Cost Analysis Division in the monthly
cash differences report.
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We found that as of August 31, 2021, the EPA had not resolved $2,109,083.84 in cash differences
between the EPA's and Treasury's cash balances. These differences were unreconciled for nine months.
The differences are detailed in Table 1-1.
Table 1-1: Unreconciled cash differences
Treasury
Dollar amount
symbol
(absolute value)
6818/190108
$885,708.88
6819/200108
356,297.29
6820/210108
867,077.67
Total
$2,109,083.84
Source: OIG analysis of EPA data. (EPA OIG table)
The EPA records a monthly adjustment to clear cash differences with Treasury and reverses the
adjustment the following month. The monthly adjustments allow the EPA to agree with Treasury's
balances at the time of reporting; however, the Treasury Financial Manual requires the EPA to reconcile
the differences. Recurring cash differences in the monthly adjustments suggest that the EPA has not
properly reconciled its balances.
Upon our inquiries, the EPA stated that there are various reasons for the cash differences detailed in
Table 1-1, such as timecard corrections or adjustments, and that the differences are being reviewed and
efforts are underway to resolve the ongoing differences.
By not adequately reconciling all cash differences, the EPA increases the risk of unrecorded transactions,
fraud, waste, and mismanagement of funds. Unrecorded transactions could misstate the Agency's Fund
Balance with Treasury and EPA financial statements.
We have reported findings regarding the need for the EPA to improve its efforts to resolve cash
differences with Treasury in previous audits. While the EPA has made some progress in resolving its cash
differences, we continue to find unreconciled recurring differences during our audits.
Recommendation
We recommend that the chief financial officer:
1. Timely reconcile EPA cash differences with the U.S. Department of the Treasury.
Agency Response and OIG Assessment
The EPA concurred with our recommendation and provided acceptable planned corrective actions. The
EPA's estimated completion date for corrective actions is September 30, 2022. The Agency's response
can be found in Appendix II.
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2 - EPA Did Not Recognize Revenue for Water
Infrastructure Finance and Innovation Act of 2014 Fee
Fund Expenses
We found that the EPA did not recognize $4,513,689 and $2,057,300 in revenue for the WIFIA fee fund
for fiscal years 2021 and 2020, respectively. Federal accounting standards require agencies to recognize
revenue as expenses are incurred. This error occurred because the EPA did not establish the correct
accounting model for WIFIA fee fund expenses to reduce unearned revenue and recognize earned
revenue. When the EPA does not properly recognize revenue, the financial statements could be
materially misstated.
Statement of Federal Financial Accounting Standards Number 7, Accounting for Revenue and Other
Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, states that:
When advance fees or payments are received, ... revenue should not be recognized
until costs are incurred from providing the goods and services (regardless of whether
the fee or payment is refundable). An increase in cash and an increase in liabilities,
such as "unearned revenue," should be recorded when the cash is received.
WIFIA at 33 U.S.C. § 3909 authorizes the EPA to collect and spend fees to cover all or a portion of the
costs of servicing WIFIA loans.
The EPA recorded WIFIA fees collected as unearned revenue. When the EPA incurred $4,513,689 and
$2,057,300 in expenses related to the unearned revenue in fiscal years 2021 and 2020, respectively, it
did not properly recognize earned revenue. The EPA must recognize revenue from fees collected when
WIFIA fee fund expenses are incurred. These errors occurred because the EPA did not establish the
correct accounting model to properly decrease unearned revenue and increase earned revenue when
expenses are made. When the EPA does not use the proper accounting model, such as for recognizing
revenue when funds are expensed, the financial statements could be materially misstated.
Recommendations
We recommend that the chief financial officer:
2. Update the Water Infrastructure Finance and Innovation Act accounting model to properly
recognize earned revenue and unearned revenue as fee fund expenses are incurred.
3. Reclassify unearned revenue to earned revenue for Water Infrastructure Finance and Innovation
Act fee fund expenses incurred during fiscal years 2021 and 2020.
Agency Response and OIG Assessment
The Agency agreed with our findings and recommendations and has completed the corrective actions.
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3 - Accounts Receivable Source Documentation Not
Provided Timely by Regions
EPA regions did not timely submit supporting source documents to the CFC for over $50.7 million in
accounts receivable, which then delayed recording and processing those receivables. In one case,
Region 2 submitted receivable documentation over six months after the consent decree for that case
was effective. In another case, Region 9 did not timely submit documentation for three receivables
totaling approximately $8.1 million. As a result, the CFC did not record these four receivables in the
proper fiscal year. EPA policies state that responsible offices must forward to the CFC source documents
supporting an accounts receivable for settlements or orders demonstrating a debt owed to the Agency
within five business days as specified in the applicable EPA Resource Management directives. The
regional program office, the office of regional counsel, and the regional legal enforcement office staff
are responsible for providing these documents to the CFC. When the CFC is unable to create receivables
timely, the debtor may not be billed appropriately, interest may not accrue, and the EPA may not collect
all that it is owed. Furthermore, the EPA's delayed recording of accounts receivable could result in a
material misstatement of the financial statements.
According to the U.S. Government Accountability Office's Standards for Internal Control in the Federal
Government, transactions should be "promptly recorded to maintain their relevance and value to
management in controlling operations and making decisions." Statement of Federal Financial
Accounting Standards 1, Accounting for Selected Assets and Liabilities, requires that a receivable "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, (e.g., taxes not received by the date they are
due), or goods or services provided." Statement of Federal Financial Accounting Standards 7, Accounting
for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial
Accounting, requires that accounts receivable be recognized "when a collecting entity establishes a
specifically identifiable, legally enforceable claim to cash or other assets through its established
assessment processes to the extent the amount is measurable."
The EPA's Resource Management Directive System 2550D-14-P1, Financial Management of the
Superfund Program, Superfund Accounts Receivable and Billings, requires the office of regional counsel,
the legal enforcement office, or the regional program office, as applicable, to forward copies of all
signed administrative settlement agreements and EPA documents that formally assess stipulated
penalties within five business days of the effective date of the document. The office of regional counsel
or the legal enforcement office must forward copies of entered civil judgements, including consent
decrees, to the CFC within five business days of receipt of notice. The office of regional counsel or the
legal enforcement office must ensure that other source documents, such as Superfund State Contracts
or other official notices requiring payment, are forwarded to the CFC within five business days of final
signature.
Resource Management Directive System 2540-9-P3, Financial and Accounting Management,
Administrative and Civil Judicial Penalties, specifically addresses "the process for recognizing civil
penalties owed to the Agency resulting from administrative and civil judicial enforcement actions." The
directive requires that the originating office ensure documentation of administrative penalties and
bankruptcy proceedings are provided to the CFC within five business days of receipt of the order or
documentation. For regionally initiated administrative enforcement actions, the office of regional
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counsel or regional equivalent are to ensure that penalties are entered in the EPA Case Tracking System,
which automatically sends a request to the CFC to establish a billing document.
We found that EPA regional enforcement staff did not timely submit legal source documentation, such
as consent decrees and administrative orders, to the CFC for over $50.7 million in accounts receivable,
which then delayed recording and processing those receivables. The CFC received associated source
documents between one day and over six months after the due date. Table 3-1 provides a summary of
the relevant exceptions found throughout our audit.
Table 3-1: Summary of receivables support not recorded timely
OIG analysis
description
Number of
receivables
Number of
exceptions
Number of
business
days late
Amount
U.S. Department of Justice
report reconciliation
46
8
1 to 32 days
$28,287,715.00
Integrated Compliance
Information System report
reconciliation
71
1
69 days
$116,445.00
Superfund control
29
3
2 to 8 days
$11,785,762.16
Cut-off testing
4
4
4 to 138
days
$10,519,000.00
Total
150
16
$50,708,922.16
Source: OIG analysis of receivables tested. (EPA OIG table)
In one case, Region 2 submitted documentation for a $2.4 million receivable over six months after the
consent decree was effective. The regional enforcement staff sent the consent decree in October 2021,
outside of the proper accounting period. That required the CFC to process a journal voucher, which is a
manual adjustment created by the OCFO to adjust for financial statement purposes, to correct the
understated accounts receivable in the fiscal year 2021 financial statements. In another case, Region 9
did not timely submit documentation for three receivables totaling approximately $8.1 million. As a
result, the CFC did not record these four receivables in the proper fiscal year.
The regional enforcement staff are required to effectively communicate with the finance center
regarding the status of settlement agreements to prevent untimely recording of accounts receivable.
When the CFC is unable to create receivables timely, the debtor may not be billed appropriately,
interest may not accrue, and the EPA may not collect all that it is owed. Furthermore, the EPA's delayed
recording of accounts receivable could result in a material misstatement of the financial statements. The
EPA has policies and procedures in place to direct the regions to provide documents timely. The
frequency of the delays indicates that the regions are not adhering to those policies and procedures.
Therefore, we believe that regional offices should work with the CFC to resolve this control issue.
Recommendations
We recommend that the assistant administrator for Enforcement and Compliance Assurance:
4. Enforce the existing policies and procedures, which includes forwarding accounts receivable
source documents to the Cincinnati Finance Center, in accordance with the time frame provided
in the applicable resource management directives.
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5. Implement a system that tracks the dates when accounts receivable source documents need to
be submitted and are submitted by the Office of Enforcement and Compliance Assurance to the
Cincinnati Finance Center.
We recommend that the chief financial officer:
6. Record the three receivables totaling approximately $8.1 million in the fiscal year 2021 financial
statements.
Agency Response and OIG Assessment
The Agency agreed with our recommendations and has proposed ongoing corrective actions.
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4 - Office of the Chief Financial Officer Needs to
Conduct Periodic Reviews of Users' Accounts Within
EPA's Contract Payment System
The OCFO has not conducted periodic reviews of user accounts within the EPA's Contract Payment
System. The system reports and tracks contract payments and uploads the accounting data associated
with the payments into the EPA's core financial system. EPA users, such as contract officers, project
officers, and alternate project officers, have access rights in the Contract Payment System to enter,
approve, and disapprove contract invoices.
The EPA's information security procedure—CIO 2150-P-01.2, Information Security - Access Control
Procedure—requires system owners of EPA-operated systems to conduct periodic reviews of user
accounts and disable, remove, or terminate the accounts, as appropriate. However, the OCFO lacks a
strategy to conduct these required reviews to verify users' access and prevent unauthorized access to
sensitive financial data.
In addition, CIO 2150-P-04.2, Information Security - Security Assessment and Authorization Procedures,
requires system owners of EPA-operated systems to ensure that service providers:
• Document and manage discovered weaknesses and planned remedial actions by entering a Plan
of Action and Milestones into the Agency Information Security Repository within:
o 30 days of when the risk is determined to be "high," and the weakness cannot be or is
not remediated or mitigated within 30 days of discovery.
o 60 days of when the risk is determined to be "medium," and the weakness cannot be or
is not corrected within 60 days of discovery.
o 90 days of when the risk is determined to be "low," and the weakness cannot be or is
not corrected within 90 days of discovery.
• Document a senior information official or risk executive's decision to accept a weakness in a
Plan of Action and Milestones.
The OCFO commented that it has not conducted periodic reviews of user accounts within the Contract
Payment System because of other priorities and limited resources.
Not conducting these required reviews exposes the EPA to operational risks that could jeopardize the
confidentiality, integrity, and availability of financial data and access to the system. Unauthorized
personnel could expose the Contract Payment System to unidentified threats and vulnerabilities that
could put the system and the information it processes, stores, or transmits at risk of being disclosed,
modified, or destroyed.
We issued a discussion document on September 8, 2021, with proposed recommendations to develop a
strategy to conduct user account reviews and create a Plan of Action and Milestones to document the
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decision to either mitigate or accept the risk of not conducting periodic reviews of user accounts. In the
OCFO's response dated September 29, 2021, it provided the OIG with its User Access Control
Management Plan, which outlines activities to complete the required user account reviews within the
Contract Payment System by December 31, 2021.
Recommendation
We recommend that the chief financial officer:
7. Complete the review of user accounts within the Contract Payment System as outlined in the
Office of the Chief Financial Officer User Access Control Management Plan by the planned
milestone. If all the activities are not completed by that date, the Office of the Chief Financial
Officer should create a Plan of Action and Milestones within the Agency Information Security
Repository in accordance with the requirements described in CIO 2150-P-04.2, Information
Security - Security Assessment and Authorization Procedures.
Agency Response and OIG Assessment
The Agency concurred with the recommendation and provided documentation that all corrective actions
were completed on November 9, 2021. The OIG concurs with the actions taken and considers
Recommendation 7 complete.
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Attachment 2
Compliance with Laws and Regulations
Table of Contents
5 EPA Did Not Comply with OMB Circular A-136 17
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5 - EPA Did Not Comply with OMB Circular A-136
We found that the EPA did not comply with the required form and content on its fiscal year 2021
balance sheet. The OMB requires agencies to use line titles and the format detailed in its Circular A-136,
Financial Reporting Requirements, dated August 10, 2021. The EPA did not revise the line titles and
format of its balance sheet to meet the requirements. As a result, the EPA did not comply with federal
financial reporting requirements.
Circular A-136, which is updated annually, sets forth financial reporting requirements for federal
agencies that must submit annual audited financial statements. Section 11.3.2.2, "Balance Sheet
Template," states that entities must use the asset and liability line titles on the numbered lines shown in
the balance sheet template provided in that section. It also states that the "commitments and
contingencies" line should not contain balance amounts and should only be included as a heading to
direct readers to the applicable financial statement footnote. Section 11.3.2.3 states that under federal
accounting standards, stewardship land information is classified as basic information, requiring the
balance sheet to include a reference to a note disclosure.
Based on our preliminary examination of the balance sheet, we found that the EPA did not use the
required titles for certain asset and liability lines. The differences are detailed in Table 5-1.
Table 5-1: Differences between EPA's balance sheet and Circular A-136 balance sheet template
Circular A-136 balance sheet line title I
I EPA's balance sheet line title
Assets - Intragovernmental:
6. Other Assets
Other
10. Loans receivable, net
Direct Loans Receivable, Net
Assets-With the Public:
17. Other Assets
Other
Liabilities-lntragovernmental:
22. Accounts payable
Accounts Payable and Accrued Liabilities
24. Debt
Debt Associated With Loans
Not in Circular A-136
Custodial Liability
26. Other Liabilities
Other
Liabilities-With the Public:
28. Accounts payable
Accounts payable and Accrued Liabilities
30. Federal employee [and veteran] benefits payable
Pensions and Other Actuarial Liabilities
31. Environmental and disposal liabilities
Environmental Cleanup Costs
Not in Circular A-136
Cashout Advances, Superfund
32. Benefits due and payable
Payroll and Benefits Payable
37. Other Liabilities
Other
Source: OIG analysis of EPA data and OMB Circular A-136, section II.3.2.2, "Balance Sheet Template."
(EPA OIG table)
We also found that the EPA erroneously included the commitments and contingencies line under the
liabilities section. The line should have been included as a heading below the "Total liabilities" line. In
addition, the EPA did not include in its balance sheet the "Stewardship PP&E" heading to direct the
reader to the applicable financial statement footnote. The EPA did not follow the prescribed template
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for the net position section of the balance sheet. Figures 5-1 and 5-2 demonstrate the differences
between the EPA's and Circular A-136's net position section.
Figure 5-1: Line titles for the net position section of the balance sheet according to
Circular A-136's template
Net Position:
41.1 Unexpended Appropriations-Funds from Dedicated Collections (Note 20}
41.2 Unexpended Appropriations-Funds from Other than Dedicated Collections
41. Total Unexpended Appropriations (Combined or Consolidated)
42.1 Cumulative Results of Operations-Funds from Dedicated Collections (Note 20)
42.2 Cumulative Results of Operations-Funds from other than Dedicated Collections
42. Total Cumulative Results of Operations (Combined or Consolidated)
43. Total net position
Source: OMB Circular A-136, section II.3.2.2, "Balance Sheet Template." (OMB image)
Figure 5-2: Line titles on the net position section of EPA's balance sheet
NET POSITION
Unexpended Appropriations - Funds from Dedicated Collections
Cumulative Results of Operations - Funds from Dedicated Collection:;
Total Net Position - Funds from Dedicated Collections (Note 18)
Unexpended Appropriations - All Other Funds
Cumululative Results of Operations - All Other Funds
Total Net Position - Other Funds
Total Net Position
Source: EPA's fiscal year 2021 balance sheet. (EPA image)
The EPA was aware that the circular included a new format required for the balance sheet. The circular
was updated on August 27, 2020, to streamline reporting requirements and reflect current federal
generally accepted accounting principles. This update introduced new form and content for the balance
sheet for which early adoption was allowed. All entities are required to follow the new format in
preparing their fiscal year 2021 financial statements. The EPA followed its prior-year balance sheet form
and content without making the appropriate revisions to comply with Circular A-136's new format
requirements. By not complying with reporting requirements, the EPA undermines the trust and
reliability of its financial statements.
Recommendation
We recommend that the chief financial officer:
8. Update the fiscal year 2021 financial statements to comply with Office of Management and
Budget's Circular A-136, specifically, the balance sheet line items.
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Agency Response and OIG Assessment
The EPA concurred with our recommendation and completed most of the Circular A-136 form and
content issues. However, we noted several uncorrected line items in the balance sheet, which consists
mostly of account groupings. The amounts are not material to the overall financial statements. The
Agency's response can be found in Appendix II.
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Attachment 3
Status of Prior Audit Report Recommendations
The EPA continues to strengthen its audit management practices and procedures to address audit
findings in a timely manner and to complete corrective actions expeditiously and effectively. In fiscal
year 2021, the EPA's chief financial officer, as the agency follow-up official, continued to encourage
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 OCFO
accomplished the following actions to strengthen its audit management procedures:
• Worked closely with the agency audit follow-up coordinators during fiscal year 2021 to
ensure that corrective action dates were being met and the required certification
memorandums were being submitted.
• Provided monthly reporting for the agencywide metric on the number of late audit
corrective actions. The metric measures the completion of Agency-identified corrective
actions that were not completed in a timely manner. The intended purpose of the monthly
reporting is to facilitate the implementation of Agency corrective actions to OIG audit
recommendations and decrease the number of late audit corrective actions.
• Launched a new audit tracking tool—called the Enterprise Audit Management System—for
tracking OIG and Government Accountability Office audits and evaluations. The Enterprise
Audit Management System facilitates the tracking and reporting of the Agency's corrective
actions.
• Prepared a monthly OIG and Government Accountability Office tracker intended to provide
Agency senior leadership with visibility on OIG and Government Accountability Office
audits and evaluations. The tracker includes the most recent audit and evaluation updates
and is distributed monthly to Agency senior leaders.
• Maintained the audit community intranet site, which serves as a one-stop-shop resource
for the audit follow-up coordinators and liaisons. This collaborative site includes resources
and reference materials, such as standard operating procedures, response templates,
frequently asked questions, reporting links, deadlines, and other useful information.
• Provided training during the OCFO technical training series on the Agency's audit and
evaluation processes. The training provided an overview of the audit follow-up
coordinator's roles and responsibilities and emphasized the importance of preparing
effective corrective actions and completing them in a timely manner.
• Held periodic meetings with audit follow-up coordinators and audit liaisons to discuss issues
and concerns and to emphasize adherence to corrective action due dates and the need to keep
the Enterprise Audit Management System current.
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These and other efforts are a testament to the OCFO's continued commitment to improving the Agency's
audit and evaluation management practices. In addition, the EPA maintained its commitment to engage
early with the OIG on audit and evaluation findings and to develop effective corrective actions that
address OIG recommendations.
As noted in the table below, however, there are still recommendations from previous financial
statement audits that remain either unresolved or unimplemented.
Table 3-1: Significant deficiency issues not fully implemented
EPA Did Not Capitalize Lab Renovation Costs
During our fiscal year 2014 audit, we found that 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. We recommended that the chief financial officer capitalize and book the Research Triangle Park lab
renovation costs and calculate depreciation; improve and maintain support for how EPA lab renovation projects are
funded; review funding sources of all current and future lab renovations to ensure correct funding is utilized;
develop policies and procedures for capital improvements/betterments to real property, and request the Office of
General Counsel to determine whether the legal opinion represents a legally acceptable position regarding the
definition of "construction" and to provide adequate examples to guide determinations of when renovation work
should be funded out of Agency programs.
One corrective action was partially completed: the EPA's Office of General Counsel indicated continued agreement
with its 1999 legal opinion regarding EPA construction accounting but did not provide examples to guide the
Agency's determinations of when renovation work should be funded from Agency program appropriations or
building and facilities funds.
Corrective actions for other recommendations related to this finding were initially due in September 2017; however,
the Agency revised the estimated milestone date to February 28, 2018. On July 18, 2018, the Office of General
Counsel stated that determining whether renovation work should be funded out of program Agency dollars or
buildings and facilities funds is very fact-specific; therefore, providing global examples was not feasible. The Office
of General Counsel has no further information to provide and believes its review is complete. The OIG will continue
to report the issue as not fully resolved.
Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the
Finance Center
During our fiscal year 2014, we found that the EPA and the U.S. Department of Justice did not forward accounts
receivable source documents to the CFC in a timely manner. We recommended that the assistant administrator for
Enforcement and Compliance Assurance require enforcement officers to include the CFC on the stipulated penalty
letters mailing list; remind personnel to timely forward legal documents, and work with the Department of Justice to
ensure timely document submission.
We also recommended that the chief financial officer work with the Office of Enforcement and Compliance
Assurance to update EPA Superfund guidance to ensure timely submission of Superfund accounts receivable
control forms to the finance center. Finally, we recommended that the deputy assistant administrator for
Administration and Resources Management, under the Office of Mission Support, require the Office of Grants and
Debarment to instruct personnel to forward source documents for grant disallowed costs timely to the finance
center.
During fiscal year 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 CFC's timely receipt of legal documents, we still identified
instances of untimely receipt during fiscal years 2015 through 2021. 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 fiscal year 2022.
22-F-0007
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EPA Should Improve Its Efforts to Resolve Long-Standing Cash Differences with Treasury
During our fiscal year 2018 audit, we found that the EPA had not resolved $2.2 million in long-standing cash
differences between the EPA's and Treasury's 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. We continued to find recurring
differences in fiscal years 2020 and 2021. Therefore, we do not consider the corrective actions complete.
EPA Improperly Recorded e-Manifest Receivables and Earned Revenue
During our fiscal year 2019 audit, the EPA did not properly record $15,682,808 of e-Manifest receivables. 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.
We recommended that the chief financial officer update the accounting models to properly record collections and
not reduce an account receivable account; establish accounting models to properly record e-Manifest account
receivables and recognize earned revenue at the transaction level; establish accounting models to properly classify
and record interest, fines, penalties, and fees; and establish accounting models to properly record receivables,
collections, and earned revenue from federal versus nonfederal vendors. The corrective actions have not been
completed as of our fiscal year 2021 audit. The EPA's estimated completion date for corrective actions was
originally September 30, 2021; subsequently, the EPA revised the estimated completion date to March 31, 2022.
EPA Needs to Improve Its Financial Statement Preparation Process
During our fiscal year 2019 audit, we found multiple instances whereby the Agency had major misstatements of its
financial transactions and financial statements. We recommended that the chief financial officer evaluate and
improve the EPA's process for preparing financial statements and provide accurate and reliable supporting
documentation for adjustments and corrections to the financial statements. The EPA agreed with our findings and
recommendations. The Agency's estimated completion date for corrective actions was originally July 31, 2020, for
Recommendation 1; subsequently, the EPA revised its estimated completion date to September 30, 2021. The
EPA's estimated completion date for Recommendation 2 was February 29, 2020. During fiscal year 2020, we
continued to find misstatements and adjustment errors in the EPA's financial statement preparation process. We
recommended that the chief financial officer develop a plan to strengthen and improve the preparation and
management review of the financial statements and adjustments entered into the accounting system so that errors
and misstatements are detected and corrected in a timely manner. The EPA's estimated planned completion date
for our fiscal year 2020 recommendation is December 31, 2021.
Source: OIG analysis of prior year recommendations and the Agency's corrective actions. (EPA OIG table)
22-F-0007
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Attachment 4
Status of Recommendations
RECOMMENDATIONS
Rec.
No.
No.
Subject
Status1
Action Official
Planned Completion Date
Potential
Monetary
Benefits
(in $000s)
9 Timely reconcile EPA cash differences with the U.S.
Department of the Treasury.
10 Update the Water Infrastructure Finance and
Innovation Act accounting model to properly
recognize earned revenue and unearned revenue as
fee fund expenses are incurred.
10 Reclassify unearned revenue to earned revenue for
Water Infrastructure Finance and Innovation Act fee
fund expenses incurred during fiscal years 2021 and
2020.
12 Enforce the existing policies and procedures, which
includes forwarding accounts receivable source
documents to the Cincinnati Finance Center, in
accordance with the time frame provided in the
applicable resource management directives.
13 Implement a system that tracks the dates when
accounts receivable source documents need to be
submitted and are submitted by the Office of
Enforcement and Compliance Assurance to the
Cincinnati Finance Center.
13 Record the three receivables totaling approximately
$8.1 million in the fiscal year 2021 financial
statements.
15 Complete the review of user accounts within the
Contract Payment System as outlined in the Office of
the Chief Financial Officer User Access Control
Management Plan by the planned milestone. If all
the activities are not completed by that date, the
Office of the Chief Financial Officer should create a
Plan of Action and Milestones within the Agency
Information Security Repository in accordance with
the requirements described in CIO 2150-P-04.2,
Information Security - Security Assessment and
Authorization Procedures.
18 Update the fiscal year 2021 financial statements to
comply with Office of Management and Budget's
Circular A-136, specifically, the balance sheet line
items.
Chief Financial Officer
Chief Financial Officer
Chief Financial Officer
Assistant Administrator
for Enforcement and
Compliance Assurance
Assistant Administrator
for Enforcement and
Compliance Assurance
Chief Financial Officer
Chief Financial Officer
9/30/22
10/27/21
10/15/21
11/4/21
11/9/21
$8,100
Chief Financial Officer
11/4/21
1 C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
22-F-0007 23
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Appendix I
EPA's FYs 2021 and 2020 (Restated) Consolidated
Financial Statements
22-F-0007
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Appendix
Agency Response to Draft Report
z
o
T
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
November 10, 2021
OFFICE OF THE
CHIEF FINANCIAL OFFICER
MEMORANDUM
SUBJECT: Response to the Office of Inspector General Draft Report, Project No. OA-FY21-0170,
"EPA's Fiscal Years 2021 and 2020 (Restated) Consolidated Financial Statements, "
dated November 9, 2021
FROM: Faisal Amin, Chief Financial Officer
Office of the Chief Financial Officer
Amin, Faisal
Digitally signed by
Amin, Faisal
Date: 2021.11.10
19:48:50-05'00'
TO:
Paul C. Curtis, Director
Financial Directorate
Office of Audit
Thank you for the opportunity to respond to the issues and recommendations in the subject draft
report. The following is a summary of the U.S. Environmental Protection Agency's overall
position, along with its position on the report's recommendations.
AGENCY'S OVERALL POSITION
The draft report contains six recommendations for the Office of the Chief Financial Officer and
two recommendations for the Office of Enforcement and Compliance Assurance. The OCFO and
the OECA agree with the Office of Inspector General's recommendations; however, the OCFO
has provided clarification below on some of the OIG's positions. Additionally, the OECA has
identified areas within the report where information may have been misrepresented or misstated
(see Attachment A - "OECA 's Review and Comment of the OIG 's Position Paper No. 1
Accounts Receivable Source Documentation Not Provided Timely by Regions ").
OCFO RESPONSE
OIG Statement: We found that the EPA did not reconcile $2,109,083.84 in cash differences
between the EPA's and the Treasury's cash balances.
22-F-0007 25
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Response:
The agency concurs with the OIG's recommendation but notes that although the absolute
value of the differences is $2,109,083.84, the net value of the differences is $337,666.08.
Unreconciled cash differences
Treasury symbol
Dollar amount
6818/190108
$885,708.88
6819/200108
(356,297.29)
6820/210108
(867,077.67)
Total
$337,666.08
OIG Statement: We found that the EPA did not recognize $4,513,689 and $2,057,300 in
revenue for the WIFIA fee fund for fiscal years 2021 and 2020, respectively. Federal accounting
standards require agencies to recognize revenue as expenses are incurred. This error occurred
because the EPA did not establish the correct accounting model for WIFIA fee fund expenses to
reduce unearned revenue and recognize earned revenue. When the EPA does not properly
recognize revenue, the financial statements could be materially misstated.
Response:
Although the agency concurs with the OIG's recommendations, the accounting models
lacked only the transaction to recognize earned revenue and reduce unearned revenue; all the
incurred expenses for the Water Infrastructure Finance and Innovation Act Fee Fund were
properly recorded as expenses in Compass.
OIG Statement: We found that the EPA did not comply with the required form and content on
its fiscal year 2021 balance sheet. The Office of Management and Budget requires agencies to
use line titles and the format detailed in its Circular A-13 6, Financial Reporting Requirements,
dated August 10, 2021. The EPA did not revise the line titles and format of its balance sheet to
meet the requirements. As a result, the EPA did not comply with federal financial reporting
requirements. By not complying with reporting requirements, the EPA undermines the trust and
reliability of its financial statements.
Response:
The EPA agrees it did not update the titles for certain asset and liability lines in the balance
sheet as noted in Table 5-1 of the report. The EPA realizes federal guidelines are a critical
component to maintain trust and reliability in the EPA's financial statements. However,
although some line titles need to be updated, the financial statements are accurate and reflect
reliable data.
The differences stated in Table 5-1, Differences between EPA's balance sheet and Circular
A-136 balance sheet template, labeled as "Not in Circular A-l36" for the EPA's balance
sheet line title "Custodial Liability" and "Cashout Advances, Superfund" are not instances of
noncompliance. These two EPA balance sheet line titles are in agreement with the A-136 as
22-F-0007
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per Section II. 3.2.2, "Balance Sheet Template, " where it states "An entity may disaggregate
a required line title into two or more entity-specific line titles. The detail must sum to the
total that would otherwise be requiredfor the numbered line item. " These two-line titles are
unique to the EPA and they do properly sum to the total that would otherwise be required for
the numbered line item.
The agency agrees that Circular A-136 Section II.3.2.2, "Balance Sheet Template," states
that entities must use the asset and liability line titles on the numbered lines shown in the
balance sheet template provided in that section. However, the OMB's Circular A-136 does
not state that agencies "must" use the line titles in the net position section.
The agency agrees that the balance sheet presentation needs to be updated, yet these needed
revisions do not"undermine the trust and reliability of its financial statements." The asset
and liability line titles not being verbatim with the OMB's Circular A-136 on the balance
sheet has no negative impact on the accuracy and reliability of the financial statements.
For full compliance with the new OMB Circular A-136 balance sheet format, the agency has:
• Updated the balance sheet presentation to be verbatim for the line titles.
• Added the Stewardship PP&E line item to the balance sheet.
• Added the Commitments and Contingencies line item to the balance sheet.
• Updated the Net Position section for line titles.
As stated above, these revisions are simply changes in form and not changes in substance to the
displayed balance sheet, which accurately presents the agency's financial position as of
September 30, 2021.
OECA RESPONSE:
The OECA agrees with the OIG that it is important for the EPA's enforcement offices to submit
timely supporting enforcement documentation to the Cincinnati Finance Center. However, the
timeliness figures in the OIG's draft report are unclear and do not accurately reflect the EPA's
timeliness performance in FY 2021. We request that the OIG correct several factual errors noted
below. Further, we request that the OIG disaggregate its review of this measure to show where
the EPA needs improvement and where the EPA has met or exceeded the timeliness goal,
according to the EPA's policy.
The OIG's accounts receivable timeliness table states that the EPA and the Department of Justice
had 150 receivables, 16 of which were late in FY 2021. According to this table, the OIG obtained
this data from a DOJ report, an Integrated Compliance Information System (ICIS) report,
"Superfund Control," and "Cut-Off testing." While we appreciate the emails the OIG provided to
the OECA on November 1, 2021, we do not fully understand what "Superfund Control" and
"Cut-Off testing" mean, where the associated numbers come from, how they align with the
applicable Resource Management Directives, or why the OIG reviewed samples of accounts
receivable and not the entire universe of accounts receivable data. We suggest the best place to
obtain accounts receivable timeliness information is from EPA's Compass system, which houses
the EPA's financial data and is the system the agency uses to track its obligations under the
applicable directives. The data in the quarterly reports that the OECA sends to regional managers
22-F-0007
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on the EPA's timeliness performance are taken from Compass. Please see the data in Appendices
A and B of the attached OECA's Review and Comment of the OIG's Position Paper No. 1
Accounts Receivable Source Documentation Not Provided Timely by Regions (October 28,
2021). Only when the OECA and the OIG are reviewing the same data can we meaningfully
understand and discuss the EPA's timeliness performance. We would like to meet with you to
discuss the appropriate data sources for review of enforcement documentation.
The OIG's draft report highlights two examples of specific late accounts receivable related to
consent decrees-one from Region 2 and another from Region 9. The CFC sends quarterly reports
to the DOJ and manages the timeliness measure for civil judicial consent decrees on behalf of the
EPA. The Region 2 document was sent late to the CFC, but the $2.4 million receivable amount is
misleading. Because only 25 percent of the debt could be collected, the true value of this debt
was approximately $600,000, not $2.4 million. For the $8 million in receivables from Region 9,
representing three related consent decrees, the DOJ was late sending the consent decree to
Region 9. There was little the EPA could have done to achieve timeliness in this instance. In
addition, the OIG's draft report states that these receivables were not recorded in the proper
fiscal year as a result of the documentation not being timely provided. However, the court
entered the consent decrees on September 28, 2021, and the receivables would have likely been
recorded after the fiscal year ended even if the documentation had been provided within the
allowed five days. This is a relatively common occurrence when settlements are completed at the
end of the fiscal year. We request that the OIG correct the information with regard to the Region
2 and Region 9 examples.
The OECA is responsible for managing the timeliness of sending the CFC administrative penalty
orders and final EPA stipulated penalty demand letters. For administrative penalty orders, the
EPA has been meeting the five-business day submittal standard set forth in the Resource
Management Directive System 2540-9-P3 at least 95 percent of the time for the past four years,
including FY 2021. In FY 2018, the EPA was timely 95 percent of the time (1,014 of 1,070
instances); in FY 2019, the EPA was timely 96 percent of the time (881 of 920 instances); in FY
2020, the EPA was timely 95 percent of the time (874 of 920 instances); and in FY 2021, the
EPA was timely 98 percent of the time (897 of 918 instances). Please see Appendix A of the
attached OECA letter for more detailed information. The EPA has been meeting or exceeding the
95 percent goal for several years, and the OECA will continue our focus on this measure.
Accordingly, we do not believe that this task warrants continued OIG annual review, and we
request that the scope of the OIG's review of accounts receivable for FY 2021 and in the future
exclude administrative penalty orders.
The second type of enforcement document timeliness measure that the OECA manages is final
EPA stipulated penalty demand letters. When a party enters into a settlement with the EPA, the
settlement may require the party to perform certain actions. If the party fails to perform those
actions, the party is subject to stipulated penalties. The EPA may issue a stipulated penalty
demand letter to the party stating the party violated a provision of the settlement and request the
party pay a stipulated penalty. After the EPA issues the final stipulated penalty demand letter, the
EPA must send the letter to the CFC within five business days. While the EPA had a timeliness
rate of 19 percent in FY 2017 (timely in 7 out of 37 instances), since then the OECA has taken
22-F-0007
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aggressive measures to increase that percentage to 90 percent in FY 2021 (timely in 18 out of 20
instances). See Appendix B in the attached OECA letter for more detailed information.
Stipulated penalty demand letters may also come from other sources besides the EPA, such as
the DOJ or a co-plaintiff (e.g., state). Additionally, a defendant may self-report the violation and
submit a stipulated penalty payment to the EPA without a government entity issuing a demand
letter. The EPA has been working with and implementing protocols with the DOJ, co-plaintiffs,
and defendants to send demand letters and self-reporting letters to the CFC within five business
days of the debt being triggered (as a result of an action that triggers the penalty obligation);
however, these instances are outside of what the OCFO's RMDS policies require of the EPA,
outside the control of the EPA, and thus outside the scope of this measure. As such, we
respectfully request the OIG's review of accounts receivable focus on final EPA-issued
stipulated demand letters and not stipulated penalty demand letters from other sources and self-
reporting stipulated penalties by defendants for which the EPA has no control.
The analysis in the OIG's draft report is also misleading because it fails to recognize significant
results achieved as a result of changes the OECA has implemented to improve the timeliness of
the EPA's submissions to the CFC of final EPA stipulated penalty demand letters. As noted
above, we request that the OIG's report show where the EPA needs improvement and where the
EPA has met or exceeded the timeliness goal, according to the EPA's policy. We look forward to
discussing with you the corrective actions taken in FY 2021 and planned for FY 2022 to continue
to improve the EPA's timeliness.
AGENCY RESPONSE TO DRAFT REPORT RECOMMENDATIONS
No.
Recommendation
Office
High-Level Corrective
Action(s)
Estimated
Completion Date
1
Timely reconcile EPA cash
OCFO/
Concur. The OCFO has
September 30,
differences with the U.S.
OC
established a workgroup
2022
Department of the Treasury.
that will resolve the cash
differences and enhance the
standard operating
procedures to ensure timely
cash reconciliation.
2
Update the Water Infrastructure
OCFO/
Concur. The posting models
Completed
Finance and Innovation Act
OC
have been updated.
October 27, 2021
accounting model to properly
recognize earned revenue and
unearned revenue as fee fund
expenses are incurred.
3
Reclassify unearned revenue to
OCFO/
Concur. The unearned
Completed
earned revenue for Water
OC
revenue for those expenses
October 15, 2021
Infrastructure Finance and
has been reclassified to
Innovation Act fee fund expenses
earned revenue.
incurred during fiscal years 2021
and 2020.
22-F-0007
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No.
Recommendation
Office
High-Level Corrective
Action(s)
Estimated
Completion Date
4
Enforce the existing policies and
procedures, which includes
forwarding accounts receivable
source documents to the Cincinnati
Finance Center, in accordance with
the time frame provided in the
applicable resource management
directives.
OECA
Concur. The OECA agrees
that existing EPA policies,
particularly the OCFO's
Resource Management
Directives, should be
followed. The OECA has
been sending quarterly
reports on the EPA's
timeliness performance to
regional managers for years,
including in FY 2021, and
follows up with regional
managers to identify
systemic problems causing
untimely submissions. The
OECA will continue this
practice in FY 2022 and
beyond.
Completed and
Ongoing
22-F-0007
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No.
Recommendation
Office
High-Level Corrective
Action(s)
Estimated
Completion Date
5
Implement a system that tracks the
dates when accounts receivable
source documents need to be
submitted and are submitted by the
Office of Enforcement and
Compliance Assurance to the
Cincinnati Finance Center.
OECA
Concur. The OECA concurs
with the substance/intent of
the recommendation. The
OECA believes there are
benefits to having such a
system and is working with
several EPA offices to
develop an electronic case
management system that has
these capabilities (i.e.,
regions will automatically
transmit accounts receivable
documentation to the
Cincinnati Finance Center).
Currently, there is an
agency effort to develop and
implement this new system,
and while the OECA serves
as a partner, it is being led
by another agency office.
Accordingly, we will
continue to support the
agency on the development
of this new system;
however, due to our limited
role in the development of
this system, we cannot
commit to when
implementation will be
completed.
Ongoing
6
Record the three receivables
totaling approximately $8.1 million
in the fiscal year 2021 financial
statements.
OCFO/
OC
Concur. The three
receivables have been
recorded in the FY 2021
financial statements.
Completed
November 4,
2021
22-F-0007
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No.
Recommendation
Office
High-Level Corrective
Action(s)
Estimated
Completion Date
7
Complete the review of user
accounts within the Contract
Payment System as outlined in the
Office of the Chief Financial
Officer's User Access Control
Management Plan by the planned
milestone. If all the activities are
not completed by that date, the
Office of the Chief Financial
Officer should create a Plan of
Action and Milestones within the
Agency Information Security
Repository in accordance with the
requirements described in CIO
2150-P-04.2, Information Security
- Security Assessment and
Authorization Procedures.
OCFO/
OTS
Concur. The OCFO's Office
of Technology Solutions
completed the annual
review of CPS user
accounts before the planned
milestone. PTS POA&M
#19 was created in the
Agency Information
Security Repository,
XACTA. Supporting
artifacts were attached to
the POA&M and the status
updated to "Complete."
Only OISP can change the
status to "Closed." Artifacts
uploaded include the CPS
User Access Plan (with
scheduled milestones) and
spreadsheet containing
recertification information
for CPS Users.
Completed
November 9,
2021
8
Update the fiscal year 2021
financial statements to comply with
Office of Management and
Budget's Circular A-136,
specifically, the balance sheet line
items.
OCFO/
OC
Concur. The FY 2021
financial statements have
been updated to comply
with the OMB's Circular A-
136.
Completed
November 4,
2021
CONTACT INFORMATION
If you have any questions regarding this response, please contact the OCFO's Audit Follow-up
Coordinator, Andrew LeBlanc, at leblanc.andrew@epa.gov or (202) 564-1761.
cc: Lawrence Starfield
David Bloom
Carol Terris
Lek Kadeli
Jeanne Conklin
Michael Clanton
Charles Sheehan
Edward Shields
Katherine Trimble
Meshell Jones-Peeler
22-F-0007
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Richard Gray
Derek David
Mark Badalamente
Laura Nicolosi
James Hatfield
Damon Jackson
OCFO-OC-MANAGERS
David Devere
Kimberly Jackson
Wanda Arrington
Mairim Lopez
Claire McWilliams
Demetrios Papakonstantinou
Gwendolyn Spriggs
Alana Maye
Andrew LeBlanc
Jose Kercado
22-F-0007
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Appendix III
Distribution
The Administrator
Deputy Administrator
Chief of Staff, Office of the Administrator
Deputy Chief of Staff, Office of the Administrator
Chief Financial Officer
Agency Follow-Up Coordinator
General Counsel
Assistant Administrator for Enforcement and Compliance Assurance
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Deputy Chief Financial Officer
Associate Chief Financial Officer
Associate Chief Financial Officer for Policy
Principal Deputy Assistant Administrator for Enforcement and Compliance Assurance
Controller
Deputy Controller
Associate Deputy Controller
Director, Office of Continuous Improvement, Office of the Chief Financial Officer
Director, Office of Budget, Office of the Chief Financial Officer
Director, Office of Planning, Analysis and Accountability, Office of the Chief Financial Officer
Director, Office of Resource and Information Management, Office of the Chief Financial Officer
Director, Office of Technology Solutions, Office of the Chief Financial Officer
Director, Accounting and Cost Analysis Division, Office of the Controller
Director, Policy, Training, and Accountability Division, Office of the Controller
Branch Chief, Management, Integrity, and Accountability Branch; Policy, Training, and Accountability
Division, Office of the Controller
Director, Research Triangle Park Finance Center, Office of the Chief Financial Officer
Director, Cincinnati Finance Center, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Administrator
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
Audit Liaison, Office of Budget, Office of the Chief Financial Officer
Audit Liaison, Office of the Controller
Audit Liaison, Office of Technology Solutions, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of Enforcement and Compliance Assurance
Backup Audit Follow-Up Coordinator, Office of the Chief Financial Officer
22-F-0007
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Section III
1
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MANAGEMENT INTEGRITY AND CHALLENGES
Overview of EPA's Efforts
Management challenges and internal control 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 the Office of Management and Budget, the
Government Accountability Office and EPA's Office of Inspector General. This section of the AFR discusses
in detail two components: 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 2021 material weaknesses.
Under the FMFIA, all federal agencies must provide reasonable assurance that internal controls are
adequate to support the achievement of their intended mission, goals, and objectives. (See Section I,
"Management Discussion and Analysis," for the Administrator's Statement of Assurance.) Additionally,
Agencies must report any material weaknesses identified through internal and/or external reviews and
their strategies to remedy the problems. Material weaknesses are vulnerabilities that could significantly
impair or threaten fulfillment of the agency's programs or mission. In FY 2021, EPA did not identify any
new material weaknesses. As well, no new material weaknesses were identified by OIG. (See following
subsection for a discussion of EPA's progress in addressing its material weakness.)
The agency's senior managers remain committed to maintaining effective and efficient internal controls to
ensure that program activities are carried out in accordance with agency policy and applicable laws and
regulations. The agency will continue to address its remaining weaknesses and report on its progress, as
appropriate.
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2021 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 2021, the OIG identified seven challenges. The table below includes issues the
OIG identified as key management challenges facing the EPA and the years in which the OIG identified the
challenge.
OIG-identified key management challenges for the EPA
FY
2020-
2021
FY
2021-
2022
Mitigating the Causes and Adapting to the Impacts of Climate Change. The EPA must
take a leadership role in limiting climate change and mitigating its effect on human health
and the environment.
•
Integrating and Leading Environmental Justice Across the Agency and Government.
* As part of its effort to integrate environmental justice across its programs, the EPA must
address the environmental hazards and cumulative risk facing at-risk communities and
effectively communicate that risk to those communities.
•
•
Ensuring the Safe Use of Chemicals. The EPA must develop timely and accurate
chemical risk assessments to identify acceptable exposure levels for humans and the
environment.
•
Safeguarding Scientific Integrity Principles. Science-based decisions at the EPA must
be based on principles of scientific integrity to ensure human health and the environment
are protected by using the best available science.
•
Ensuring Information Technology and Systems Are Protected Against Cyberthreats.
* Information technology is a fundamental and essential resource for the EPA to carry out
its mission.
•
•
Managing Infrastructure Funding and Business Operations. The EPA must effectively
oversee the funding and operation of America's water, wastewater, and other
environmental infrastructure.
•
Enforcing Environmental Laws and Regulations. Through enforcement, the EPA
ensures that regulated entities are following environmental law and will continue to do so,
as enforcement actions effectively deter future noncompliance.
•
* This management challenge was retained from the EPA's FYs 2020-2021 Top Management Challenges, Report No. 20-N-0231,
issued July 21,2020.
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OFFICE OF INSPECTOR GENERAL
U.S. ENVIRONMENTAL PROTECTION AGENCY
CUSTOMER SERVICE ~ INTEGRITY ~ ACCOUNTABILITY
FostsaO Year
Top Maragigment Ctelfleonges
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Abbreviations
C.F.R.
Code of Federal Regulations
EDSP
Endocrine Disrupter Screening Program
EPA
U.S. Environmental Protection Agency
FY
Fiscal Year
GAO
U.S. Government Accountability Office
GHG
Greenhouse Gases
IRIS
Integrated Risk Information System
IT
Information Technology
OECA
Office of Enforcement and Compliance Assurance
OIG
Office of Inspector General
OPPT
Office of Pollution Prevention and Toxics
PFAS
Per- and polyfluoroalkyl substances
TSCA
Toxic Substances Control Act
U.S.C.
United States Code
WoE
Weight of Evidence
Are you aware of fraud, waste, or abuse in anEPA
program?
EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW (243IT]
Washington, D.C. 20460
(888) 546-8740
(202) 566-2599 (fax)
PIG Hotline@epa.gov
Learn more about our PIG Hotline.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (2410T)
Washington, D.C. 20460
(202) 566-2391
www.epa.gov/oig
Subscribe to our Email Updates
Follow us on Twitter @EPAoig
Send us your Project Suggestions
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¦vtD sr 22-N-0004
^ ^ U.S. Environmental Protection Agency November 12,2021
U \ Office of Inspector General
^ At a Glance
o
V PR0^°
What Are Management
Challenges?
The Reports Consolidation Act of
2000 requires each inspector
general to prepare an annual
statement summarizing what the
inspector general considers to be
"the most serious management
and performance challenges
facing the agency" and to briefly
assess the agency's progress in
addressing those challenges.
To identify these top challenges
for fiscal year 2022, the U.S.
Environmental Protection
Agency's Office of Inspector
General considered the body of
our work, as well as our objective
and professional observations;
work conducted by the
U.S. Government Accountability
Office; and Agency
documentation and statements.
Our top management challenges
report covering fiscal years 2020-
2021 (Report No. 20-1X1-0231)
identified eight such challenges
facing the Agency. We've
retained three of these
challenges—enhancing
information technology security,
communicating risks, and
integrating and leading
environmental justice—for this
fiscal year 2022 report but
reshaped and refocused them
into two.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG WEBCOMMENTS@epa.gov.
List of OIG reports.
EPA's FY 2022 Top Management Challenges
What We Found
After robust research and analysis, the EPA OIG identified seven top management
challenges that we believe represent the EPA's greatest vulnerabilities to waste,
fraud, abuse, and mismanagement and the EPA's most significant barriers to
accomplishing its mission during fiscal year 2022. In addition to three challenges
retained from our previous top management challenges report, which we reshaped
and refocused into two, we identified five new top challenges that focus on
emerging or increased environmental and operational threats. These seven top
challenges reflect overarching issues that affect multiple EPA programs and
responsibilities and that may prevent the Agency from efficiently and effectively
protecting human health and the environment:
1. Mitigating the Causes and Adapting to the Impacts of Climate Change.
The EPA must take a leadership role in limiting climate change and mitigating
its effect on human health and the environment.
2. Integrating and Leading Environmental Justice Across the Agency and
Government. As part of its effort to integrate environmental justice across its
programs, the EPA must address the environmental hazards and cumulative
risk facing at-risk communities and effectively communicate that risk to those
communities.
3. Ensuring the Safe Use of Chemicals. The EPA must develop timely and
accurate chemical risk assessments to identify acceptable exposure levels for
humans and the environment.
4. Safeguarding Scientific Integrity Principles. Science-based decisions at
the EPA must be based on principles of scientific integrity to ensure that
human health and the environment are protected by using the best-available
science.
5. Ensuring Information Technology and Systems Are Protected Against
Cyberthreats. Information technology is a fundamental and essential
resource for the EPA to carry out its mission.
6. Managing Infrastructure Funding and Business Operations. The EPA
must effectively oversee the funding and operation of America's water,
wastewater, and other environmental infrastructure.
7. Enforcing Environmental Laws and Regulations. Through enforcement,
the EPA ensures that regulated entities are following environmental laws and
will continue to do so, as enforcement actions effectively deter future
noncompliance.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
November 12, 2021
MEMORANDUM
SUBJECT: EPA's Fiscal Year 2022 Top Management Challenges
Report No. 22-N-0004
FROM: Sean W. O'Donnell
TO:
Michael S. Regan, Administrator
The Report Consolidation Act of 2000 requires that I prepare an annual statement summarizing what the
U.S. Environmental Protection Agency's Office of Inspector General considers to be the "most serious
management and performance challenges facing the agency." This statement is also to briefly assess the
EPA's progress in addressing these challenges. Furthermore, the Inspector General Act of 1978, as
amended, directs that I provide oversight to the EPA by conducting audits, evaluations, investigations,
and other such analyses of Agency programs and operations for the dual purposes of promoting economy,
efficiency, and effectiveness and detecting and preventing fraud, waste, and abuse. By virtue of our
statutory responsibilities, the EPA OIG has an independent and objective perspective regarding the
challenges that the EPA faces that could hinder its mission of protecting human health and the
environment, as well as the directive to share our perspective with the EPA. I am, therefore, pleased to
present this top management challenges report, which details the most serious management and
performance challenges we observe facing the EPA's programs and operations over the coming year.
To identify the Agency's top management challenges for fiscal year 2022, we mined the OIG's prolific
body of work, surveyed all EPA headquarters offices, solicited senior EPA leadership input, and held
outreach meetings with Agency offices to discuss their perceptions of the challenges affecting EPA
programs and operations. We also considered the work of the U.S. Government Accountability Office and
public statements by EPA leaders to the press and Congress. The resulting report represents our
independent and objective assessment of the areas in which the Agency will, over the next year, need to
focus its resources. This report does not simply summarize these challenges, though; it also assesses the
Agency's efforts to address them. As such, it represents a foundational effort that charts a forward path
for the OIG to plan audits, evaluations, and investigations that will assist the EPA in mitigating these
challenges and achieving its mission in the most economical, efficient, and effective manner possible.
Last year's report identified eight top management challenges facing the EPA. This report retains three of
those, albeit slightly reshaped and refocused into two, and identifies five new areas of concern, for a total
of seven top management challenges. While none of these seven challenges are more significant than the
others, some do directly address the administration's priorities of climate change and the environment. It
is also important to note that the five management challenges not retained from last fiscal year have not
been completely addressed; rather, they have only been superseded as "top" challenges.
We hope that you find this report both helpful and insightful. Thank you for your continued efforts to
address these challenges, and we look forward to working with you, on behalf of the American public, to
safeguard the air we breathe, the water we drink, and the land we sow.
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Table of Contents
INTRODUCTION 1
CHALLENGE 1: Mitigating the Causes and Adapting to the Impacts of Climate
Change 5
CHALLENGE 2: Integrating and Leading Environmental Justice Across the Agency
and Government 14
CHALLENGE 3: Ensuring the Safe Use of Chemicals 24
CHALLENGE 4: Safeguarding Scientific Integrity Principles 32
CHALLENGE 5: Ensuring Information Technology and Systems Are Protected
Against Cyberthreats 36
CHALLENGE 6: Managing Infrastructure Funding and Business Operations 40
CHALLENGE 7: Enforcing Environmental Laws and Regulations 44
-------
INTRODUCTION
The Reports Consolidation Act of 2000 requires each inspector general to prepare an annual statement
summarizing what the inspector general considers to be "the most serious management and
performance challenges facing the agency" and to "briefly assess[] the agency's progress in addressing
those challenges." To this end, the U.S. Environmental Protection Agency's Office of Inspector General
annually assesses the top management and performance challenges affecting the programs and
operations of the EPA. As part of this assessment, the OIG solicits input from senior EPA leadership,
reviews congressional hearings and public statements, analyzes oversight work conducted by the
U.S. Government Accountability Office, and considers issues raised by media coverage and the civil
sector. We also considered how the EPA's programs addressed top management challenges identified
in previous fiscal years, as well as our oversight work over fiscal year 2021. This top management
challenges report provides Congress and the Agency an independent and objective assessment of the
management and performance challenges facing the Agency over FY 2022.
The FY 2022 top EPA management challenges are:
1. Mitigating the causes and adapting to the impacts of climate change.
2. Integrating and leading environmental justice across the Agency and government.
3. Ensuring the safe use of chemicals.
4. Safeguarding scientific integrity principles.
5. Ensuring information technology and systems are protected against cyberthreats.
6. Managing infrastructure funding and business operations.
7. Enforcing environmental laws and regulations.
These challenges are not listed in order of priority, importance, or magnitude. Each challenge is critical
to ensuring that the EPA meets its mission of protecting human health and the environment. For this
reason, the top management challenges are forward-looking so that they may assist the Agency in
effectively achieving its mission and the OIG in planning oversight for the next fiscal year.
Overview of FY 2021 Management Challenges
With respect to the Fiscal Year 2021 Oversight Plan, the OIG issued 32 project notifications and 33
reports, containing 124 recommendations.
22-N-0004
1
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Table 1: OIG metrics for FY 2021 management challenges
FY 2021 Management Challenges
Notification
memorandums
Issued
recommendations*
1. Maintaining operations during pandemic and natural disaster responses.
6
4
2. Complying with key internal control requirements.
10
55
3. Overseeing states, territories, and tribes responsible for implementingEPA
2
28
programs.
4. Improving workforce/workload analyses to accomplish EPA's mission
efficiently and effectively.
0
11
5. Enhancing information technology security to combat cyberthreats.
3
5
6. Communicating risks to allow the public to make informed decisionsabout
its health and the environment.
2
9
7. Fulfilling mandated reporting requirements.
8
9
8. Integrating and leading environmental justice across the Agency and
government.
1
3
TOTAL
32
124
Source: OIG summary of metrics. (OIG table)
*Some reports issued recommendations addressing multiple management challenges which were not
the primary challenge addressed by the report.
Summary of FY 2022 Management Challenges
The first challenge, Mitigating the Causes and Adapting to the Impacts of Climate Change, focuses on
the EPA's role in providing leadership in addressing climate change. The EPA reported that "the Earth's
climate is warming and changing faster than at any point in history of modern civilization, primarily
because of emissions of heat-trapping greenhouse gases from fossil fuel combustion, deforestation,
and land-use change." To address climate change and to mitigate any consequences, Executive Order
14008, Tackling the Climate Crisis at Home and Abroad, requires a governmentwide approach. The
EPA, with its mission of protecting human health and the environment, is uniquely positioned to
provide leadership in addressing climate change nationally and working internationally to mitigate the
causes and promote measures to adapt to the impacts of climate change. Leadership on this issue will
require coordination with local, state, federal, and international government partners to develop
effective strategies and plans to mitigate and curtail climate change. To best leverage its resources and
ensure a cohesive approach, the EPA needs to implement its strategic plan to effectively address
climate change, using science as a foundation for decision-making and considering the impacts to
communities with disproportionate impacts.
The second challenge, Integrating and Leading Environmental Justice Across the Agency and
Government, highlights the EPA's continuing challenge of integrating environmental justice
considerations throughout the government. Environmental justice is the fair treatment and meaningful
involvement of all people regardless of race, color, national origin, or income, with respect to the
development, implementation, and enforcement of environmental laws, regulations, and policies.
These underserved communities are, however, among the hardest hit by pollution and environmental
hazards. President Joe Biden has made this challenge a top priority for his administration through
executive order and in proposing increased funding to directly support environmental justice efforts.
The EPA, with its mission to protect human health and the environment, will be called upon to provide
leadership in these efforts. To start, the EPA will need to assess the environmental hazards and
22-N-0004
2
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cumulative risks facing at-risk communities and effectively communicate these risks to these
communities.
The third challenge, Ensuring the Safe Use of Chemicals, focuses on the EPA's mission to protect
human health and the environment from harmful chemicals and pesticides. The EPA assesses
chemicals and their risks to find ways to prevent or reduce pollution before it gets into the
environment. The EPA also regulates the manufacture and use of all pesticides to safeguard the
nation's food supply. To effectively protect public health and the environment, the EPA must be able to
depend on its ability to conduct credible and timely assessments of the risks posed by pesticides, toxic
chemicals, and other environmental chemical risks. The 2016 expansion of the EPA's regulatory
authority under the Toxic Substances Control Act has increased the need for conducting rapid and
accurate risk assessments. Further, the EPA must continue to conduct registration and reregistration of
hundreds of pesticides per year, as well as assure that it is setting appropriate exposure levels for
contaminants in drinking water. Without appropriate resource and implementation plans in place to
demonstrate the EPA can accomplish this work, and without the ability to accurately conduct
scientifically sound risk assessments, the public's trust and confidence in the EPA's ability to
accomplish its mission of protecting human health and the environment will be at risk.
The fourth challenge, Safeguarding Scientific Integrity Principles, addresses the importance of
scientific integrity in the EPA's decision-making. As the EPA recognizes in its Scientific Integrity Policy,
"[t]he Agency's ability to pursue its mission to protect human health and the environment depends on
the integrity of the science on which it relies. Scientific integrity, therefore, results from adherence to
professional values and practices when conducting and applying the results of science and
scholarship." It ensures objectivity, clarity, reproducibility, and utility, while insulating science from
falsification, plagiarism, outside interference, censorship, and inadequate procedural and information
security systems. Yet, there have been recent instances where scientific integrity has been lost, or
appeared to be lost, because of allegations of misconduct and abuse of authority. The EPA must
develop new processes and update its regulations, policies, and guidance to protect scientific integrity.
Taking these actions will help make EPA decisions more legally defensible and maintain public trust in
the decision-making.
The fifth challenge, Ensuring Information Technology and Systems are Protected against
Cyberthreats, is a challenge that has come into renewed focus because of the actions of malicious
actors. Information systems are necessary for organizations to conduct the day-to-day transactions
necessary to meet mission objectives. And critical infrastructure systems, such as drinking water
facilities, are being maintained on computers. For this reason, criminals and other malicious actors
view our critical infrastructure systems as ready targets. Indeed, in a hearing on vulnerabilities of our
nation's drinking water supplies, Senator Tom Carper, Chairman, Committee on Environment and
Public Works, warned of the "mounting cybersecurity challenges facing our nation's drinking water and
wastewater systems." Given the EPA's oversight role regarding the water and wastewater systems, the
EPA needs to be on the forefront of proactively identifying and thwarting cyberattacks on these critical
infrastructures. The EPA will also need to ensure that its own systems are protected from these same
malicious actors because, without secure and reliable information systems, the EPA is at risk of being
unable to perform its important mission.
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The sixth challenge, Managing Infrastructure Funding and Business Operations, highlights the
challenge to EPA leadership in financing, developing, and rebuilding water infrastructure projects. The
EPA has long recognized that clean and safe drinking water is the cornerstone of public health. Every
year, the EPA provides billions of dollars to drinking water and wastewater infrastructure projects, of
which a vast majority is distributed to states, tribes, and nongovernmental organizations in the form of
grants, loans, and contracts. These investments require the EPA to provide effective oversight and
ensure proper internal controls over these funds. It is expected that, over the next five years, the EPA
will help lead the nation in one of the largest infrastructure investment programs in our history. Some
new projects will be influenced by the effects of climate change. And some completed projects may be
in need of upgrades due to the possible effects of climate change. Effectively overseeing these projects
will require dedicated EPA leadership and resources.
The seventh challenge is Enforcing Environmental Laws and Regulations. A robust enforcement
program is vital to deterring regulated entities from violating environmental laws and regulations and
to protecting human health and the environment. National level, regional level, and statute-specific
EPA compliance monitoring activities, enforcement actions, and most enforcement results, including
output and some outcome measures, generally declined from FYs 2007 through 2020. Considering its
limited resources, and despite potential funding increases in FY 2022, the EPA is challenged to assess its
resource requirements for the enforcement program and identify innovative and cost-effective means
of detecting and deterring noncompliance in the future.
Enduring and Cross-Cutting Issues
Finally, over FY 2021, the OIG recognized that some of the challenges facing the EPA were enduring and
cut across numerous media and other challenges. Building the appropriate workforce is an issue that
surfaced in many OIG audits and evaluations to include the safety of chemicals and enforcement. We
expect this to continue as the EPA is expecting additional resources that could add up to 1,000 new
hires. Also, the EPA will need to ensure effective oversight of tribes, states, and local governments
through infrastructure spending, enforcement and compliance assurance, and environmental justice.
Furthermore, the EPA counts on these partners to implement and manage a large portion of EPA
regulations. Finally, over the last two years, the OIG developed a significant body of oversight work
regarding the regulatory process. As the EPA prioritizes climate change, environmental justice,
chemical safety, and enforcement, it will need to ensure that the regulatory process, and the laws and
policies related to that process, is adhered to.
22-N-0004
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' © ^
® JsJjl®
CHALLENGE 1: Mitigating the Causes and Adapting
to the Impacts of Climate Change
Outlook and Overview
The EPA, in its Climate Adaption Action Plan, observed that:
[T]he Earth's climate is warming and changing faster than at
any point in the history of modern civilization, primarily because of emissions of heat-
trapping greenhouse gases, or GHG, from fossil fuel combustion, deforestation, and
land-use change.1
The impacts of climate change on the environment, which may continue to occur over several decades
or longer, include changes in temperature, precipitation, and wind patterns.2 These effects have
consequential impacts on human health through increased extreme weather events, such as prolonged
heat waves and intensified storms, and diminished access to essential resources in the impacted area
because of droughts and rising sea levels.
GHG are gases that trap heat in the Earth's
atmosphere. The EPA estimates that carbon
dioxide accounted for 80 percent of U.S. GHG
emissions in 2019, while methane accounted for
10 percent. The remaining GHG emissions were
from nitrous oxide and fluorinated gases.
Atmospheric GHG levels have been increasing since the
Industrial Revolution in the latter part of the 19th century;
human-produced GHG levels increased by 45 percent from
1990 to 2019.3 GHG can exist in the atmosphere for a few to
thousands of years.4 These gases act as a catalyst for
climate change because they trap and prevent heat from
escaping the Earth, accelerating climate change impacts as
GHG levels increase. The resulting net temperature increase causes changes to weather patterns, such
as increased rainfall, temperatures, and severity and frequency of severe weather events. Climate
change will affect areas in the United States differently depending on geographic location. Figure 1.1
shows the variation in average annual temperature change across the United States.
1 EPA, Climate Change Indicators: Greenhouse Gases, last modified on July 14, 2021.
2 EPA, Climate Change: Frequently Asked Questions, last assessed on November 1, 2021.
3 EPA, Climate Change Indicators: Greenhouse Gases, last modified on July 14, 2021.
4 EPA, Overview of Greenhouse Gases, last modified on October 12, 2021.
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Figure 1.1: Annual average temperature change from 1901 to 2020 in different
geographic areas of the United States
Source: EPA Climate Change Indicators website. (EPA image)
Addressing climate change requires mitigation, adaptation, and resilience.
Mitigation refers to actions limiting the magnitude and rate of future climate
change by reducing net GHG emissions.
Adaptation refers to the adjustment or preparation of natural or human
systems to a new or changing environment which moderates harm or exploits
beneficial opportunities.
Resilience refers to the capability to anticipate, prepare for, respond to, and
recover from significant multi-hazard threats with minimum damage to social
well-being, the economy, and the environment.
According to climate scientists, climate
change has significant impacts on human
health.5 increasing temperature, more
frequent heavy rains and runoff, and the
effects of storms increases the risk of
illness.6' Specific health impacts include
heat-reiated deaths, asthma attacks, and
other respiratory and cardiovascular
health effects from worsening air quality,
as well as water-related illnesses from
contaminated water supplies.7
The importance of addressing climate change within the EPA has varied over the years. For example,
the FY2014-2018 EPA Strategic Plan included addressing climate change as one of the Agency's main
5 Crimmins, Allison, The Impacts of Climate Change on Human Health on the United States: A Scientific Assessment,
June 29, 2016.
6 National Institute of Environmental Health Sciences, Climate Change and Human Health, last modified on
October 12, 2021.
7 EPA, Climate Impacts on Human Health, last modified on January 13, 2017.
22-N-0004
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goals,8 but the EPA's FY 2018-2022 strategic plan did not include climate change as an Agency priority.9
In 2021, the EPA has placed a renewed focus on and reaffirmed its commitment to address climate
change. For example, on October 1, 2021, the EPA released a draft strategic plan that put fighting
climate change at the center of the Agency's agenda. In addition, President Biden announced a goal of
achieving net-zero greenhouse gas emissions by no later than 2050 and of limiting global warming to
1.5 degrees Celsius, following the recommendations of scientists. Further, the president requested
$1.8 billion in FY 2022 for an EPA priority budget area titled "Tackling the Climate Crisis Through
Science."
Between executive orders issued in 2021 and proposed budget increases, the EPA is being called upon
to devote significant resources and leadership to strategically address climate change. The EPA is
uniquely positioned to provide this leadership because climate change is a cross-cutting issue that
implicates major EPA programs across air, water, and land. For example, climate change can worsen air
quality through increased ground-level ozone, making it difficult for states to meet the health-based
National Ambient Air Quality Standards and potentially cause increased morbidity and mortality from
poor air quality.10 In addition, natural disasters resulting from climate change, such as flooding and
storm surges, could threaten remedies taken at Superfund cleanup sites and lead to the release of
contaminants. Increased flooding resulting from climate change could harm local drinking water
supplies, leaving communities without safe drinking water.
Climate change threatens the EPA's ability to meet its core mission to protect human health and the
environment across multiple programs. If the EPA does not address climate change, more Americans
could live in areas that fail to meet the National Ambient Air Quality Standards, be exposed to poor
water quality or contaminant releases after natural disasters, or face illness or other health effects
from weather events. Addressing climate change will take a whole-of-Agency approach that ensures
that EPA programs, policies, rulemaking processes, enforcement and compliance assurance activities
consider the current and future impacts of climate change.
EPA's Role in Addressing Climate Change
The EPA plays an important role within the federal government for addressing climate change as
shown in Figure 1.2
8 EPA, FY2014-2018 EPA Strategic Plan. April 2014.
9 EPA, Working Together: FY2018-2022 U.S. EPA Strategic Plan, February 2018, last updated in September 2019.
10 EPA, Air Quality and Climate Change Research, last modified on July 29, 2021.
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Figure 1.2: EPA's key roles in the federal government for addressing climate change
Conducting research to
better understand climate
change impacts and
assure the best available
science is used to set
climate change policy.
Mitigating GHG emissions
through the development
and implementation of
federal regulations.
Source: OIG analysis of EPA information. (EPA OIG image)
Conducting Research
Promoting and
incorporating adaptation
and resiliency into
environmental programs.
The EPA conducts multiple research initiatives
and programs related to climate change.
According to the EPA's climate change research
website,11 research is being conducted in air
quality, ecosystems, energy production, human
health, and wildland fires (Figure 1.3). In addition,
the EPA is a member of larger cross-agency
programs and initiatives, such as the U.S. Global
Change Research Program, which is a federal
program mandated by Congress to coordinate
federal research and investments in
understanding the forces shaping the global
environment, and the Intergovernmental Panel
on Climate Change, which is the United Nations
body for assessing the science related to climate
change.
In the FY2022 Budget in Brief,12 President Biden
requested an additional $60 million to fund
climate change research in support of decision-
Figure 1.3: EPA is conducting climate change
research in five areas
Source: EPA's climate change research website.
(EPA OIG image)
11 EPA, Climate Change Research, last modified on July 2, 2021.
12 EPA, FY 2022 Budget in Brief, May 2021.
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making. This will give the EPA the resources to assess the impact of climate change in future regulatory
decisions. The FY 2022 Budget in Brief states that the "EPA will ensure that policy is guided by the best
science and is protected by processes that encourage integrity in the agency's decision-making."13
Consistent with this, the EPA's FYs 2022-2026 draft strategic plan states that:
EPA will advance a rigorous exploratory and applied climate adaptation science program
by conducting climate-related research in its labs and centers, supporting research
through its grants program, conducting policy-relevant assessments, communicating
research and assessment results, and delivering innovative and sustainable solutions.14
It is important that internal EPA research efforts are closely coordinated to avoid duplication and
assure that priority research needs are met. It is also important that the EPA effectively communicate
results.
Mitigating GHG Emissions
Legal challenges to EPA regulations and changes in administrations have affected the Agency's ability
to establish consistent rules related to GHG emissions. In April 2007, the U.S. Supreme Court ruled in
Massachusetts v. EPA that the EPA has the authority to regulate GHG emissions from mobile sources
under the Clean Air Act.15 The EPA's efforts to implement such regulations—and, by extension,
regulations for other GHG sources under the Clean Air Act—have been impacted. In 2015, the EPA's
Clean Power Plan contained regulations to limit carbon dioxide emissions from existing electricity-
producing power plants.16 These power plants represent the largest industrial sector contributing to
overall GHG emissions in the United States, accounting for nearly 25 percent of such emissions
in 2019.17 The EPA replaced the Clean Power Plan with the Affordable Clean Energy rule on
July 8, 2019.18 The U.S. Court of Appeals for the District of Columbia Circuit vacated the Affordable
Clean Energy rule on January 19, 2021, and remanded it to the Agency for further proceedings
consistent with the court's opinion.19 As such, the EPA needs to develop and implement new
regulations for existing power plants.
The regulatory vicissitudes contributed to the concomitant legal hurdles facing the Agency. During the
same time period as the implementation of the Affordable Clean Energy rule, the EPA rolled back
regulations to limit methane emissions from the oil and natural gas industry. In September 2020, the
EPA issued a rule that removed limitations on methane emissions that were originally included in
13 Executive Order 13990, Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,
86 Fed. Reg. 7037, January 20, 2021.
14 EPA, FY2018-2022 U.S. EPA Strategic Plan, EPA-190-R-18-003. February 2018, last updated in September 2019.
15 Massachusetts v. EPA, 549 U.S. 497 (2007).
16 Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units; Final Rule. 80 Fed.
Reg. 64,662, October 23, 2015 (final rule).
17 EPA, Sources of Greenhouse Gas Emissions, last updated on July 27, 2021.
18 Repeal of the Clean Power Plan; Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility
Generating Units; Revisions to Emission Guidelines Implementing Regulations. 84 Fed. Reg. 32, 520, July 8, 2019 (final rule).
19 American Lung Association v. EPA, 985 F.3d 914 (D.C. Cir. 2021).
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regulations issued in 2016.20 In January 2021, President Biden issued Executive Order 13990, Protecting
Public Health and the Environment and Restoring Science To Tackle the Climate Crisis, instructing
federal agencies to "immediately review and, as appropriate and consistent with applicable law, take
action to address the promulgation of Federal regulations and other actions during the last 4 years that
conflict with" objectives laid out in the order, including reducing GHG emissions and bolstering
resilience to the impacts of climate change.21 Executive Order 13990 specifically cited the
September 2020 rule as one that the EPA should review by September 2021.22 The EPA will again need
to undertake the laborious process of developing regulations to limit GHG emissions that will
withstand legal and political challenges.
Promoting and Incorporating Adaptation and Resiliency into Environmental Programs
For the EPA to fully achieve its mission, the Agency
needs to incorporate adaptation and resiliency
across its programs and policies. In 2014, the EPA
issued the Climate Change Adaptation Plan, whose
purpose was to ensure that the Agency fulfilled its
statutory, regulatory, and programmatic
requirements while adapting to climate change.23
This plan identified vulnerabilities to EPA air, water,
ecosystem, cleanup, and emergency response
programs (Figure 1.4), and presented priority
actions for the Agency to take to integrate climate
adaptation planning into its programs, policies,
rules, and operations to help assure that they are
effective in a changing climate. The plan, however,
noted that metrics did not exist and need to be developed. The EPA has been tasked with updating this
adaptation plan in accordance with Executive Order 14008, titled Tackling the Climate Crisis at Home
and Abroad, issued on January 27, 2021.24
The EPA offers funding opportunities, programs, and partnerships with stakeholders to make progress
on climate adaptation. The Adaptation Resource Center website, launched in 2016, lists available EPA
resources for state, local, and tribal authorities.25 The website's purpose is to empower all 40,000 U.S.
communities to anticipate and react to climate change through accessible tools and training. For
example, communities can find tools to assess water infrastructure vulnerability to climate change,
learn how to enhance their community with "green" infrastructure, or take a training on how climate
change will impact environmental and public health services.
20 Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources Review, 85 Fed. Reg.
57,018, September 14, 2020 (final rule).
21 Executive Order 13990, 86 Fed. Reg. 7037, January 20, 2021.
22 The methane rule roll back was disapproved by Congress under the Congressional Review Act on June 30, 2021.
23 EPA, Climate Change Adaptation Plan, June 2014.
24 Executive Order 14008, Tackling the Climate Crisis at Home and Abroad, 86 Fed. Reg. 7619, January 27, 2021.
25 EPA, Climate Change Adaptation Resource Center (ARC-X), last modified on August 26, 2021.
Figure 1.4: Programs identified by EPA as being
vulnerable to climate change
Water
t9
Cleanup
Ecosystem
Emergency
Response
Source: EPA analysis of the 2014 Climate Change
Adaption Plan. (EPAOIG Image)
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Many of these programs rely on the voluntary participation of communities. To have the most
measurable outcomes, the EPA needs to run these programs effectively and efficiently. GAO reports
issued in October 2019 and January 2020 recommended that the EPA increase technical assistance to
water utilities to improve climate change resiliency and provide direction on how to integrate
information on the potential impacts of climate change effects on risk assessments and risk-response
decisions at Superfund sites.26
In December 2020, the OIG reported that Hurricanes Irma
and Maria in Puerto Rico and the U.S. Virgin Islands
compromised the water quality and operations of water
utilities due to lack of public outreach by the EPA, lack of
rural water system infrastructure, and lack of local staff
involvement in the planning stages of the water
infrastructure projects.27 The OIG recommended that the
EPA improve the resilience of small water utilities and
improve local response planning that incorporates local
staff. GAO and OIG reports highlight the need for improved
communication with external stakeholders. Since the EPA
depends on these partnerships, improving communication
programs and achieve climate change goals.
Impacts of Increasing Natural Disasters Due to Climate Change on EPA Programs and
Operations
EPA programs, and state programs authorized by the EPA, regulate facilities and contaminated sites
that contain hazardous substances that could be harmful to the public and the environment. The
increased incidence of disasters due to climate change creates potential vulnerabilities at these
facilities and sites that must be identified and addressed. For example, EPA-regulated facilities, such as
chemical manufacturers, hazardous waste handlers, underground storage tanks, and contaminated
sites, pose a risk of uncontrolled releases of harmful chemicals and contaminants due to increases in
natural disaster incidents caused by climate change.
As shown in Figure 1.5, large-scale natural disaster events have increased in the United States since
1980. The National Oceanic and Atmospheric Administration published a report in July 2021 that
documented the increased frequency of high-tide flooding, which is when water levels exceed about
1.75 feet above high tide.28 High-tide flooding damages infrastructure and creates other economic
impacts within coastal communities. In 2020, coastlines in the United States experienced high-tide
26 GAO, Water Infrastructure: Technical Assistance and Climate Resilience Planning Could Help Utilities Prepare for Potential
Climate Change Impacts, GAQ-20-24. January 2020; GAO, Superfund: EPA Should Take Additional Actions to Manage Risks
from Climate Change Effects, GAQ-2Q-73, October 2019.
27 OIG, Region 2's Hurricanes Irma and Maria Response Efforts in Puerto Rico and U.S. Virgin Islands Show the Need for
Improved Planning, Communications, and Assistance for Small Drinking Water Systems, Report No. 21-P-0032.
December 2020.
28 National Oceanic and Atmospheric Administration, 2021 State of High Tide Flooding and Annual Outlook, July 2021.
Aboveground drinking water distribution pipe in
rural Puerto Rico broken as a result of a
hurricane. (EPA OIG Photo)
wiil heip ensure the success of these
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flooding at a rate double what it was in 2000, and high-tide flooding is likely to increase between five
and 15 times without further adaptation measures. High-tide flooding and other natural disasters
caused by climate change can pose risks of uncontrolled chemical releases at the thousands of facilities
regulated by the EPA that store and process hazardous chemicals and waste.
Figure 1.5: U.S. billion-dollar disaster event type by year
25
¦ Winter Storm ¦ Wildfire I Tropical Cyclone ¦ Severe Storm
¦ Freeze ¦ Flooding ¦ Drought
1980 1982 1984 198fi 1988 1990 1992 1994 199fi 1998 20(10 2002 2004 200R 2008 2010 2012 2014 2016 2018 2020
Source: EPA Climate Change Indicators website. (EPA image)
To address climate change impacts, remedial designs may need to be revisited at cleanup sites in
vulnerable areas. For example, a 2019 GAO report examined the potential effects of flooding, storm
surges, wildfires, and rising sea levels caused by climate change and found that about 60 percent of all
nonfederal contaminated sites on the Superfund National Priorities List are located in areas impacted
by climate change.29 The EPA responded by issuing a memorandum on June 30, 2021, that describes
approaches for EPA regions to consider when evaluating the vulnerability of the cleanup remedies at
nonfederal sites listed in the Superfund National Priorities List and to evaluate adaptation measures
that increase the system's resilience to a changing climate.
Failure to identify potential climate change vulnerabilities at EPA-regulated facilities and to evaluate
adaptation measures that increase facility resilience compromises the ability of the EPA and authorized
state programs to effectively regulate major facilities to prevent uncontrolled releases of
contaminants. If climate change impacts on vulnerable facilities are not addressed, the EPA's ability to
meet its core mission to protect human health and the environment will be threatened, impacting
vulnerable and overburdened populations who reside near those facilities. Planning for increases in
natural disasters and providing guidance for authorized state programs would help limit the risk of
uncontrolled releases of contaminants.
29 GAO, Superfund: EPA Should Take Additional Actions to Manage Risks from Climate Change, GAQ-20-73, October 2019.
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Considerations for Disproportionate Impacted Communities
The FY 2022 EPA Budget in Brief describes climate change as a "public health and environmental justice
crisis that is already impacting air and water quality, as well as posing increasing risks for the future."30
The EPA has stated that while all people are vulnerable to the impacts of climate change,31 some
communities or groups are disproportionately affected by climate change and are less able than others
to adapt to or recover from climate change impacts.32 These groups include people of color, low-
income communities, immigrants, and people who are not fluent in English, The EPA identified
multiple factors that can affect a person's or community's ability to prepare for, respond to, and cope
with the impacts of climate change on health, including:
• Living in areas particularly vulnerable to climate change, like coastal communities.
• Coping with higher levels of existing health risks when compared to other groups.
• Living in low-income communities with limited access to health care services.
• Having high rates of uninsured individuals who have difficulty accessing quality health care.
• Having limited availability of information and resources in a person's native language.
Having difficulties to relocate or rebuild after a disaster.33
In its FY2022 EPA Budget in Brief, the
EPA stated that half of the $1.8 billion
it was requesting to address climate
change would be directed towards
advancing environmental justice
{Figure 1.6).34 The EPA stated that:
[T]his investment recognizes
that policies to tackle climate
change must also clean up the
legacy pollution that low-
income communities and
communities of color have
suffered with for far too long.
Thus, the EPA needs to assure its efforts to address climate change consider the needs of
disproportionately impacted communities.
30 EPA, FY2022 EPA Budget in Brief, EPA-190-R-21-003. May 2021.
31 EPA, Climate Change, Public Health and Environmental Justice: Carina for Our Most Vulnerable Communities,
January 5, 2017.
32 EPA, Climate Change, Health and Environmental Justice, EPA 430-F-16-054, May 2016.
33 EPA, Climate Change, Health and Environmental Justice, EPA 430-F-16-054. May 2016,
34 EPA FY2022 EPA Budget in Brief.
Figure 1.6: EPA budget and climate change
Source: FY 2022 EPA Budget in Brief. (EPA OIG image)
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CHALLENGE2: Integrating and Leading Environmental
Justice Across the Agency and Government
Outlook and Overview
With the issuance of Executive Order 12898, Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations, by President Bill Clinton in 1994, the federal government recognized that minority and
low-income populations are more likely to be adversely affected by pollution and more likely to reside
near contaminated sites. To address the disproportionate burden placed on these populations,
Executive Order 12898 commits federal agencies to make achieving environmental justice as part of
their mission. The EPA is a leader among federal agencies in identifying and addressing
disproportionately high and adverse human health or environmental effects of programs and policies
on these populations. Despite the complexity and difficulty of the environmental hazards that face
these communities today, the EPA's environmental programs remain in media-specific
(air/land/water/chemicals) silos, making it difficult to implement a consistent and effective
environmental justice program across the Agency. The EPA needs to takes a comprehensive approach
to fully achieve its environmental justice goals across the Agency and reduce the disproportionate
burdens on environmental justice communities across the United States.
Executive Order 12898 requires the EPA to integrate environmental justice principles into all its
programs and across all regions to achieve environmental equity across all communities. Furthermore,
in Executive Order 13985, Advancing Racial Equity and Support for Underserved Communities Through
the Federal Government, President Biden directed all federal agencies to embed equity into their
programs and services to ensure the consistent and systematic fair, just, and impartial treatment of all
individuals. However, until the EPA's FYs 2022-2026 draft strategic plan, the EPA did not have
adequate plans to address environmental justice challenges. For example, there was no mention of, or
metrics on, achieving environmental justice in the United States Environmental Protection Agency
Fiscal Year 2020 Annual Performance Report, Report No. EPA-190-R-21-001. Furthermore, as illustrated
in Table 2.1, the EPA had limited funds available to prioritize environmental justice.
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Table 2.1: EPA's proposed and enacted environmental justice budgets (in millions)
Fiscal Year
President's Budget
Enacted budget
2016
$13.97
$6.74
2017
$0
$6.72
2018
$0
$6.69
2019
$2
$6.74
2020
$2.74
$9.55*
2021
$2.73
$11.84
2022
$293**
N/A
Source: OIG analysis of EPA budgets. (EPA OIG table)
*Reflects estimated enacted budget.
"""Significantly increased from prior years to create new environmental justice programs.
Existing programs will also receive increased budgets to incorporate environmental justice
into program work.
EPA Administrator Michael S. Regan, in an April 7, 2021 message to all Agency staff, said that:
Too many communities whose residents are predominantly of color, Indigenous, or low-
income continue to suffer from disproportionately high pollution levels and the resulting
adverse health and environmental impacts.
As a result, the EPA indicated that it would prioritize considerations of environmental justice into all
EPA plans and actions. As part of this initiative, the president's FY 2022 budget proposal includes an
increase of $282 million and an additional 172 full-time equivalents for the Agency's environmental
justice program. If enacted, this would be the most significant budgetary increase for the
environmental justice program since 2016.
The FY 2022 budget proposal includes the following commitment to developing measures for
environmental justice:
Specifically, the EPA is currently evaluating its suite of measures and indicators related
to environmental justice, including available data and programs where improved data
sets are needed, in order to identify and/or develop useful performance measures for
environmental justice programs.
The increased budget request for FY 2022, however, does not clearly seek to achieve the Justice40
Initiative's goals, which is a federal government initiative that includes delivering 40 percent of the
overall benefits of relevant federal investments to disadvantaged communities. The budget proposal
does include more than $930 million in funding across Agency programs, including $50 million in new
grant funding and $5.9 million to further EJSCREEN, the EPA's environmental justice screening and
mapping tool.
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40 percent of Americans live with unhealthy
levels of ozone or particle pollution. People
of color are more likely to be breathing the
most polluted air.
(EPA OIG image)
Congress allocated $100 million to
the EPA to address health outcome
disparities from pollution and the
coronavirus pandemic—that is, the
SARS-CoV-2 virus and resultant
COVID-19 disease, as part of the
American Rescue Plan Act of 2021,
Region 9 oversees
Region 10 oversees
signed into law in March 2021. The EPA's largest allocation of the American Rescue Plan Act —
$16.6 million—went toward environmental justice grants to help cities, states, tribes, and territories to
fund education regarding the impact of pollution on the environment and public health, as well as
training for jobs in the environmental sector. In announcing these grants, Administrator Regan
highlighted that the COVID-19 pandemic magnified the daily injustices facing communities of color and
low-income communities, the same communities that will likely suffer disproportionately from climate
change. For example, in
Re >ort No 21-E-0254 Figure 2.1: Tribal drinking water systems in Regions 9 and 10.
Pandemic Highlights Need
for Additional Tribal
Drinking Water Assistance
and Oversight in EPA
Regions 9 and 10, issued
September 27, 2021, we
found that the coronavirus
pandemic negatively
impacted the oversight and
assistance that Regions 9
and 10 provide to the tribal
drinking water systems
under their purview, as
4
212 community drinking
water systems on tribal
lands
tiff
*
which serve drinking
water to 339,207 people
within 100 federally
recognized tribes
82 community drinking
water systems on tribal
lands
nking
which serve drit
water to 57,258 people
within 42 federally
recognized tribes
mm
Source: OIG analysis of EPA data. (EPA OIG image)
well as the capacity of these systems to provide safe drinking water (Figure 2.1).
The pandemic also underscored the limitations of EPA resources, as well as of tribal drinking water
system capacity and resiliency. According to the Harvard T.H. School of Public Health, people living in
places with high amounts of pollution are more likely to die from COVID-19 than those living with less
pollution.35 These findings align with known connections between particulate matter 2.5 (micrometers
or smaller) exposure and higher risk of death from cardiovascular and respiratory ailments.36
Particulate matter is a regulated form of air pollution.
Given this expanded set of responsibilities and possible increase in funding, the Agency's challenges
include identifying the communities at risk, addressing the environmental hazards and cumulative risks
35 EPA Administrator Michael Regan, Remarks For Michigan EJ Conference, As Prepared for Delivery, last updated on
May 18, 2021.
36 Administrator Regan's remarks at Michigan's environmental justice conference.
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communities face, communicating effectively with these communities, and focusing disparate media
programs on integrating environmental justice across the Agency. Environmental justice and civil rights
activists have stressed that efforts to evaluate and regulate complex environmental hazards are
hindered by the stovepiping of environmental statutes and EPA programs the statutes authorize into
media-specific silos. Activists argue that these silos impair the Agency's ability to address broader
enforcement and permitting issues. It is essential for the Agency to consider and endeavor to achieve a
consistent and collaborative integration of environmental justice across the EPA.
In FY 2021, we identified environmental justice as a challenge to the Agency. Specifically, we found,
that to effectively integrate environmental justice across EPA programs, the Agency should strengthen
its federal leadership role; continue to build and employ an environmental justice strategic plan,
measures, and grant outreach programs; ensure the development and implementation of a
comprehensive, nationwide plan; and consider the impact of all activities on environmental justice
communities in actions revoked and taken by the Agency.
Integrating environmental justice into Agency programs remains a challenge. However, based on our
work in FY 2021, it is clear that the Agency should also focus its attention on (1) risk communication
and (2) cumulative risk assessment, which is a process by which pollutants from across various
exposure pathways and multiple pollution sources are assessed together to show the entirety of the
exposure to at-risk communities.
Agency Initiatives
The EPA's work on achieving environmental justice has garnered significant attention from political,
regulatory, and civil entities. This is because environmental justice is inherently tied to multiple other
management challenges such as climate change, disaster response, infrastructure, and enforcement. In
his April 2021 message to Agency staff, Administrator Andrew Wheeler focused on strengthening
enforcement environmental statute violations and civil rights laws in communities overburdened by
pollution.
In FYs 2020 and 2021, the OIG issued several reports on the challenges of administering and enforcing
environmental statutes to protect overburdened populations. For example, in Report No. 21-P-0132.
Resource Constraints, Leadership Decisions, and Workforce Culture Led to a Decline in Federal
Enforcement, issued May 13, 2021, we found that EPA-led compliance monitoring activities,
enforcement actions, monetary enforcement results, and environmental benefits generally declined
from FYs 2007 through 2018 nationwide. The environmental and health hazards posed by regulated
entities not in compliance with environmental statutes and regulations can disproportionately impact
low-income, minority, tribal, and indigenous communities, who are collectively more likely to be
burdened with high levels of environmental pollution and other adverse societal and economic
conditions. Detecting and deterring environmental noncompliance is important to maintaining and
advancing environmental justice.
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In Report No. 21-P-0122, Improved
Review Processes Could Advance EPA
Regions 3 and 5 Oversight of State-
Issued National Pollutant Discharge
Elimination System Permits, issued
April 21, 2021, we found that
Region 5 repeatedly declined to make
a formal determination under Clean
Water Act § 401(a)(2) regarding
whether discharges from the
PolyMet MorthMet project may
impact the quality of waters within
the jurisdiction of the Fond du Lac
Band of Lake Superior Chippewa,
whose tribal lands are 125 miles
downstream from the site of the
PolyMet NorthMet project. The tribe was therefore unable to avail itself of the National Pollutant
Discharge Elimination System
permit objection process set forth in Clean Water Act § 401(a)(2).
In addition, the EPA did not meet the intent of its tribal and environmental justice policies, including its
Policy on Consultation and Coordination with Indian Tribes and Policy on Environmental Justice for
Working with Federally Recognized Tribes and Indigenous Peoples, which aim to ensure consultation,
fair treatment, and meaningful involvement of tribes in EPA decisions affecting their health or
environment.
The EPA has also faced challenges in administering and enforcing bedrock civil rights laws. In Report
No. 20-E-0333, Improved EPA Oversight of Funding
Recipients' Title VI Programs Could Prevent
Discrimination, issued September 28, 2020, we found
issues with how the EPA ensures compliance with Title
VI of the Civil Rights Act of 1964 (Figure 2.2). Title VI
requires federal agencies to ensure that any program or
activity receiving federal financial assistance does not
discriminate based on race, color, or national origin.
The EPA allows the public to use the Title VI complaint
process to report alleged discrimination by EPA funding
recipients. Under this process, the EPA External Civil
Rights Compliance Office has the authority to withdraw
financial assistance to compel a recipient to comply
with Title VI. We found that the EPA has not fully
implemented an oversight system to provide
reasonable assurance that organizations receiving EPA funding are properly implementing Title VI.
Wild rice lake in the Fond du Lac Band of the Lake Superior Chippewa
Reservation. The Fond du Lac Band tribal lands are located along the
St. Louis River in northeastern Minnesota, 125 miles downstream from a
proposed mine and processing site. (EPA OIG photo)
Figure 2.2: Review of state environmental
agencies' websites
Source: OIG analysis of state agencies'
websites. (EPA OIG image)
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We recommended that the External Civil Rights Compliance Office develop and implement a plan to
address permitting and cumulative impacts as they relate to Title VI, complete systematic compliance
reviews to determine full compliance with Title VI, verify that funding recipients are addressing Title VI
noncompliance before issuance of funding, use data to identify and target funding recipients for
reviews, and train EPA staff on their respective Title VI roles and responsibilities.
The EPA has proposed to create a new national environmental justice program office, led by a Senate-
confirmed assistant administrator, to coordinate and maximize the benefits of the Agency's programs.
The current Office of Environmental Justice, a 26-person policy-focused office, is working with White
House components, such as the Council on Environmental Quality and Domestic Policy Council, on
implementing President Biden's environmental justice goals. The Office of Environmental Justice is
working on a "more consistent base of information, tools, and resources" for all EPA programs, which
have been tasked by Administrator Regan to include environmental justice in their daily work. The EPA
has about 80 employees working on some aspect of environmental justice.
Environmental justice is driving
action in every program office in
the Agency.37 Drinking water
concerns are on the forefront of
the EPA's environmental justice
program. The Biden
administration's infrastructure
plan, released on March 31, 2021,
calls for replacing all lead drinking water pipes throughout the United States to avoid lead
contamination in drinking water. According to EPA, as many as 10 million homes in the United States
have lead service lines.38
The EPA also plans to address air quality issues in environmental justice communities. The Agency's
Office of Air Quality Planning and Standards is developing a new air toxics strategy that will incorporate
a new structure for the air toxics program with a renewed focus on environmental justice. While there
have been reductions in air toxics emissions nationally, many air toxics issues are localized and may
disproportionately affect communities of color, low-income communities, and indigenous
communities.
In addressing Superfund cleanups, a July 1, 2021 memorandum from the acting assistant administrator
of Enforcement and Compliance Assurance directed EPA regions to address opportunities for
preventative or interim relief in overburdened communities to address acute threats and negotiate
more comprehensive cleanup settlements.39 The memorandum authorized the EPA to proactively
address potential releases of contaminants, prioritize early enforcement efforts on units and facilities
37 EPA, "EPA Administrator Announces Agency Actions to Advance Environmental Justice," News Release, April 7, 2021.
38 EPA, Lead Service Line Replacement, last modified on September 24, 2020.
39 Acting Assistant Administrator Larry Starfield, Memorandum Reaardina Strengthening Environmental Justice Through
Cleanup Enforcement Actions. July 1, 2021.
Approximately 10 million U.S. homes have
lead service lines.
(EPA OIG image)
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that most impact environmental justice communities, and promote the issuance of orders for interim
relief in conjunction with more comprehensive cleanup.
Changes are also occurring in the Office of Enforcement and Compliance Assurance, or OECA, and the
Office of General Counsel. OECA issued a memorandum on June 21, 2021, that elevates environmental
justice in the criminal enforcement of environmental laws. It states that:
The criminal enforcement program can further environmental justice by strengthening
tools for the detection of environmental crimes in overburdened communities,
improving outreach to the victims of such crimes, and ensuring that our investigations
are structured to provide maximum assistance to the Department of Justice (DOJ) in its
exercise of prosecutorial discretion and pursuit of remedies that will guarantee
adequate protection for those communities.
OECA aims to boost inspections and enforcement in "equity areas," as well as increase engagement
with environmental justice communities. The EPA is also shifting toward a proactive system of civil
rights compliance by states and other recipients of federal funds, including (1) equipping staff with
resources and training and (2) establishing metrics on improved environmental and public health
outcomes within environmental justice communities, including identifying and reducing disparities.
This proactive system requires substantive collaboration between the Office of General Counsel and
environmental justice programs in addressing priorities and concerns in overburdened and vulnerable
communities that arise through civil rights investigations or environmental justice program
engagement. This collaboration should result in impactful resolutions and provide increased
transparency to the EPA's civil rights work.
Risk Communication
Communicating risk to communities; individuals; businesses; the media; and state, local, and tribal
partners is an important aspect of the EPA's mission. This is because communicating risk allows
individuals and communities to make informed decisions about risks to their health, safety, and
environment. Risks are not always perceived the same by affected populations as they are by risk
experts; risk communication seeks to bridge those information gaps.40 Risk communication can be
difficult to implement effectively when information exchange between laypersons and experts does
not consider differing risk perceptions among individuals. Risk perception, which describes how people
identify and measure risk based on information they have about that risk, does not always match
calculated risk or real risk. For example, an individual living in a major evacuation zone may not
evacuate during a hurricane, despite officials warning them to do so, if they have experience with
hurricanes and do not feel they are in danger. The disconnect between risk perceptions and real risk
can also occur due to knowledge about a risk; cultural, social, and ethnic contexts; biases from media
and other information sources; and previous experience. The key influencing factor for both risk
40Sansom, GarettT., Aarvig, Kathleen, Sansom, Lindsay, Thompson, Courtney, Fawkes, Leanne, Katare, Anjali,
"Understanding Risk Communication and Willingness to Follow Emergency Recommendations Following Anthropogenic
Disasters," Environmental Justice, April 2021, Vol. 14 No. 2, p. 159-167.
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perception and risk communication is information. When, how, and from whom people obtain
information all critically influence how people perceive risks and empower them to make decisions.
We have reported on many instances of
inconsistent, ineffective, or untimely risk
communication across EPA programs,
including in some environmental justice
communities. For example, in FYs 2020-2021,
we issued several reports related to ethylene
oxide. In Report No. 21-P-0129. EPA Should
Conduct New Residual Risk and Technology
Reviews for Chloroprene- and Ethylene Oxide-
Emitting Source Categories to Protect Human
Health, issued May 6, 2021, we found that
minority and low-income populations are
disproportionately impacted by the hazardous
air pollutants chloroprene and ethylene oxide.
To better communicate risk to these
communities, we recommended that the EPA
conduct regulatory reviews using newly
developed risk values to achieve
environmental justice in communities near facilities that emit these pollutants.
In Report No. 20-N-0128. Management Alert: Prompt Action Needed to Inform Residents Living Near
Ethylene Oxide-Emitting Facilities About Health Concerns and Actions to Address Those Concerns,
issued on March 31, 2020, we recommended that the EPA provide communities living near 25 high-
priority ethylene oxide-emitting facilities identified by the Agency with a forum for an interactive
exchange of information. In Report No. 21-P-0123. EPA Delayed Risk Communication and Issued
Instructions Hindering Region 5's Ability to Address Ethylene Oxide Emissions, issued on April 15, 2021,
we recommended that the EPA develop a standard operating procedure for communicating
preliminary air toxics risk information to the public. Both recommendations remain unresolved.
In cases like those reported in our chloroprene and ethylene oxide reports, communities may not know
of their prolonged exposure to harmful contaminants. In FY 2022, the Agency requested $54.8 million
to strengthen the EPA's ability to carry out effective and consistent risk communication and position
the Agency to meet future risk communication challenges. Risk communication will also focus on the
current administration's priorities of environmental justice and climate change. Addressing these
issues and meeting the challenges of the future will require the EPA to, among many other activities,
establish strategic goals or objectives directly addressing risk communication and define and
implement timely, current, accurate, and accessible risk communication information to successfully
achieve its mission, especially for communities facing disproportionate health effects from the
exposures to harmful contaminants.
Figure 2.3: EPA requested $54.8 million to strengthen
its risk communication
Source: FY 2022 EPA budget request. (EPA OIG graphic)
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Cumulative Risk
According to the EPA's Framework for Cumulative Risk Assessment:
Several reports have highlighted the importance of understanding the accumulation of
risks from multiple environmental stressors. Among these reports are the National
Research Council's 1994 Science and Judgment in Risk Assessment and the 1997 report
by the Presidential/Congressional Commission on Risk Assessment and Risk
Management, Risk Assessment and Risk Management in Regulatory Decision-Making,
The framework aims at being the first step in a long-term effort to develop cumulative risk assessment
guidelines. Although there is no specific budget for cumulative risks specifically, it is a component of
many EPA programs. For example, the proposed FY 2022 budget includes $342.9 million for grants to
support state, iocal, and tribal air quality management programs, which support low-income and
marginalized communities that are and have been overburdened with disproportionate environmental
or public health risks resulting from exposure to pollution.
The proposed FY 2022 budget also provides additional resources to build Agency capacity in managing
chemical safety and toxic substances. This work is particularly important to protect vulnerable
populations, including low-income, minority, and indigenous populations, as well as children who may
be disproportionately affected by, and particularly at risk from, chemical exposure. The proposed
FY 2022 budget provides approximately $1.53 billion to the Hazardous Substance Superfund; virtually
all of the programs funded by the Superfund, including the research, enforcement, emergency
response, and cleanup programs, stipulate some work for environmental justice and equity to address
overburdened communities {Figure 2.4).
Figure 2.4: EPA's proposed FY 2022 budget
Proposed
Fiscal Year
2022 Budget
$342.9 million
for grants to
support state
and local and
tribal air
quality
management
programs
Provides
additional
resources to build
Agency capacity in
> managing
chemical safety *
and toxic
substances
A
$1.53 billion to
the Hazardous
y Substance
Superfund.
Source: EPA's proposed FY 2022 budget. (EPA OIG image)
At a July 2021 meeting of the Environmental Council of the States, Administrator Regan said he is
working to bolster the EPA's authority to address the cumulative impacts of pollution releases,
including determining whether and how the Agency can interpret regulations "in a different way" and
having "conversations with the House and Senate about potential legislative changes we need to see to
give us clear authority to evaluate cumulative impacts."
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Addressing cumulative impacts from multiple pollution sources can be complicated—legally and
scientifically. It is, however, key to protecting environmental justice communities, which can be
exposed to a host of chemicals and pollutants from a range of different sources, such as commercial,
industrial, or agricultural facilities; road traffic; and transportation hubs. Those sources often overlap
with the adverse effects of poverty and other social and economic factors—such as limited health care
access, poor-quality schools, violence, and substandard housing—leading to a complex challenge for
regulators tasked with protecting residents of those communities from environmental and other
harms.
Environmental justice communities want to see the EPA realign its permitting and enforcement in a
way that provides guidance and tools for taking cumulative impacts and risks into account, even if they
cannot be precisely measured. There is no precise threshold to determine when a community is
overburdened. This means that it is often easier for a community that has seven facilities to get an
eighth facility approved than for a community that has no existing facilities to get one approved. In
2004, the EPA's National Environmental Justice Advisory Committee noted that:
The issue of cumulative risks ... is a unifying one, because it is a vehicle through which
the impressive array of tools now available to ensure pollution prevention and risk
reduction can be brought together and applied in new, innovative, and more effective
ways.41
41 National Environmental Justice Advisory Council, Ensuring Risk Reduction in Communities with Multiple Stressors:
Environmental Justice and Cumulative Risks/Impacts. December 2004.
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CHALLENGE 3: Ensuring the Safe Use of
Chemicals
Outlook and Overview
The EPA's ability to effectively implement its mission of
protecting human health and the environment depends on credible and timely assessments of the risks
posed by pesticides, toxic chemicals, and other environmental chemical risks. The 2016 expansion of
the EPA's responsibilities under the TSCA has significantly increased the need for rapid and accurate
risk assessments. The EPA's ongoing work to register and reregister pesticides and the requirement to
set appropriate exposure levels for contaminants in drinking water continue to rely on the Agency's
ability to accurately assess chemical exposure risk. Without the ability to accurately conduct
scientifically sound risk assessments, the Agency's actions, or inaction, in this area may erode public
trust and confidence in the EPA's ability to protect human health—including our food supply—and the
environment from current and emerging chemical risks.
Although identified in this report as a top Agency management challenge for the first time, ensuring
the safe use of chemicals is a not a new area of concern for the EPA. The GAO's High-Risk Series
identifies government operations that are vulnerable to fraud, waste, abuse, and mismanagement or
that need transformation to address economical, efficiency, or effectiveness challenges. One of the
GAO's 36 high-risk programs is Transforming the Environmental Protection Agency's (EPA) Process for
Assessing and Controlling Toxic Chemicals. Since 2009, the GAO has continuously stated that the EPA's
process of assessing and controlling toxic chemicals needs improvement. Furthermore, since 2008, the
GAO has issued seven reports on the topic.
The GAO has noted that the EPA's performance in assessing and controlling toxic chemicals has
regressed since 2019. It states that:
EPA's ability to effectively implement its mission of protecting public health and the
environment depends on credible and timely assessments of the risks posed by toxic
chemicals.
On June 29, 2021, the GAO identified seven priority recommendations that would enhance the EPA's
ability to ensure chemical safety under the TSCA and improve toxic chemical assessments for the
Integrated Risk Information System, also known as the IRIS Program, which is under the Office of
Research and Development.
The scope of this management challenge applies to all risk assessments used by all EPA programs,
except for the EPA's regulation of air toxics or activities assessing the risk from the EPA's criteria air
pollutants. The EPA uses chemical risk assessments to characterize the nature and magnitude of health
risks to humans and ecological receptors from chemical contaminants and other stressors that may be
present in the environment. The quality and quantity of human health and ecological risk assessments
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generated by the Agency are used in key EPA decisions, such as issuing health advisories for drinking
water, determining cleanup levels for hazardous waste sites, and assessing risks from new pesticides.
The OIG has an extensive body of work addressing EPA programs that are in place to ensure the safe
use of chemicals. In FY 2021, we completed projects related to chemical safety that identified
deviations from required processes, undue influence, and poor documentation.
Out-of-Date Chemical Risk Assessments
The OIG has identified that many EPA chemical toxicity assessments or drinking water health advisories
need to be updated or verified with current toxicity data and through the use of current scientific risk
assessment procedures. The OIG specifically focused on two EPA programs: the IRIS Program and the
Health Advisories Program.
IRIS Program
The EPA created the IRIS Program in 1985 to help develop consensus opinions within the Agency about
the human health effects from chronic exposure to chemicals. The IRIS Program prepares toxicity
assessments that contain the EPA's scientific position on a chemical's potential effects on human
health. The IRIS Program is the primary basis that the EPA uses to conduct risk assessments of
chemicals, and the timeliness and credibility of those assessments are key to the EPA meeting its
statutory mandates. The IRIS Program is the only federal program that provides qualitative and
quantitative assessments of both the cancer risks and the noncancer effects of chemicals. The IRIS is
used by EPA programs and regional offices to set national standards and clean up hazardous sites.
The EPA established the IRIS Update Project on October 21, 2009,42 to revisit existing IRIS assessment
toxicity values and their supporting information that were more than ten years old with new and
relevant scientific information on health effects. As of June 11, 2021, the IRIS database contained 562
completed toxicity assessments. The IRIS database contained 571 toxicity assessment entries, but only
562 toxicity assessments have toxicity values. The other nine IRIS toxicity assessment entries are either
suspended, discontinued, or pending completion.
The OIG found that 542, or 96.4 percent, of the IRIS toxicity assessments are greater than ten years
old. We also found that 477, or 85 percent, of the IRIS toxicity assessments were greater than 20 years
old. This highlights the extent to which IRIS toxicity assessments need to be updated to verify that the
published toxicity values remain scientifically appropriate and adequately supported.
In 2011, a National Academy of Sciences committee reviewed the EPA's draft IRIS toxicity assessment
for formaldehyde and was highly critical of the clarity and transparency of the EPA's scientific
methodology.43 The committee identified that the same recurring "methodologic problems" had been
42 Integrated Risk Information System (IRIS) Update Project; Announcement of2009/2010Agenda. 74 Fed. Reg. 54,040,
October 21, 2009.
43 National Research Council of the National Academies, Review of EPA's Draft IRIS Assessment of Formaldehyde
(Washington, D.C.: National Academies Press, 2011).
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occurring with the EPA's IRIS toxicity assessments prior to 2011. Congress directed the EPA to
implement the recommendations in the National Academy of Sciences' 2011 report.44 In a subsequent
review of IRIS in 2014,45 the National Academy of Sciences found that the EPA had implemented
substantial improvements in the IRIS risk assessments based on the 2011 recommendations.
Furthermore, the National Academy of Sciences committee expected that the EPA's implementation of
the recommendations would result in transforming the IRIS Program. Since 2011, the IRIS program has
been working to improve its toxicity assessment procedures.
These pre-2011 IRIS risk assessments need to be reviewed and scientifically verified using current
toxicity study data and risk assessment procedures to assess whether they remain protective of human
health.
Drinking Water Health Advisories
The EPA's Health Advisory Program, which is under the Office of Water, publishes the acceptable
exposure levels for contaminants in drinking water. Without accurate and timely risk assessments and
exposure determinations, the EPA will be unable to address both the current and emerging human
health risks to drinking water. The EPA's drinking water health advisories, which are developed under
the Health Advisory Program, provide informal technical guidance concerning unregulated drinking
water contaminants to help federal, state, and local officials and managers of public or community
water systems protect human health. The OIG reviewed the EPA's drinking water health advisories and
found that at least 160 of the EPA's 212 health advisories were issued prior to 2000 and at least 107
were issued prior to 1990.46 The age of these health advisories adds uncertainty as to whether they are
still protective of human health.
Timely Chemical Risk Assessments
The EPA's performance in generating timely chemical risk assessments needs improvement.47 The OIG
identified the EPA's poor production in assessing the risk from toxic chemicals in three EPA programs:
the IRIS Program; the Endocrine Disruptor Screening Program or EDSP; and the Health Advisory
Program.
IRIS Program
The EPA's production of IRIS toxicity assessments has fallen dramatically since 2011. Only 20 of the 562
completed toxicity assessments were issued from 2011 through 2020. During this time, the EPA issued,
on average, two IRIS toxicity assessments per year. In the first 35 years of the IRIS Program—from 1985
44 The House Report (112-151) that accompanied the Consolidated Appropriations Act, 2012, Pub. L. 112-74, December 23,
2011.
45 National Research Council, Review of EPA's Integrated Risk Information System (IRIS) Process (2014). (Washington, D.C.:
The National Academies, 2014).
46 EPA, 2018 Edition of the Drinking Water Standards and Health Advisories Tables, EPA822-F-18-001. March 2018.
47 The term "chemical risk assessments" is used in this document to include health advisories, risk evaluations, and toxicity
assessments.
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through 2020—the EPA issued 542 IRIS toxicity assessments for an average of over 20 IRIS toxicity
assessments per year. Figure 3.1 shows the number of IRIS toxicity assessments issued by the EPA each
year from 2008 through 2020.
Figure 3.1: Number of IRIS toxicity assessments issued by EPA from 2008 through 2020
14 14
J %>
0 0
1 1
¦ ¦
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: OIG analysis of EPA information. (EPA OIG image)
The EPA's completion of several IRIS risk assessments has been delayed. The IRIS Program began
updating the IRIS toxicity values for formaldehyde and inorganic arsenic in 1997 and 2003. The IRIS
Program began the initial toxicity assessment of ethyl tertiary-butyl ether in 2004. Table 3.1
summarizes the EPA's performance in conducting the IRIS risk assessments for these chemicals.
Table 3.1: Examples of IRIS risk assessments pending for decades
Chemical
IRIS risk
assessment type
Year started
Year
completed
Years the IRIS risk
assessment has
been in progress
Formaldehyde
Update
1997
Still in development
24
Inorganic arsenic
Update
2003
Still in development
18
Ethyl tertiary-butyl
ether
Initial
2004
2021
17
Source: OIG analysis of EPA and GAO information. (EPA OIG table)
EDSP
With the passage of the Food Quality Protection Act in 1996, Congress tasked the EPA to test all
pesticide chemicals for endocrine-disruption activity. Endocrine disruptors are chemicals that mimic,
block, or otherwise disrupt the normal function of hormone systems, such as estrogen, testosterone,
or thyroid hormones.
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The EPA created the EDSP in 1998 to:
• Evaluate both human and ecological effects of endocrine disruptors.
• Test for disruption of the estrogen, androgen, and thyroid hormone systems.
• Evaluate both pesticide and nonpesticide chemicals.
• Implement a two-tiered testing strategy.
In 2021, we evaluated the EPA's progress in implementing Section 408(p)(3)(A) of the Federal Food,
Drug, and Cosmetic Act, which requires the EPA to test all pesticide chemicals for human endocrine-
disruption activity. Our findings and recommendations are in OIG Report No. 21-E-0186. EPA's
Endocrine Disruptor Screening Program Has Made Limited Progress in Assessing Pesticides, issued
July 28, 2021.
We found that the EPA has not made meaningful progress in complying with the statutory requirement
to test all pesticides for endocrine-disrupter activity. Since the EDSP was established in 1998, it only
tested 52 of the estimated 10,000 chemicals that need to be screened for endocrine-disruptor activity.
The EDSP has determined that 34 of these estimated 10,000 chemicals are not endocrine disruptors.
The EDSP started the process of chemical testing with the issuance of the draft List 1 chemicals on
June 18, 2007. The EDSP is scheduled to complete testing of all EDSP List 1 chemicals by
September 30, 2024. Without timely and effective EDSP testing, the EPA cannot adequately
characterize or assess whether pesticides chemicals or other substances pose an endocrine-disruptor
risk to estrogen, androgen, and thyroid hormone systems.
The OIG found that the Office of Chemical Safety and Pollution Prevention's pace of testing pesticides
for endocrine-disruption activity is insufficient to keep up with the growth in pesticide registrations.
Since the EDSP was established, the number of active pesticide registrations has increased at a much
faster pace than the number of pesticide tests conducted by the EPA. Figure 3.2 depicts the increase in
the number of pesticide registrations from 1999 through 2020 and the number of EDSP Tier 1 test
orders issued by the EPA in that time frame.
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Figure 3.2: Approximate number of registered pesticides in 1999 and
2020 versus EDSP Tier 1 test orders
1,315 registered pesticides in 2020.
A 48 percent increase since 1999.
890 registered pesticides in 1999.
The number of registered pesticides
when the EDSP began.
52 EDSP Tier 1 test orders issued
About 4 percent of the number of registered
pesticides in 2020.
Source: OIG analysis of EPA information. (EPA OIG image)
As a result, the EPA has been and will continue to issue registrations for new pesticides without
obtaining specific information on the pesticides' potential endocrine-disruptor activity.
Drinking Water Health Advisories
The EPA issued 13 health advisories on chemicals from 1998 through 2018—eight regarding organic
chemicals and five regarding inorganic chemicals.48 The March 2018 Drinking Water Standards and
Health Advisories tables provide risk information on 212 chemicals,49 of which 175 are organic
contaminants and the 37 are inorganic contaminants.
Health advisories are important to assess the health risk posed by specific per- and polyfluoroalkyl
substances, or PFAS, found to be contaminating the environment. Although the EPA issued health
advisories for both perfluorooctanesulfonic acid and perfluorooctanoic acid in May 2016, these two
discontinued PFASs account for only a small fraction of the PFASs present in the environment.
Chemical manufacturers have made over 4,000 PFASs and hundreds of these fluorinated chemicals
have been detected in environmental samples. The EPA issued drinking water analytical Methods 533
and 537.1, which are PFAS evaluation methods, in December 2019 and November 2018, respectively.
Together, they measure 29 unique PFAS in drinking water.50 However, the EPA has issued health
advisories for only perfluorooctanesulfonic acid and perfluorooctanoic acid and not for any of the
other 27 PFASs found in drinking water. Although there is a critical need to have health advisories for
these 27 PFASs, the EPA has not issued any health advisories since 2016.
48 The eight organic chemicals are Bentazon, 2,4-Dinitrotoluene, 2,6-Dinitrotoluene, DCPA, perfluorooctanoic acid,
perfluorooctanesulfonic acid, Oxamyl, and 1,1,2,2-Tetrachloroethane. The five inorganic chemicals are Bromate, Chlorine
Dioxide, Chlorite, Manganese, and Perchlorate.
49 EPA, 2018 Edition of the Drinking Water Standards and Health Advisories Tables, EPA 822-F-18-001. March 2018.
50 EPA, EPA Analytical Methods for PFAS in Drinking Water, EPA 815-B-19-021, December 2019.
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Capacity to Conduct Chemical Risk Evaluations
The success of the Agency's implementation of the 2016 TSCA amendments depends upon its capacity
to conduct and complete timely risk assessments. On June 22, 2016, the Frank R. Lautenberg Chemical
Safety for the 21st Century Act was signed into law, amending the TSCA. Under TSCA section 6(b)(2)(A),
Congress required the EPA to conduct the first set of ten chemical risk evaluations on existing
chemicals within 180 days of enactment, or by December 19, 2016. Under TSCA section 6(b)(2)(B),
Congress tasked the EPA to conduct at least 20 self-initiated risk evaluations on "high-priority"
substances by December 2019. Under TSCA section 6(b)(4)(E)(i), the EPA must also conduct
manufacturer-requested risk evaluations for between 25 to 50 percent of EPA-initiated risk
evaluations, if the EPA receives a sufficient number of manufacturer requests. Therefore, to comply
with the law, by December 2019, the EPA must have had the capacity to perform at least 25 TSCA risk
evaluations simultaneously—20 self-initiated risk evaluations and five manufacturer-requested risk
evaluations. Pursuant to TSCA section 6(b)(4)(G), once the EPA initiates a risk evaluation, it must be
completed within three years. The administrator may extend this deadline by no more than six
months, which was done for the initial ten existing chemical risk evaluations.
From May 2019 through June 2020, we evaluated whether the EPA met applicable deadlines imposed
under 2016 TSCA amendments, and whether the Office of Pollution Prevention and Toxics, or OPPT,
which is under the Office of Chemical Safety and Pollution Prevention, had staff, resources, and
management controls in place to meet future statutory deadlines. The EPA is required to meet the
workforce planning requirements of 5 C.F.R. Part 250, Subpart B, Strategic Human Capital
Management. On August 17, 2020, we issued our findings and recommendations in Report No. 20-P-
0247. Lack of Planning Risks EPA's Ability to Meet Toxic Substances Control Act Deadlines.
We found that the OPPT's Risk Assessment Division did not have enough internal capacity to timely
conduct the first set of ten TSCA risk evaluations. The OPPT pulled up to 19 full-time equivalents
outside its Risk Assessment Division to help it conduct the TSCA risk evaluations. Specifically, two full-
time equivalents were pulled from the Pollution Prevention program and three were pulled from the
Safer Choice program. Furthermore, the EPA reassigned 28 ORD IRIS staff to support the OPPT's risk
evaluations between 25 percent to 50 percent of their time. Even with the additional personnel, the
OPPT did not meet the 3.5-year deadline to complete the first set of ten chemical risk evaluations.
Therefore, the EPA did not have sufficient capacity to complete the first set of ten TSCA risk
evaluations within the three-year statutory time frame.
The EPA's TSCA risk evaluation capacity needs to dramatically increase to meet the statutory risk
evaluation requirements of the 2016 TSCA amendments. In December 2019, the EPA started
conducting the next set of 20 self-initiated TSCA risk evaluations on existing chemicals and continued
working on four manufacturer-requested TSCA risk evaluations. As a result, the EPA is concurrently
working on at least 24 TSCA risk evaluations. Therefore, in order for the EPA to have enough capacity
to conduct 24 concurrent risk evaluations, it would have had to increase its TSCA risk evaluation
capacity by at least 140 percent at the end of 2019. In FY 2022, the Agency requested an additional
$15 million and 87.6 full-time equivalents, a 35 percent increase from the FY 2021 enacted full-time
equivalent level, to meet the increased responsibilities imposed by the 2016 amendments to TSCA.
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Importance of Data-Driven Decisions
We identified occurrences where the EPA could not demonstrate compliance with its regulations or did
not follow guidance in conducting its risk assessments. For example:
• Compliance with Pesticide Registration Data Requirements in Ecological Risk Assessments. In Report
No. 21-P-0070. EPA Mostly Adheres to Regulations When Assessing Risks of New Pesticides but Should
Improve Internal Controls, issued February 8, 2021, we evaluated whetherthe EPA complied with the
pesticide registration regulation under 40 C.F.R. § 152.112, which establishes the eight criteria for the
issuance of an unconditional pesticide registration.
We found that the Office of Pesticide Programs' ecological risk assessments do not certify or
verify whether all the ecological data requirements under 40 C.F.R. § 158.630 have been
satisfied prior to the issuance of the pesticide's registration. The EPA's ecological data
requirements under 40 C.F.R. § 158.630 establish the necessary ecological studies required by
the EPA to assess the risk that the pesticide's intended use poses to the environment. If the EPA
cannot assure that it is in full compliance with the ecological data requirements, there is an
increased risk that the Agency will issue a pesticide registration that does not comply with
applicable regulations.
• Implementation of Endocrine Disrupter Screening Program Weight-of-Evidence Guidance. Inour July
2021 EDSP report, we found that Office of Pesticide Programs did not follow the EDSPWoE guidance
when it reevaluated the need to conduct Tier 2 testing on 17 pesticides to support the pesticide's
ecological risk assessment.
From the initial EDSP design on December 28, 1998, the EPA committed to evaluating the EDSP
Tier 1 data using a WoE approach to determine whether a chemical should undergo Tier 2
testing. The EPA issued the final EDSP WoE guidance in 2011.51 The EPA implemented this EDSP
WoE guidance in 2015 in its review of the EDSP List 1-Tier 1 data.52 In 2015, the EPA
recommended that 23 EDSP Tier 2 studies need to be conducted across 18 List 1 pesticides.
After 2015, the Office of Pesticide Programs' Health Effects Division continued to use the WoE
approach to reevaluate whether these pesticides continued to need additional Tier 2 human
health effects studies. By contrast, the office's Environmental Fate and Effects Division decided
to forgo EPA's established WoE approach for evaluating EDSP Tier 1 data and, instead, in 2019
reevaluated the List 1-Tier 1 data using a different approach to justify that no additional EDSP
Tier 2 testing was needed to support the Office of Pesticide Programs' ecological risk
assessments for these pesticides. The OIG found that by not implementing the 2015 WoE
recommendations for additional Tier 2 testing, the EPA risks losing credibility with the public
that its risk decisions are impartial.
51 EPA, ENDOCRINE DISRUPTOR SCREENING PROGRAM: Weight-of-Evidence: Evaluating Results of EDSP Tier 1 Screening to
Identify the Need for Tier 2 Testing, last accessed on October 13, 2021.
52 EPA, EPA's 2015 review of the EDSP List 1- Tier 1 data, and EPA's Tier 2 recommendations, last accessed on October 13,
2021.
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CHALLENGE 4: Safeguarding Scientific Integrity
Principles
Outlook and Overview
The EPA's ability to pursue its mission to protect human health and the
environment depends upon scientific integrity. Science not only informs
all aspects of the EPA's decision-making, but it impacts the decision-making of other domestic and
international organizations that rely on the EPA's science. In February 2012, the Agency issued its
Scientific Integrity Policy, which seeks to:
[E]nsure scientific integrity throughout the EPA and promote scientific and ethical
standards, including quality standards; communications with the public; the use of peer
review and advisory committees; and professional development."53
The need to protect scientific integrity has become a paramount issue for the entire federal
government. In his January 27, 2021 presidential memorandum to all executives, departments, and
agencies titled Memorandum on Restoring Trust in Government Through Scientific Integrity and
Evidence-Based Policymaking, President Biden stated that "[i]t is the policy of my Administration to
make evidence-based decisions guided by the best available science and data." The president noted
that "[scientific findings should never be distorted or influenced by political considerations." A robust
culture of scientific integrity is necessary to meet several top management challenges, including
climate change, chemical safety, and environmental justice.
The EPA's Scientific Integrity Policy emphasizes that the Agency's ability to pursue its mission depends
upon the integrity of the science on which the EPA relies. As the policy directs, the environmental
policies, decisions, guidance, and regulations that impact the lives of Americans must be grounded, at a
most fundamental level, in sound, high-quality science. The EPA makes scientific integrity the
responsibility of every employee, contractor, grantee, student volunteer, and collaborator who
conducts, utilizes, supervises, manages, communicates, or influences scientific activities. The EPA
expects employees to represent Agency scientific activities clearly, accurately, honestly, objectively,
and thoroughly, without political or other interference, and in a timely manner.
The EPA's Scientific Integrity Program consists of the scientific integrity official, deputy scientific
integrity officials from each EPA program and regional office, and program staff that support the
implementation of the Scientific Integrity Policy. The EPA's scientific integrity official is also the co-chair
of the White House Office of Science and Technology Policy's Scientific Integrity Task Force, which is
charged with implementing the directives in the January 27, 2021 presidential memorandum.
53 EPA, Scientific Integrity Policy, Section I.
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Science affects ail aspects of the EPA's decision-making. The EPA must devote the necessary resources
to conduct, utilize, and communicate science. It must ensure proper implementation of existing
processes to protect the integrity and objectivity of this science, ciearly communicate where there is
scientific disagreement and identify where science intersects with making policy. Relatedly, the EPA
must be agile in order to update its regulations, policies, and guidance as the science evolves and not
allow administrative inertia to prolong its reliance on outdated science and technology that is less
effective at protecting human health and the environment. Taking these actions will help make EPA
decisions more legally defensible and maintain public trust in the EPA's decision-making.
Scientific Integrity
Through the OIG Hotline and other sources, we receive complaints of mismanagement, misconduct,
abuse of authority, and censorship related to scientific integrity and research misconduct. Per our
statutory mandate, we have evaluated or investigated these complaints. For example, in Report No.
21-E-0146, EPA Deviated from Typical Procedures in Its 2018 Dicamba Pesticide Registration Decision,
issued May 24, 2021, we found that the
EPA's 2018 decision to extend registrations
for three dicamba pesticide products did not
include required internal peer reviews of
scientific documents to ensure sound
decisions regarding pesticides. We
recommended that the Agency
(1) implement a procedure requiring senior
managers or policy makers to document
changes to scientific opinions or analyses
and their basis for such changes, (2) require
an assistant-administrator-level verification
statement that Scientific Integrity Policy
In 2018, EPA extended the conditional registrations for three
dicamba pesticide products used on genetically modified dicamba-
tolerant soybean plants. (EPA photo)
requirements were adhered to during pesticide registration decisions that involve the EPA immediate
office, and (3) provide annual training to affirm commitment to the Scientific Integrity Policy and to
promote a culture of scientific integrity.
In March 2021, the then-acting assistant administrator for Chemical Safety and Pollution Prevention,
Michal Freedhoff, sent a notification to all Office of Chemical Safety and Pollution Prevention
employees with three examples of political interference that compromised the integrity of the EPA's
science:
• The 2018 dicamba registration decision in which scientific information on negative impacts was
discounted. The Ninth Circuit Court of Appeals vacated the pesticide registrations, impacting growers'
ability to use this product.
• The alteration of the draft trichloroethylene risk evaluation, leading to a reduction in the
magnitude of the risk from exposures to trichloroethylene.
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• Perfluorobutane sulfonic acid toxicity assessment posted on the EPA's website (now removed)that
included conclusions that were not based on science.
Then-acting Assistant Administrator Freedhoff also highlighted the role of science in risk assessments,
integrity of scientific products, and the benefit of an environment free from political interference in the
science. She affirmed their commitment to communication, trust, and transparency, as well as the
importance of science in the Office of Chemical Safety and Pollution Prevention's regulatory decision-
making process. Additionally, she encouraged employees to attend a scientific integrity training series,
which include sessions on ways to express and resolve differing scientific opinions and whistleblower
protections.
In FY 2021, we initiated a significant body of work related to scientific integrity concerns and the
Agency's process for utilizing science that include:
• Examining the EPA's process for updating federal radiation policies and guidance (Project
Notification QSRE-FY21-0208, Process for Updating Federal Radiation Policies and Guidance, issued
June 8, 2021).
• Examining the EPA's actions on the perfluorobutane sulfonic acid toxicity assessment
published on January 19, 2021 (Project Notification No. QSRE-FY21-0207. EPA's January2021
PFBS Toxicity Assessment, issued June 15, 2021).
• Evaluating the extent to which the EPA followed policies and procedures in developing thecancer
assessment for the 1,3-Dichloropropene pesticide registration review decision to prevent
unreasonable adverse effects on human health (Project Notification No. OSRE- FY21-0214. Cancer
Assessment Review for the Pesticide 1,3-Dichloropropene, issued June 21, 2021).
We review allegations brought to us through the EPA's scientific integrity official and confidential
whistleblowers. To review these allegations, we conduct interviews; gather data; and analyze issues
such as adherence to policies and procedures for chemical risk assessments, oversight by EPA
management of chemical risk assessments, and resulting information and reports regarding the
assessments of such chemicals.54
Actions on Scientific Integrity
On March 23, 2021, in an email to all employees, Administrator Regan outlined several actions the EPA
would take in response to the January 27, 2021 presidential memorandum. Actions included reviewing
the Agency's scientific federal advisory committees to safeguard against conflicts of interest, updating
Agency policies that impede the development of critical scientific assessments, and fostering a culture
54 OIG Notification Memorandum, Inquiry into EPA's Chemical Risk Assessments Conducted under the Toxic Substances
Control Act, Project No. OSRE-FY21-G-Q229. July 14, 2021.
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of continuous learning. Also included in the administrator's email were commitments to undertake
efforts in support of policy implementation, culture, and release of public information. These
statements by the administrator reflected central findings in OIG Report No. 20-P-0173. Further Efforts
Needed to Uphold Scientific Integrity Policy at EPA, issued May 20, 2020. Administrator Regan's actions
also address other topics discussed in the report including employee concerns regarding the EPA's
culture of scientific integrity, the EPA's management of federal advisory committees, the ability of EPA
staff to express scientific opinions, and retaliation after reporting a potential scientific integrity
violation. The OIG's report made 12 recommendations: seven have been implemented and five
recommendations remain unimplemented, three of which are past the Agency's planned completion
date.
In a June 2021 hearing before the Subcommittee on Interior, Environment, and Related Agencies of the
U.S. Senate Committee on Appropriations, Administrator Regan stated that "[t]he [FY2022] Budget
request invests critical resources to restore scientific integrity at the Agency and ensuring the
foundation of our decision-making process is grounded in science." He highlighted additional Agency
efforts to ensure science is the foundation for decision-making, including reestablishing membership of
the Science Advisory Board and Clean Air Scientific Advisory Committee, rebooting the Agency's
climate change website, and committing to strengthen the science used in chemical risk evaluations. A
common theme throughout Administrator Regan's agencywide email and congressional testimony is
that the best available scientific information is critical to achieving the EPA's mission.
Reflecting the administrator's commitment and focus, topics such as ensuring scientific integrity and
ensuring science-based decision-making are discussed in the draft FYs 2022-2026 EPA strategic plan.
This plan is expected to be a guiding principle for all EPA goals and objectives. Plan implementation will
be key and OIG audits, evaluations, and investigations will be necessary to assess progress. Specifically,
this strategy will provide critical support for the EPA's efforts in climate change, environmental justice,
enforcement, clean air and water, revitalizing communities, and the safety of chemicals.
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CHALLENGE 5: Ensuring Information Technology
and Systems Are Protected Against Cyberthreats
Outlook and Overview
There is a prevalence of cyberattacks on government and private
sector information technology, or IT, including the compromise of a
U.S. water treatment facility and other actions targeting critical infrastructure. IT and cybersecurity are
fundamental to a successfully functioning modern government. Like all agencies, the EPA is vulnerable
to a wide and ever-changing range of cyberthreats to its internal operations as well as external systems
and programs—such as those administered by states—that the EPA oversees. Without maintaining
tight, rigorous cybersecurity protections, the EPA's core mission stands under constant peril.
IT is fundamental and essential for the EPA to carry out its mission. The EPA depends on IT systems and
electronic data to perform operations and to process, maintain, and report essential information.
Information systems must be cost-effective and produce reliable data when needed. The EPA, like
other agencies, makes a substantial investment in IT, which includes computers, networks, software,
and personnel. In FY 2021, the EPA spent $385 million on IT.55
The transition to a remote workforce during the coronavirus pandemic, as well as cybersecurity
attacks, caused IT security risks to increase. Compounding this risk, the EPA's systems and networks are
interconnected with other internal and external systems and networks, including the internet. This
greater connectivity expands opportunities for threats and cyberattacks. Multiple cyberincidents, such
as the ones on SolarWinds, Microsoft Exchange, and the Colonial Pipeline, have impacted thousands of
organizations, including multiple federal departments and agencies and critical infrastructure entities.
The U.S. Department of Homeland Security's Cybersecurity and Infrastructure Security Agency has
reported on the prevalence of cyberattacks and has distributed alerts regarding the compromise of a
U.S. water treatment facility and the ongoing actions of advanced persistent threat actors targeting
governmental, private, and critical infrastructure entities using sophisticated attack methods.
The EPA faces an urgent and ongoing requirement for effective information security and needs to be
vigilant in developing, establishing, and monitoring ways to mitigate long-range emerging threats.
Successful cyberattacks could compromise classified material, employee data, and other critical
information related to the EPA's business processes and could severely impact and disrupt the EPA's
mission and operations.
Our work highlights the continuing challenge that the EPA faces in implementing an effective
cybersecurity program. For example we found several cybersecurity issues in Report No. 21-E-0124.
55 Office of Management and Budget, Environmental Protection Agency Information Technology Agency Summary, last
accessed on October 13, 2021.
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EPA Needs to Improve Processes for Updating Guidance, Monitoring Corrective Actions, and Managing
Remote Access for External Users, issued April 16, 2021.
The GAO reported that as of April 2021, two of its cybersecurity-related priority recommendations to
the EPA were still open. One encourages the EPA administrator to establish a process for conducting an
agencywide cybersecurity risk assessment, which would provide senior officials with the necessary
information for making decisions, utilizing resources, and allowing them to consider the totality of risk
within information systems. The other encourages the EPA administrator to consult with respective
critical infrastructure sector partners to develop methods for determining the level and type of
National Institute of Standards and Technology Cybersecurity Framework adoption by entities across
their respective sectors, which would allow the EPA to evaluate and improve its efforts to protect
water infrastructure.
We found that the EPA had a lack of consistency in
developing, implementing, and monitoring information
security programs and complying with cybersecurity
regulations. For example, in September 2020, we
reported on the deficiencies in the EPA's vulnerability
testing of the Region 8 local area network (Figure 5.1).56
The deficiencies included insufficient vulnerability testing,
outdated Region 8 system security plans, and unidentified
wireless access points within the region's laboratory. Also,
during the evaluation, we investigated the Office of the
Chief Financial Officer's Superfund Cost Recovery Package
Imaging and Online System and found that it was outdated.
We also found that it was difficult to identify records
containing personally identifiable information and
accessing such information on the system's regional
databases. We estimated that a breach to the system and
compromise of personally identifiable information could
cost the EPA $11,477,250.
The Office of Mission Support conducts
vulnerability tests of local area networks at
Region 8's headquarters, laboratory, and Montana
office. (EPA OIG graphic)
Figure 5.1: Vulnerability testing at
Region 8
In April 2021, we found that the Agency consistently implemented its information security policies and
procedures, but quantitative and qualitative effectiveness measures were lacking.57 Specifically, the
EPA needed to (1) update key IT procedures to align with the latest federal directives; (2) establish a
process to accurately report the implementation of cybersecurity corrective actions; (3) designate a
governance structure to support the Agency's identity, credentials, and access management program
as required by the Office of Management and Budget; and (4) implement proper monitoring and
regulation of external and privileged systems. Without user authorization enforcement, users have
56 EPA OIG, EPA Needs to Improve Processes for Securing Region 8's Local Area Network, Report No. 20-E-0309,
September 10, 2020.
57 EPA OIG, EPA Needs to Improve Processes for Updating Guidance, Monitoring Corrective Actions, and Managing Remote
Access for External Users, Report No. 21-E-0124. April 16, 2021.
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access to systems that they do not need, such as the grants and Superfund management systems.
Privileged users can bypass security controls and potential data breaches would be difficult to track
and respond to. Additionally, not reviewing and updating IT security control procedures
documentation would mean that the EPA cannot ensure compliance of its information security
program with the latest federal requirements.
The EPA has begun and completed significant actions to improve its cybersecurity and address many
OIG recommendations. These include:
• Improvements in cybersecurity oversight processes, such as establishing processes within the Office of
Mission Support to improve the management of audits and corrective actions, documenting the chief
information officer's information security role, developing training for contracting officer's
representatives on mandatory role-based training, and establishing a tracking and reporting process to
ensure that contractors with access to EPA information systems complete information security
awareness training and that contractors with significantinformation security responsibilities complete
mandatory role-based training.
• Actions to better utilize information systems and improve their effectiveness, such as workingwith the
Department of Homeland Security regarding the risk of the Electronic Manifest Systemand agreeing to
review the system's categorization annually and when significant changes to the system occur, replacing
the EPA's incident tracking system and implementing controls to protect the confidentiality and
sensitivity of personally identifiable information, and establishing a process to periodically review
security settings for the Agency's information security weakness tracking system to validate whether
the settings meet Agency standards andimplement audit logging capabilities.
In addition to addressing many of the OIG's recommendations, the EPA plans to make other
cybersecurity improvements. The EPA requested to double its information security budget for FY 2022
to support a variety of activities that will improve the Agency's oversight and technical capabilities in
cybersecurity. These activities will have many benefits for the Agency, including:
• Covering cybersecurity and privacy components in ongoing senior leadership program reviews.
• Strengthening cloud security.
• Identifying, responding, alerting, and reporting suspicious activity.
• Supporting continuous monitoring functions.
• Mitigating and managing supply chain risks.
The EPA must continue to address risks for its own information systems. In addition, the EPA should
take steps to address risks in the Water and Wastewater Systems critical infrastructure sector, of which
the EPA is the designated Sector Risk Management Agency.
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Water Sector Cybersecurity
As the Sector-Specific Agency and Sector Risk Management
Agency for the water and wastewater systems sector under
Presidential Policy Directive 21, the EPA must assist public
water systems in improving their cybersecurity. Cyberattacks
on critical infrastructure, including water systems and utilities,
have become more prevalent. The OIG Office of Investigations
has become increasingly aware of and responsive to cybercrime incidents occurring at water utilities
throughout the nation. Incidents range from ransomware attacks, which restrict access to critical data,
to manipulation of water chemical concentrations. While attacks on water utilities range in scope and
damage, prevention and response measures varied depending on the size and funding of these
utilities. Consistent communication between the EPA, public water systems, and relevant federal
entities for developing strong cybersecurity practices and best determining the allocation of limited
resources is vital.
EPA plans to create a new cybersecurity intelligence analyst position to conduct research, analysis, and
engagement with the water and wastewater sectors and partnering agencies to promote the adoption
of cybersecurity best practices. Additionally, the EPA plans to continue to interact with the water
sector through training efforts and assist community water systems in developing risk and resilience
assessments and emergency response plans.
Additionally, the EPA should strive to be proactive and involve its information security officers, senior
officials, and other related organizational officials while reviewing, monitoring, and overseeing the
Agency's information security programs, systems, and practices.
Presidential Policy Directive 21 designates
certain executive agencies with institutional
knowledge and specialized expertise about
particular sectors as "Sector-Specific
Agencies" for those sectors and assigns them
federal governmentwide roles related to
those sectors.
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CHALLENGE 6: Managing Infrastructure
Funding and Business Operations
©
Outlook and Overview ^
©
Water infrastructure is a fundamental part of the EPA's largest programs. Across the country, there are
aging drinking water and wastewater facilities and systems that need repairs and upgrades. Working
with state partners to improve the nation's water infrastructure is crucial to ensure that Americans
have access to safe drinking water and that wastewater is properly treated and disposed. With the
proposed FY 2022 budget for infrastructure-based programs and the proposed Infrastructure
Investment and Jobs Act, it is crucial that the EPA exercise effective oversight of this potential massive
investment.
The FY 2022 President's Budget stated that Americans will rebuild America's transportation
infrastructure, water infrastructure, and broadband connectivity infrastructure. Funding such
infrastructure, through loans, grants, and contracts, will take up a major portion of the EPA budget.
Much of the nation's environmental protection depends on the Agency instituting effective internal
controls to safeguard taxpayer dollars. Without scrupulous Agency management of these investments,
key environmental benefits to communities will be lost or diminished.
The FY 2022 Presidential Budget calls for investment into infrastructure through grant and loan
programs. It proposes:
• $111 billion to, among other things, replace 100 percent of lead lines and invest in PFAS
remediation.
• A $589 million increase to programs, including allocating $1,871 billion for Clean Water State
Revolving Fund, a $232 million increase from the FY 2021 budget; $1,358 billion for Drinking Water
State Revolving Fund, a $232 million increase from FY 2021; and expanding the Waterlnfrastructure
Finance and Innovation Act subsidy by $12.6 million, which would enable
$8 billion in direct assistance and spur $16 billion in total infrastructure investments.
While promoting sound infrastructure is central to the EPA's mission, the American Society of Civil
Engineers rated America's infrastructure at a C- and rated America's water-related infrastructure at a
D+. There has been increased funding for programs aimed at improving America's infrastructure, such
as the American Rescue Plan Act of 2021 and the ongoing Water Infrastructure Finance and Innovation
Act, Brownfields, and Superfund programs. This increases the EPA's ability to carry out its essential
functions, expand the impact of the Agency's work, and positively affect the health and environment of
millions of Americans.
As we found in the American Recovery and Reinvestment Act of 2009 audits, such as several OIG
Reports, with more funding comes heightened risk of waste, fraud, and abuse, especially in programs
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already plagued by resource challenges.58 The EPA must proactively address these risk areas and
ensure that the money goes to the right places and has the intended impact. We found that, as of
September 2019, the EPA had $8.3 million in undisbursed balances for grant awards that have been
expired for one year or more.59 These funds could have been used toward EPA environmental goals
related to infrastructure investments. We began an audit in September 2020 to determine whether
loans made under the Water Infrastructure Finance and Innovation Act comply with the appropriate
statute, regulations, and EPA policy.60
Avast majority of the EPA's funding geared for infrastructure improvements is distributed to states,
tribes, and nongovernmental organizations through grants, loans, and contracts. The EPA awards about
half of its annual budget through grants, loans, and contracts to environmental infrastructure
programs. As of 2020, the EPA had almost $11 billion in open grants and loans. This amount also
includes grants and loans that were awarded in previous fiscal years. The programs awarding grants
and loans cover the EPA's ten regions
and some of their goals include
funding:
• Water quality improvements.
• Pollution control.
• Beaches protection.
• Wetlands.
• Water infrastructure.
• Technical assistance.
The largest portions of this funding go
through the EPA's Clean and Drinking
Water State revolving funds and state
and tribal assistance grants. The
funding for these programs has steadily Mb,ul m' Vuis' "au *°'° 7"'°"
s ^ s y unliquidated obligations, such as undisbursed balances, for grant awards
increased since FY 2016 (Figure 6.1). that expired more than one year prior to September 1, 2019. (EPA OIG
image)
Figure 6.1: Snapshot of EPA unliquidated obligations on
September 6, 2019
EXPIRED GRANT AWARDS
SEPTEMBER
6
$8.3 million
unliquidated obligations
Ac Af ft OfM Q CD A ho^ or^wil\/ iiii^ ir»
58 EPA OIG, EPA Should Improve Its Contractor Performance Evaluation Process for Contractors Receiving Recovery Act
Funds, Report No. 10-R-0113, April 26, 2010; EPA OIG, EPA's Terms and Conditions as Well as Process to Award Recovery Act
Interagency Agreements Need Improvement, Report No. ll-R-0016, November 16, 2010; EPA OIG, EPA and States Should
Strengthen Oversight of Clean Water State Revolving Fund Recovery Act Projects, Report No. ll-R-0519, August 24, 2011;
EPA OIG, American Recovery and Reinvestment Act Site Visit of Sanitary Sewer System Improvements, Ingenio Community,
Toa Baja, Puerto Rico, Report No. ll-R-0233, May 24, 2011.
59 EPA OIG, EPA Did Not Accurately Report Under the Grants Oversight and New Efficiency Act and Needs to Improve
Timeliness of Expired Grant Closeouts, Report No. 21-P-0126, March 31, 2020.
60 OIG Notification Memorandum, EPA's Process for Awarding, Overseeing, and Monitoring Loans Made Under the Water
Infrastructure Finance and Innovation Act, Project No. QA-FY21-0004, September 21, 2020.
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Figure 6.2: EPA funding forCWSRF, DWRF, and STAG programs
¦ Other State and Tribal Assistance Grant Funding
¦ Drinking Water State Revolving Fund
¦ Clean Water State Revolving Fund
Source: OIG analysis of the President's Budget in Brief from FYs 2016 through 2022. (EPA OIG image)
Note: FYs 2016 through 2020 funds are actual amounts. FY 2021 funding is the enacted amount. FY 2022 funding is the
amount requested in the President's Budget.
The FY 2020 EPA Annual Performance Report noted a significant challenge due to the Agency not yet
having an electronic system to track grant commitments under its 109 grant programs.
In the FY2018-2022 U.S. EPA Strategic Plan, the EPA pledges to improve water quality by investing
over $200 million in infrastructure projects through various environmental programs. The EPA will
work with state and tribal partners to provide clean and safe water by updating aging infrastructure for
drinking water and wastewater systems as well as wastewater and stormwater infrastructure. While
over 90 percent of the nation has access to safe drinking water due to the Agency and its regulatory
partners, many houses and communities, particularly in disadvantaged areas, lack access to clean and
safe water. The Agency aims to continue:
[T]o leverage the State Revolving Funds (SRFs) and Water Infrastructure Finance and
Innovation Act (WIFIA) to assist states, tribes, municipalities and private entities to
finance high-priority infrastructure investments that protect human health and the
environment.
The American Rescue Plan Act provided $100 million for the EPA to address health outcome
disparities from pollution and the COVID-19 pandemic. These focus areas directly relate to water, air,
and land infrastructure. The American Rescue Plan Act provided $50 million for the EPA to identify and
address disproportionate environmental or public health harms and risks in minority populations or
low-income populations under the Clean Air Act; Safe Drinking Water Act; Comprehensive
Environmental Response, Compensation, and Liability Act of 1980; and the Energy Policy Act of 2005. It
provided another $50 million for additional Clean Air Act grants and activities.
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As with the American Recovery and Reinvestment Act and the Coronavirus Aid, Relief, and Economic
Security Act, the EPA is at risk of managing the influx of funds inadequately, especially in programs
already facing asset management challenges. Following the Office of Management and Budget
supplemental guidance to the American Rescue Plan Act, M-21-20 Promoting Public Trust in the
Federal Government through Effective Implementation of the American Rescue Plan Act and
Stewardship of the Taxpayer Resources, the EPA should work with the oversight community—states,
tribes, and localities—to strengthen payment integrity to minimize the risk of waste, fraud, and abuse,
and improve the overall award and administration of financial assistance programs with an increased
focus on programs and services designed to achieve more equitable results. These funds and the
projects associated with them create an opportunity for the EPA, but also a challenge in protecting the
funds from fraud, waste, and abuse.
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CHALLENGE 7: Enforcing Environmental Laws and
Regulations
Outlook and Overview
Enforcing environmental laws and regulations is a backbone of EPA operations. According to the
FYs 2018-FY 2022 EPA strategic plan, "[a] robust enforcement program is critically important for
addressing violations and promoting deterrence, and supports the Agency's mission of protecting
human health and the environment."61 We found that the EPA's enforcement activities, such as
inspections and enforcement actions, generally declined since 2011 largely due to funding reductions
for the enforcement program. Declining enforcement activities may expose the public and the
environment to undetected harmful pollutants, particularly in low-income, minority, tribal, and
indigenous communities. Considering its limited resources, the EPA needs to assess its resource
requirements for the enforcement program and identify innovative and cost-effective means of
detecting and deterring noncompliance.
The EPA's Office of Enforcement and Compliance Assurance is responsible for the Agency's
enforcement program. A robust enforcement program is vital to deterring regulated entities from
violating environmental laws and regulations and to protecting human health and the environment.
The EPA implements enforcement programs for 12 federal environmental statutes and has authorized
most states and some territories and tribes to implement many environmental programs and directly
enforce many environmental laws.62 If a state does not have enforcement authority from the EPA, the
Agency directly implements the enforcement program in that state.
From FYs 2007 through 2018, key national enforcement results declined, including the numbers of
compliance monitoring activities and concluded enforcement cases, the monetary value of
supplemental environmental projects, and the pounds of pollution reduction committed to
(Figure 7.1).63 For example, the EPA concluded 58 percent fewer enforcement actions with injunctive
relief, 53 percent fewer enforcement actions with penalties, and 48 percent fewer enforcement
actions with supplemental environmental projects in FY 2018 than in FY 2007. We also found that most
enforcement measures declined in FYs 2019 and 2020, although the coronavirus pandemic likely
impacted the downward trend in FY 2020. The trends in enforcement results by region and by
environmental statute generally followed declining national trends for compliance monitoring
activities, enforcement actions concluded, and enforcement results. Each year, the conclusion of a few
cases with large monetary or environmental outcomes dominated the trends in specific measures,
such as cases with large amounts of injunctive relief, penalties, and waste and cleanup commitments.
61 EPA, Working Together: FY2018-2022 U.S. EPA Strategic Plan, February 2018 (last updated in September 2019).
62 We use "state" or "states" to collectively refer to states, territories, and tribes.
63 EPA OIG, Resource Constraints, Leadership Decisions, and Workforce Culture Led to a Decline in Federal Enforcement,
Report No. 21-P-0132, May 13, 2021; EPA OIG, EPA's Compliance Monitoring Activities, Enforcement Actions, and
Enforcement Results Generally Declined from Fiscal Years 2006 Through 2018, Report No. 20-P-0131, March 31, 2020.
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Figure 7.1: EPA national enforcement measures from FYs 2007 through 2018
Primary purpose of the enforcement process is to ensure compliance with environmental laws
© ©
Compliance
assistance
Regulated
entity
m[H
Compliance
monitoring
©
Enforcement
actions
m ® $$ © £2
Monetary
outcomes
Environmental
benefit outcomes
Enforcement results
Compliance Monitoring
Activities
21,269 (2010)
10,687 (2018)
Approximately
40 million
regulated
public and
private entities
W Maximum value in the range
® Minimum value in the range
Note: We used sparklines to visually represent the EPA's annual
enforcement results. Because sparklines do not have labeled axes,
we included the maximum and minimum annual values from the
time series for each measure. The EPA changed the way it measures
environmental benefits in FY 2012; therefore, data about
environmental benefits are only available for FYs 2012 through 2018.
Case Initiations
3,784 (2007)
1,829 (2018)
Concluded Cases
3,724 (2009)
1,819 (2018)
Injunctive Relief
(2018 USD in billions)
$21.3 (2011)
$3.9 (2018)
Penalties
(2018 USD in millions)
$6,135 (2016)
$69 (2018)
Supplemental Environmental
Projects (2018 USD in millions)
$53(2009)
518(2017)
Pollution Commitments
(pounds in millions)
1,281 (2013)
215 (2017)
Waste Commitments
(pounds in millions)
61.938 (2016)
_A
148 (2013)
Cleanup Commitments
(cubic yards in millions)
871(2014)
75(2015)
Source: EPA OIG Report No. 21-P-0132. (EPA OIG image)
Improving State's Oversight Capacity and Greater Collaboration with EPA to Achieve
Greater Enforcement
The delegation of authorities under federal environmental laws makes the EPA and states coregulators.
This regulatory design requires state programs to be at least as stringent as federal requirements
compel and the EPA to serve an oversight role and to fill gaps left by the states. During our evaluation
of EPA enforcement trends, many current and former EPA enforcement personnel expressed
skepticism that states have the technical and operational capacity, along with the political will, to
enforce environmental laws consistently and equitably across the country. Furthermore, EPA
enforcement staff commonly described a poorly functioning relationship between the EPA and states
in terms of the Agency's oversight of, support of, or collaboration with states. For example, despite the
noted capacity limitations at the state level, the EPA enforcement staff reported that states do not
consistently contact the appropriate regional EPA office when they need technical expertise to conduct
complex inspections.
In January 2020, the Government Accountability Office reported that the EPA collects a range of
information about compliance and enforcement efforts.64 The GAO found that, while the EPA collected
64 GAO, Environmental Protection: Additional Action Needed to Improve EPA Data on Informal Enforcement and Compliance
Assistance Activities, GAQ-20-95, January 31, 2020.
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data on formai enforcement activities, it did not consistently coilect data about compliance assistance
and informal enforcement activities for its national databases. In addition, the GAO found that several
of the EPA's FY 2018 enforcement-related reports did not disclose known limitations about the
Agency's enforcement data. Without this information, the public was at risk of drawing inaccurate
conclusions about the data. The GAO recommended that the EPA clarify for regions how the definition
of informal enforcement actions should be used to collect data about these activities, to share the
known limitations of data in its annual reports, and to provide information on the intended use of the
EPA's data.
Investment in Enforcement Activities to Increase Enforcement Results
Funding for the EPA's enforcement
program decreased 18 percent and the
number of enforcement full-time
equivalents decreased 21 percent from
FYs 2006 through 2018 (Figure 7.2).
Within OECA, the National Enforcement
Investigations Center has been
challenged by high attrition rates among
staff, losing 32 percent of its full-time
equivalents from 2014 levels, and has
been unable to backfill vacant positions
since 2016 (Figure 7.3).65 Enforcement
funding varied between 5.8 and 7.4
percent of total EPA funding since 2016.
Figure 7.2: Total EPA enforcement resources FYs
$800
c
O
$700
I
_c
$600
CO
*5
o
$500
c
to
3
u.
D
03 $400
I
o
E
s
r>j
$300
,o
c
UJ
$200
CO
$100
3,000 «
2,000
1,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fiscal Years
Enforcement Funding in Millions (2018 USD) Enforcement Full-Time Equivalent Actuals
Source: EPA OIG Report No. 21-P-0132. (EPA OIG image)
Figure 7.3: NIEC's reduction in staff numbers,
FYs 2014-2020
FY 2019 FY 2020
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
^^NEIC Staff
Source: EPA OIG Report No. 21-P-0131. (EPA OIG image)
While the Agency's enforcement resources
diminished, a growing domestic economy
increased the size and level of activity of key
sectors that the EPA regulated. Congress also
established additional regulatory
responsibilities for the EPA through laws such
as the Frank R. Lautenberg Chemical Safety
for the 21st Century Act and the Energy Policy
Act of 2005. According to EPA enforcement
staff and managers, enforcement capacity
declined to a point at which the EPA could
not adequately cover the major inspection
obligations. Since 2006, both oil and gas
production and the number of oil and gas wells increased significantly, more than doubling petroleum
production in the United States. Output from farms, such as from livestock, grains, and vegetables, and
65 EPA OIG, Staffing Constraints, Safety and Health Concerns at EPA's National Enforcement Investigations Center May
Compromise Ability to Achieve Mission, Report No. 21-P-Q131, May 12, 2021.
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manufacturing also increased over that time. The increase of such high-impact economic activities
exacerbated the risks of reduced compliance monitoring and enforcement activities. At a time when
the need for EPA oversight and enforcement increased, the data indicate that the EPA's capacity to
meet that need decreased.
In its FY 2022 Congressional Budget Justification, the Agency requested $599 million for OECA, which
would be a 13 percent increase over the FY 2021 enacted budget of $529 million.66 The EPA also
requested approximately 4 percent more full-time equivalents for OECA, which would bring the office
from about 2,424 full-time equivalents in FY 2021 to about 2,511 in FY 2022. The Agency requested an
additional $31.9 million to integrate environmental justice throughout the compliance monitoring
program, $29.9 million to improve its enforcement data system, and $8 million to expand its criminal
enforcement program. These additional resources may mitigate the observed declining trends in EPA
enforcement results, but it is too early to forecast future trends with any certainty at this time.
Leadership Decisions Impacting Enforcement Trends
Given limited resources and a shrinking number of enforcement personnel after FY 2011, decisions
about strategic shifts to the enforcement program, changes in national enforcement priorities, broader
enforcement policy changes, and specific changes to the enforcement process also contribute to
enforcement trends (Table 7.1). Additionally, leadership support influences the overall enforcement
culture, which indirectly affects enforcement trends. Although culture is an intangible organizational
trait based on enforcement staff and manager perceptions, it can have a meaningful impact on the
activities of EPA staff in the enforcement program.67 For example, staff cannot be proactive if the
leadership is not. The OIG found that the workforce culture impacted the enforcement program. For
example, because of diminished staff morale, some staff did not think their inspections or case
development work would produce enforcement cases.
66 EPA, FY 2022 Justification of Appropriation Estimates for Committee on Appropriations, EPA-190-R-21-002, May 2021.
67 EPA OIG, Resource Constraints, Leadership Decisions, and Workforce Culture Led to a Decline in Federal Enforcement,
Report No. 21-P-0132, May 13, 2021; EPA OIG, Staffing Constraints, Safety and Health Concerns at EPA's National
Enforcement Investigations Center May Compromise Ability to Achieve Mission, Report No. 21-P-0131, May 12, 2021.
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Table 7.1: Impact of leadership decisions on enforcement trends
Category Examples Potential impact on enforcement trends
Strategic shifts to the
enforcement program
• Focus enforcement resources
on bigger cases against the
most serious violators that
significantly impact human
health and the environment.
• Emphasis on returning
violators back to compliance
rather than initiating and
concluding enforcement
actions with monetary
penalties.
• Increased deference to state
programs and emphasis on
cooperative federalism.
• The EPA concludes fewer enforcement cases.
• Depending on strategic shift, some federal enforcement
results could increase, such as when the Agency focuses
on bigger high-impact cases, or decrease, such as when
the Agency focuses on compliance assistance over formal
enforcement.
Broader enforcement
policy changes
• Narrowing the scope of New
Source Review violations
under the Clean Air Act for
which the Agency would
pursue enforcement actions.
• Temporarily requiring case
teams to alert regional and
OECA administrators before
referring cases to the
Department of Justice.
• Temporarily requiring OECA
management review of
information requests under the
Clean Air Act, the Clean Water
Act, and the Resource
Conservation and Recoveiy
Act.
• The EPA concludes fewer number of enforcement
cases under specific environmental statutes.
• May see a temporary lag in when enforcement cases
are concluded.
• Changes may result in inspectors' self-censorship of case
referrals or information requests because ofthe
perception these tools and mechanisms are not favored
by regional or OECA senior leadership.
Changes in national
enforcement priorities
• National enforcement
priorities, such as reducing
noncompliance in drinking
water facilities, focus-limited
Agency resources, and
expertise on serious
environmental problems in
program areas with high
noncompliance.
• The Agency assesses its listof
national enforcement
priorities eveiy three to four
years.
• EPA concludes more enforcement cases within
environmental statutes or regions involved in the priority
area.
• No changes in overall national trends in number of
enforcement cases concluded.
• Cases concluded under a national priority would
influence trends in injunctive relief, penalties, and
supplemental environmental projects.
Specific changes to
the enforcement
process
• Policy changes that required
inspectors to complete
inspection reports within 60
days of the inspection.
• Implementation of a novel
Department of Justice
interpretation about the use of
supplemental environmental
projects in most civil
enforcement actions being
inappropriate.
• Changes to individual measures, such as the number of
compliance monitoring activities or number and value of
supplemental environmental projects.
Source: Summary of EPA OIG information, from OIG Report Nos. 21-P-0131 and 21-P-0132. (EPA OIG table)
22-N-0004 48
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In December 2020, the GAO reported that the EPA had shifted the focus of its national priorities from
enforcing environmental laws to promoting compliance with environmental laws.68 The report noted
that, as of September 2020, the EPA had not finalized its guidance to the regions and states for
implementing the new national priorities, which went into effect in October 2019. Furthermore, the
GAO found that the EPA does not document the outcomes of its assessments of regional performance.
Based on that finding, the GAO concluded that the EPA could not demonstrate that its regional
activities support its strategic objectives. The GAO recommended that the EPA (1) communicate final
guidance to all states for future national priorities before the effective date; (2) incorporate lessons
learned from its initial efforts to engage with states when outlining future procedures for drafting
national priorities; and (3) document the outcomes of EPA's performance assessments at the regional
level, including progress toward performance goals that support the EPA's strategic objectives.
In May 2021, we reported that while OECA's National Enforcement Investigations Center had
addressed internal and external findings and implemented corrective actions related to safety and
health, concerns persisted regarding unconducted internal safety and health audits and management
reviews, hazardous waste mismanagement, noncompliance with safety procedures, and staff concerns
about safety and health.69 The EPA needs to develop a process for the Office of Criminal Enforcement,
Forensics, and Training to follow up on inspection findings and confirm whether corrective actions
effectively address findings, as well as develop metrics on safety, health, and work environment to
incorporate into National Enforcement Investigations Center management performance evaluations.
Also in May 2021, we expanded our reporting on national enforcement trends from March 2020 to
include findings about regional and statute-by-statue enforcement trends from FYs 2007 through 2018
and the key factors that contributed to those trends.70 We found that the decline in enforcement
resources was a primary driver behind the observed declining enforcement trends and that EPA
leadership made strategic decisions that affected enforcement trends. The EPA should complete a
workforce analysis to assess the Agency's capacity to maintain a strong enforcement field presence
that protects human health and the environment and to integrate the results of this analysis into
OECA's strategic and annual planning processes.
Incorporating Environmental Justice into EPA's Enforcement Program
Across the country, many low-income and minority communities are overburdened with high levels of
environmental pollution and other adverse societal and economic conditions. Administrator Regan has
emphasized that with regards to protecting human health and the environment, the Agency must:
68 GAO, Environmental Protection: Action Needed to Ensure EPA's Enforcement and Compliance Activities Support Its
Strategic Goals, GAO-21-82. December 9, 2020.
69 EPA OIG, Staffing Constraints, Safety and Health Concerns at EPA's National Enforcement Investigations Center May
Compromise Ability to Achieve Mission, Report No. 21-P-0131, May 12, 2021.
70 EPA OIG, Resource Constraints, Leadership Decisions, and Workforce Culture Led to a Decline in Federal Enforcement,
Report No. 21-P-0132. May 13, 2021.
22-N-0004
49
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[C]onsciously and affirmatively pursue justice as [the Agency] jointly confront
environmental and climate challenges with our federal, state, Tribal, and local partners.
This is our collective task and every office, and every EPA region, shares this
responsibility.
In EPA's FY 2022 Congressional Budget Justification, the Agency committed to developing and
implementing a comprehensive plan of action for including environmental justice and climate change
considerations in its civil and criminal enforcement programs, as well as in its compliance assurance
work. 71 Additionally, the acting assistant administrator for Enforcement and Compliance Assurance
committed to increasing the number of facility inspections in overburdened communities and
increasing engagement with communities regarding locally relevant enforcement cases to advance the
Agency's environmental justice goals.72
71 EPA, FY 2022 Justification of Appropriation Estimates for Committee on Appropriations, EPA-190-R-21-
002. May 2021.
72 Acting Assistant Administrator Larry Starfield, Memorandum Repardinp Strengthening Environmental
Justice ThroughCriminal Enforcement, April 30, 2021.
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Agency Response to Office of Inspector General-Identified Key Management Challenges
The Office of Inspector General transmitted the draft OIG-identified "EPA's FY2022 Top Management
Challenges" statement to the Agency on October 15, 2021, which EPA reviewed. The revised final
statement was transmitted for inclusion in today's report on Friday, November 12, 2021. The Agency
plans to review the revised final statement and prepare a response, which will be separately
transmitted no later than 30 days from the issuance f this report.
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PROGRESS IN ADDRESSING FY 2021
WEAKNESSES
In FY 2021, no new material weaknesses were identified. EPA continues to make progress in
addressing its one previously identified material weakness for which corrective actions are still
underway. The agency expects to implement and validate all corrective for this material weakness in
FY 2022.
Material Weakness
EPA Needs to Improve Its Financial Statement Preparation Process
During the FY 2019 financial statement audit, the OIG stated that failure to properly record accounting
transactions and exercise due diligence in the preparation of the agency's financial statements
compromise the accuracy of the financial statements and the reliance on them to be free of material
misstatement The OIG believes these issues highlight the need for the agency to strengthen its
processes so that data are accurate, complies with federal accounting standards, and are readily
available on a timely basis to prepare the financial statements.
To address this weakness, the EPA established a corrective plan of action to evaluate and improve its
financial statement preparation process and to provide accurate and reliable supporting
documentation for adjustments and corrections. Specifically, the agency has informed staff of the need
to include more supporting analysis and the rationale for the adjustments made and the accounting
basis for determining the adjustments. To increase efficiency, the agency implemented the CaseWare
software that provides format controls and footnote cross checks. The agency developed standing
operating procedures and a reviewer's checklists for the preparation of its financial statement audit
The SOPs and the checklist will be reviewed annually to validate effectiveness. The agency expects to
implement and validate all corrective actions in FY 2022.
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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
1
0
0
0
1
Total Material Weaknesses
1
0
0
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
0
0
0
0
0
0
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 Systems Requirements
Non-Conformances
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Total Non-Conformances
0
0
0
0
0
0
Compliance With FFMIA
Agency
Auditor
1. System Requirement
No Lack of compliance
noted.
No Lack of compliance noted.
2. Accounting Standards
No Lack of compliance
noted.
No Lack of compliance noted.
3. USSGL at Transaction Level
No Lack of compliance
noted.
No Lack of compliance noted.
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PAYMENT INTEGRITY
Payment Reporting
The Payment Integrity Information Act of 2019 (PIIA) requires executive branch agencies to review all
programs and activities annually identify those that may be susceptible to significant improper
payments and report the results of their improper payment activities to the President and Congress
through their annual Agency Financial Report or Performance and Accountability Report The PIIA
further requires each agency's Office of Inspector General to determine if their agencies programs or
activities are compliant with the statute.
EPA is dedicated to reducing fraud, waste, and abuse and presents the following improper payment
information in accordance with PIIA; OMB guidance found in Circular A-123, Appendix C, Requirements
for Payment Integrity Improvement; and the reporting requirements contained in OMB Circular A-136,
Financial Reporting Requirements. The OMB implementing guidance directs federal agencies to take the
following steps:
1. Review all programs and activities at least once every 3 years 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 the annual amount of each program's overpayments and recoveries.
An improper payment is defined as any payment that should not have been made or that was made in
an incorrect amount, including an overpayment or underpayment, under a statutory, contractual,
administrative, or other legally applicable requirements. It includes any payment to an ineligible
recipient; any payment for an ineligible good or service; any duplicate payment; any payment for a
good or service not received, except for those payments where authorized by law; and any payment
that does not account for credit for applicable discounts. Further, the term "payment for an ineligible
good or service" includes a payment for any good or service that is rejected under any provision of any
contract, grant, lease, cooperative agreement, or other funding mechanism.
The term "payment" means any transfer or commitment for future transfer of Federal funds such as
cash, securities, loans, loan guarantees, and insurance subsidies to any non-Federal person or entity or
a Federal employee, that is made by a Federal agency, a Federal contractor, a Federal grantee, or a
governmental or other organization administering a Federal program or activity.
OMB Circular A-12 3, Appendix C, requires that agencies conduct risk assessments of their programs or
activities at least once every three years to determine whether they are susceptible to significant
improper payments.
In FY 2021 EPA conducted improper payment risk assessments using a systematic approach to
determine whether each program or payment stream is susceptible to significant improper payments.
The risk assessments required an evaluation of risk factors that could contribute to potential for
significant improper payments. In completing the risk assessments, each office addressed risks known
at the time of completion. The agency will conduct qualitative risk assessments for all the low-risk
programs again in FY 2024 unless there are significant changes to the risk factors in the interim.
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Office of Inspector General's Compliance Determination for FY 2020
In May of 2021, the EPA's Office of Inspector General's released its annual report of the agency's PIIA
compliance. In the report, the EPA's OIG stated that The EPA's improper payment reporting complied
with all the applicable requirements of PIIA. This marks the 10th straightyear the OIG has found the
agency to be compliant. Still, the agency has some areas for improvement In particular, the OIG raised
the concern that Grants payments review did not cover the allowability of costs including that costs be
necessary, reasonable, and adequately documented in its statistical sample of payments. Agency
reviewers have historically focused on the payment accuracy aspects during the reviews - mainly
verifying payments went to the right person, for correct amount, at the right time, and for intended
purposes which are the most common problems found in improper payments made by the federal
government.
The OIG's report went on to recommend that the agency's Chief Financial Officer revise the current
Standard Operating Procedure Grants Improper Payment Review to include the cost-allowance
principles as set forth in 2 C.F.R. Part 200, Subpart E, in its improper payments estimates for the grants
payment stream program and provide training to staff on the updated procedure. After reviewing the
draft of the report, the EPA agreed with the recommendation. On publication of the final report the OIG
considered the recommendation resolved with the corrective action pending. The agency completed
the corrective action during the fourth quarter of FY 2021.
Summary of Current Risk Levels in EPA Programs
The Office of Management and Budget has three level to classify federal agency improper payments
risk: High Priority, Susceptible to Significant Improper Payments, and Not Susceptible to Improper
Payments. None of the agency's programs were identified as high priority defined under the PIIA as
exceeding $2 billion of annual estimated improper payments. At the end of this fiscal year, all agency
programs are now considered not susceptible to improper payments. Notably, in FY 2021, the agency
determined that the Grants program is no longer considered susceptible to significant improper
payments. Therefore, the program will discontinue annual statistical testing of program grants and
undertake qualitative risk assessments on a three-year cycle. 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
Funds
X
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Risk Assessment
Federal agencies are required to conduct risk assessments of their programs or activities to determine
whether they are susceptible to significant improper payments. The PIIA requires risk assessments to be
conducted at least once eveiy three years for programs that are not susceptible to significant improper
payments. For programs that are susceptible to significant improper payments, which until this year
consisted of the agency's Grants payment stream the quantitative method used for statistical sampling
fulfills the risk assessment requirement.
A quantitative risk assessment can consist of a true statistical sample, 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, or a review of 100 percent of payments sometimes referred to as a
census review. A qualitative risk assessment is an evaluation of risk factors that could contribute to
the occurrence of significant improper payments 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:
1. whether the program reviewed is new to the agency;
2. complexity of the program reviewed;
3. volume of payments made through the program reviewed;
4. whether payments or payment eligibility decisions are made outside of the agency, such as by a
State or local government;
5. recent major changes in program funding, authorities, practices, or procedures;
6. level, experience, and quality of training for personnel responsible for making program
eligibility determinations or certifying that payments are accurate;
7. significant deficiencies in the audit report or other relevant management findings of the agency
that might hinder accurate payment certification;
8. similarities (a combination of outlays, mission, payment process, etc.) to other programs that
have reported improper payment and unknown payment estimates or been deemed
susceptible to significant improper payments;
9. accuracy and reliability of improper payment and unknown payment estimates previously
reported for the program, or other indicator of potential susceptibility to improper payments
and unknown paymentss identified by the OIG of the executive agency, the Government
Accountability Office, other audits performed by or on behalf of the Federal, State, or local
government, disclosures by the executive agency, or any other means;
10. whether the program lacks information or data systems to confirm eligibility or provide for
other payment integrity needs;
11. risk of fraud as assessed by the agency under the Standards for Internal Control in the Federal
Government published by the GAO (commonly known as the 'Green Book');
12. results of prior year PIIA compliance report; and
13. whether the agency has adequately addressed the risk factors identified in the Government
Charge Card Abuse Prevention Act of 2012.
The qualitative risk assessments consist of a questionnaire designed to evaluate each risk factor in
consideration of existing internal controls. Directions for completion are provided to the program
managers of each payment stream. They respond to a series of questions and include a brief narrative,
as necessary, to develop individual risk factor scores. Upon completion, the scores are tabulated by
OCFO providing an overall risk rating for each payment stream ranging from 1 to 5.
If the overall rating is 2.5 or below, the payment stream is considered not susceptible to significant
improper payments; if the rating is above 2.6, the payment stream is could be susceptible to significant
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improper payments; and if the rating is 4 or above, the payment stream is considered to be at high risk
of significant improper payments.
In FY 2021, improper payment risk assessments were performed in commodities, contracts, CWSRF,
DWSRF, Hurricane Sandy payroll, purchase cards, and travel, all of which were identified as not
susceptible to significant per payments.
Improper Payments and Recoveries
Programs Susceptible to Improper Payments
Table 2 provides information about any EPA's formerly reportable program (Grants). The information
below was required to be gathered and finalized before the final determination that the Grants
program was no longer susceptible to significant improper payments. The following results reinforce
the Grants program not susceptible determination. The website https: //paymentaccuracy.gov/
contains more detailed information on improper payments as well as all of the information reported in
prior year AFRs.
Table 2. Improper Payment Reduction Outlook *
($ in millions)
Grants
$ Outlays
1,653.12
o
$ Proper
1,636.04
O
$ Improper
17.08
>
h
IP%
1.03%
Proper %
98.97%
$ Outlays
1,634.58
$ Proper
1,626.39
$ Improper
8.18
IP%
0.50%
Proper %
99.50%
rH
M
$ Overpay
0.03
O
$ Underpay
0.00
>
h
$ Insufficient Documentation
8.15
% Sample Overpaid
6.67%
% Sample Underpaid
0.00%
% Sample Insufficient Documentation
93.33%
Sampling Timeframe Start
Oct 1,2019
Sampling Timeframe End
Sept 30, 2020
*With the transition to not susceptible to improper payments, the agency is not required to
estimate an improper payments rate for the upcoming fiscal year.
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.
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Table 3: Monetary Loss
($ in millions)
Program
Estimated Total
Monetary Loss to
the Government
Monetary
Loss within
the Agency's
Control
Monetary
Loss Outside
the Agency's
Control
Estimated Non-
Monetary Loss
to the
Government
Unknown
(Insufficient
Documentation
to Determine)
Grants
0.03
$0.00
0.03
0.00
8.15
Table 4 identifies the root causes of error.
Table 4: Improper Payment Root Cause Category Matrix (Grants)
($ in millions)
Reason for Improper
Payment
Type of Improper Payment |
Overpayments
Underpayments
Unknown
Totals
Statutory Requirements of
Program were not met
0.03
-
-
0.03
Unable to determine whether
Proper or Improper
-
-
8.15
8.15
Data/Information Needed
Does Not Exist
-
-
-
-
Inability to Access
D ata/I nfo r mation
-
-
-
-
Failure to Access
D ata/I nfo r mation
-
-
-
-
T otals
0.03
-
8.15
8.18
Recoveries of Improper Payments
PIIA requires agencies to conduct payment recapture audit reviews in any program expending more
than $1 million annually. Past experience has demonstrated that the low dollar value of improper
payments recovered by an external payment recapture auditor resulted in an effort that was not cost-
effective for the agency or the contractor. Therefore, EPA no longer uses a payment recapture audit
firm to conduct formal payment recapture audits.
Nevertheless, the agency performs payment recapture activities internally, leveraging the work of
agency employees and agency resources. As part of this process, each payment stream is routinely
monitored to assure the effectiveness of internal controls and identify issues that could give rise to
overpayments. The agency's payment recapture activities are part of its overall program of internal
control over disbursements, which includes establishing and assessing internal controls to prevent
improper payments, reviewing disbursements, assessing root causes of error, developing corrective
action plans where appropriate, and tracking the recovery of overpayments.
The following tables quantifies the results of the agency's efforts to identify and recapture
overpayments across all payment streams.
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Table 5: Overpayments Recaptured Outside of Payment Recapture Audits w
($ in millions)
Program
Amount Identified
Amount Recovered
in FY 2021
in FY 2021
Commodities P)
0.133
0.128
Contracts P)
0.323
0.707
CWSRF
0.178
0.117
DWSRF
0.339
0.004
Grants
1.070
0.882
Hurricane Sandy
0.00
0.00
Payroll P)
1.120
0.895
Purchase Cards
0.00
0.00
T ravel
<0.001
<0.001
2018 Disaster Relief
0.00
0.00
Other C)
0.473
<0.025
Total
3.637
2.759
Recapture Rate - 76%
l) The mounts displayed in this table were identified and recovered using a variety of means available to
the Agency.
2) The amounts for contracts and commodities do not include lost discounts, which are
uncollectible.
3) Payroll consists of salary, benefits, and awards. The amount of improper payments can be
overstated if this figure also includes adjustments to pay because of e.g., changes to
employee grade/step and health plans may lag behind bi-weekly payroll payments.
4) "Other" consists of improper payments identified by audits plus confirmed fraud.
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The information provided below summarizes the actions and methods used by the agency to recoup
overpayments, a justification of any overpayments determined not to be collectible, and any conditions
giving rise to improper payments and how those conditions are being resolved.
A. Commodities and Contracts. Given the historically low percentage of improper payments in
commodities and contracts, the agency relies on its internal review process to detect and recover
overpayments. The agency produces monthly reports for each payment stream and uses these
reports as its primary tool for tracking and resolving improper payments. These reports identify
the number and dollar amount of improper payments, the source and reason for the improper
payment, the number of preventive reviews conducted, and the value of recoveries.
The commercial payments are subject to financial review, invoice approval, and payment
certification. Since all commercial payments are subject to rigorous internal controls, the agency
relies upon its system of internal controls to minimize errors. The following is a brief summary of
the internal controls in place over the agency's commercial invoice payment process.
The payment processing cycle requires that all invoices be subjected to rigorous review and
approval by separate entities. Steps taken to ensure payment accuracy and validity, which serve to
prevent improper payments, include 1) the RTP Finance Center's review for adequate funding and
proper invoice acceptance; 2) comprehensive system edits to guard against duplicate payments,
exceeding ceiling cost and fees, billing against incorrect period of performance dates, and payment
to wrong vendor; 3) electronic submission of the invoice to Project Officers and Approving Officials
for validation of proper receipt of goods and services, period of performance dates, labor rates, and
appropriateness of payment, citing disallowances or disapprovals of costs if appropriate; and 4)
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 2021 reporting, improper payments stemming from lost discounts totaled $10K 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.
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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.
EPA identifies overpayments in grants both through statistical sampling and through non-
statistical means. 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.
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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
FYs 2018 - 2021, no improper payments were identified. The EPA currently anticipates the
remaining Hurricane Sandy funds will be expended in FY 2022.
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.
F. Purchase Cards. The purchase card program is not susceptible to significant improper payments,
and no improper payments were identified in FY 2021.
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.
Agency Improvement of Payment Accuracy with the Do Not Pay Initiative
The PIIA requires federal agencies to implement the Do Not Pay (DNP) initiative, a government-wide
solution designed to prevent payment errors and detect waste, fraud, and abuse in programs
administered by the federal government. 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 2021, Treasury screened EPA payments through the following DNP data sources on a post-
payment basis: Social Security Administration's Death Master File and the General Services
Administration's System for Award Management Exclusion List. Through September 30, 2021,
approximately $2.18 billion of EPA payments were screened, and no improper payments were
identified. In addition, 54,646 EPA payments totaling $4 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.
194
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CIVIL MONETARY PENALTY ADJUSTMENT
FOR INFLATION
Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the EPA
and other federal agencies are required to adjust their maximum and minimum statutory civil penalty
amounts by January 15 each year to account for inflation. In accordance with this requirement, the EPA
promulgated the Civil Monetary Penalty Inflation Adjustment Rule (Rule) on December 23, 2020,
which became effective the same day. For details on this Rule, see 85 Fed. Reg. 83818-83821, codified
in Table 1 of 40 CFR § 19.4. EPA will amend 40 CFR§ 19.4. The EPA will amend 40 CFR§ 19.4 by
January 15, 2022 to adjust penalty levels for 2022, to reflect changes in inflation since the last
adjustment
Current Statutory Maximum/Minimum Civil Penalties under
EPA's 2021 Civil Monetary Penalty Inflation Adjustment Rule
Year
statutory
U.S. Code Citation Environmental statute penalty
authority
was enacted
7 U.S.C. 136/.(a)(l)
FEDERAL INSECTICIDE,
FUNGICIDE, AND RODENTICIDE
ACT (FIFRA)
1972
2021
$20,528
7U.S.C. 136/.(a)(2)
FIFRA
1972
2021
$3,011
7 U.S.C. 136/.(a)(2)
FIFRA
1978
2021
$3,011/$1,940
15 U.S.C. 2615(a)(1)
TOXIC SUBSTANCES CONTROL
ACT (TSCA)
2016
2021
$41,056
15 U.S.C. 2647(a)
TSCA
1986
2021
$11,803
15 U.S.C. 2647(g)
TSCA
1990
2021
$9,753
31 U.S.C. 3802(a)(1)
PROGRAM FRAUD CIVIL
REMEDIES ACT (PFCRA)
1986
2021
$11,803
31 U.S.C. 3802(a)(2)
PFCRA
1986
2021
$11,803
33 U.S.C. 1319(d)
CLEAN WATER ACT (CWA)
1987
2021
$56,460
33 U.S.C.
1319(g)(2)(A)
CWA
1987
2021
$22,584/$56,460
33 U.S.C.
1319(g)(2)(B)
CWA
1987
2021
$22,584/$282,293
33 IJ S C
1321(b)(6)(B)(i)
CWA
1990
2021
$19,505/$48,762
33 IJ S C
1321(b)(6)(B)(ii)
CWA
1990
2021
$19,505/$243,808
33 U.S.C.
1321(b)(7)(A)
CWA
1990
2021
$48,762/$l,951
33 U.S.C.
1321(b)(7)(B)
CWA
1990
2021
$48,762
Statutory civil
, ^ ^ . penalties for
Latest year of . . ^
J ^ violations that
adjustment , ^
, . ^ ^ ^ occurred after
(via statute _
1 November 2, 2015,
or
, where penalties are
regulation) , ^
° assessed on or after
December 23, 2020
195
-------
Year
statutory
U.S. Code Citation Environmental statute penalty
authority
was enacted
33 U.S.C.
1321(b)(7)(C)
CWA
1990
2021
$48,762
33 U.S.C.
1321(b)(7)(D)
CWA
1990
2021
$195,047/$5,851
33 U.S.C.
1414b(d)(l)
MARINE PROTECTION,
RESEARCH, AND SANCTUARIES
ACT (MPRSA)
1988
2021
$1,299
33 U.S.C. 1415(a)
MPRSA
1972
2021
$2 05,2 76/$2 70,784
33 U.S.C. 1901 note
(see 1409(a)(2)(A))
CERTAIN ALASKAN CRUISE SHIP
OPERATIONS (CACSO)
2000
2021
$14,966/$37,412
33 U.S.C. 1901 note
(see 1409(a)(2)(B))
CACSO
2000
2021
$14,966/$187,059
33 U.S.C. 1901 note
(see 1409(b)(1))
CACSO
2000
2021
$37,412
33 U.S.C. 1908(b)(1)
ACT TO PREVENT POLLUTION
FROM SHIPS (APPS)
1980
2021
$76,764
33 U.S.C. 1908(b)(2)
APPS
1980
2021
$15,352
42 U.S.C. 300g-3(b)
SAFE DRINKING WATER ACT
(SDWA)
1986
2021
$59,017
42 U.S.C. 300g-
3(g)(3)(A)
SDWA
1986
2021
$59,017
42 U.S.C. 300g-
3(g)(3)(B)
SDWA
1986/1996
2021
$11,803/$41,120
42 U.S.C. 300g-
3(g)(3)(C)
SDWA
1996
2021
$41,120
42 U.S.C. 300h-
2(b)(1)
SDWA
1986
2021
$59,017
42 U.S.C. 300h-
2(c)(1)
SDWA
1986
2021
$23,607/$295,088
42 U.S.C. 300h-
2(c)(2)
SDWA
1986
2021
$ll,803/$295,088
42 U.S.C. 300h-3(c)
SDWA
1974
2021
$20,528/$43,792
42 U.S.C. 300i(b)
SDWA
1996
2021
$24,674
42 U.S.C. 300i-l(c)
SDWA
2002
2021
$143,621/$1,436,220
42 U.S.C. 300j(e)(2)
SDWA
1974
2021
$10,263
42 U.S.C. 300j-4(c)
SDWA
1986
2021
$59,017
42 U.S.C. 300j-
6(b)(2)
SDWA
1996
2021
$41,120
42 U.S.C. 300j-23(d)
SDWA
1988
2021
$10,832/$108,315
42 U.S.C.
4852d(b)(5)
RESIDENTIAL LEAD-BASED
PAINT HAZARD REDUCTION ACT
OF 1992
1992
2021
$18,364
Statutory civil
, ^ ^ . penalties for
Latest year of . . ^
J ^ violations that
adjustment , ^
' ^ ^ ^ occurred after
(via statute , „ „ „. r
1 November 2, 2015,
or
, where penalties are
regulation) , ^
° assessed on or after
December 23, 2020
196
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Year
statutory
U.S. Code Citation Environmental statute penalty
authority
was enacted
42 U.S.C. 4910(a)(2)
NOISE CONTROL ACT OF 1972
1978
2021
$38,805
42 U.S.C. 6928(a)(3)
RESOURCE CONSERVATION AND
RECOVERY ACT (RCRA)
1976
2021
$102,638
42 U.S.C. 6928(c)
RCRA
1984
2021
$61,820
42 U.S.C. 6928(g)
RCRA
1980
2021
$76,764
42 U.S.C. 6928(h)(2)
RCRA
1984
2021
$61,820
42 U.S.C. 6934(e)
RCRA
1980
2021
$15,352
42 U.S.C. 6973(b)
RCRA
1980
2021
$15,352
42 U.S.C.
RCRA
1984
2021
$61,820
6991e(a)(3)
42 U.S.C.
RCRA
1984
2021
$24,730
6991e(d)(l)
42 U.S.C.
RCRA
1984
2021
$24,730
6991e(d)(2)
42 U.S.C. 7413(b)
CLEAN AIR ACT (CAA)
1977
2021
$102,638
42 U.S.C. 7413(d)(1)
CAA
1990
2021
$48,762/$390,092
42 U.S.C. 7413(d)(3)
CAA
1990
2021
$9,753
42 U.S.C. 7524(a)
CAA
1990
2021
$48,762/$4,876
42 U.S.C. 7524(c)(1)
CAA
1990
2021
$390,092
42 U.S.C. 7545(d)(1)
CAA
1990
2021
$48,762
42 U.S.C.
COMPREHENSIVE
1986
2021
$59,017
9604(e)(5)(B)
ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY
ACT (CERCLA)
42 U.S.C. 9606(b)(1)
CERCLA
1986
2021
$59,017
42 U.S.C. 9609(a)(1)
CERCLA
1986
2021
$59,017
42 U.S.C. 9609(b)
CERCLA
1986
2021
$59,017/$177,053
42 U.S.C. 9609(c)
CERCLA
1986
2021
$59,017/$177,053
42 U.S.C. 11045(a)
EMERGENCY PLANNING AND
COMMUNITY RIGHT-TO-KNOW
ACT (EPCRA)
1986
2021
$59,017
42 U.S.C.
EPCRA
1986
2021
$59,017
11045(b)(1)(A)
42 U.S.C.
EPCRA
1986
2021
$59,017/$177,053
11045(b)(2)
42 U.S.C.
EPCRA
1986
2021
$59,017/$177,053
11045(b)(3)
42 U.S.C. 11045(c)(1)
EPCRA
1986
2021
$59,017
42 U.S.C. 11045(c)(2)
EPCRA
1986
2021
$23,607
42 U.S.C.
EPCRA
1986
2021
$59,017
11045(d)(1)
Statutory civil
, ^ ^ . penalties for
Latest year of . . ^
J ^ violations that
adjustment , ^
' ^ ^ ^ occurred after
(via statute , „ „ „. r
1 November 2, 2015,
or
, where penalties are
regulation) , ^
° assessed on or after
December 23, 2020
197
-------
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
December 23, 2020
42 U.S.C. 14304(a)(1)
MERCURY-CONTAINING AND
RECHARGEABLE BATTERY
MANAGEMENT ACT (BATTERY
ACT)
1996
2021
$16,450
42 U.S.C. 14304(g)
BATTERY ACT
1996
2021
$16,450
198
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BIENNIAL REVIEW OF USER FEES
This fiscal year, the EPA was not required to review or report on user fee activities. This section reiterates
work that was discussed in the FY 2020 Agency Financial Report The FY 2020 user fee review included
options the agency was considering for the FY 2021 user fee program. The agency will review its user fees
in FY 2022 and report the results in the FY 2022 AFR.
The CFO Act of 1990 and OMB Circular No. A-25 Revised, User Charges, directs agencies to biennially review
their fees, royalties, rents, and other charges and to recommend fee adjustments as appropriate. OMB
Circular No. A-25 Revised also directs agencies to review other agency programs and determine whether
fees should be initiated for government services or goods for which fees are not currently charged.
The EPA's FY 2020 user fee review found the EPA's existing user fee programs compliant with their
statutory requirements regarding the cost recovery of its activities. However, the agency recommended that
the Motor Vehicle and Engine Compliance Fee Program provide additional information on the program's
estimated cost and their allocation methodologies. In FY 2021, the EPA will review MVECP's additional
information and conduct a detailed analysis to ensure fees are aligned with actual program costs and
activities.
In FY 2020, the EPA administered the following user fee programs. The bold-highlighted programs are
statutorily required to recover the full cost of the services provided.
FY 2020 User Fee Programs
Pesticides Registration Service Fees
Pesticides Maintenance Fees
Motor Vehicle and Engine Compliance Fee
Program
Water Infrastructure Finance and
Innovation Act Fees*
e-Manifest Fees*
Toxic Substance Control Act Fees*
Lead-Based Paint Fee Program
Clean Air Part 71 Permit Fees
*New user fee programs
The agency also conducted a review to determine whether fees should be assessed for programs that
provide special benefits to recipients beyond those that accrue to the public. The EPA will work with OMB to
determine whether exceptions are justified for each program that was reviewed in preparation of the FY
2022 AFR. For some programs, the cost of collecting fees can often represent an unduly large part of the fee
activity or other conditions may exist that would cause the implementation of a fee to be inappropriate.
The agency is also exploring options and opportunities for programs where collecting fees may be
appropriate, for which the EPA is not recommending an exception to OMB.
199
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GRANTS PROGRAM
The EPA has tracked assistance agreement closeout performance since its first five-year Grants
Management Plan was issued in 2002. The EPA reports in its Annual Financial Report on two grants
closeout performance measures: 90% closure of recently expired grants and 99% closure of grants
that expired in earlier years. The agency has consistently exceeded or met these targets or, in limited
instances, missed them by a few percentage points. Below is a summary table showing the total
number of federal grant and cooperative agreement awards and balances for which closeout has not
yet occurred, but for which the period of performance has elapsed by more than two years.
CATEGORY
2-3 Years
FY18-19
>3-5 Years
FY17-18
>5 Years
Before FY16
Number of
Grants/ Cooperative
Agreements with Zero
Dollar Balances
63
40
4
Number of
Grants/ Cooperative
Agreements with
Undisbursed Balances
55
18
1
Total Amount of
Undisbursed Balances
$929,196
$2,893,044
$241,075
The EPA has made great progress in reducing the amount of undisbursed balances on expired grants
as well as reducing the number of older grants that have expired but have not been closed out. The
timely closeout of grants can be delayed for a variety of reasons, but generally these include open
audits with unresolved findings and where recipient appeal rights have not yet been exhausted, or lack
of required documentation from the recipient. The EPA monitors unliquidated obligations (ULOs) on
expired assistance agreements as well, requiring an annual review of ULOs to determine if funds are no
longer needed and can be deobligated and the assistance agreement closed out.
200
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APPENDIX A PUBLIC ACCESS
202
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The EPA invites the public to access its website atwww.epa.gov to obtain the latest environmental
news, browse agency topics, learn about environmental conditions in their communities, obtain
information on interest groups, research laws and regulations, search specific program areas, or
access the EPA's historical database.
EPA newsroom: www.epa.gov/newsroom
News releases: www.epa.gov/newsroom/news-releases
Regional newsrooms: https: //www.epa.gOv/newsroom/browse-news-releases#regions
Laws, regulations, guidance and dockets: http s: / /www, epa. gov /laws- re gulations
Major environmental laws: https://www.epa.gov/laws-
regulations/laws-and-executive-orders
EPA's Regulations website: https: //www.epa.gov/laws-regulations/regulations
Where you live: https: //www.epa.gov/children/where-you-live
Community Information: https://www.epa.gov/nutrientpollution/what-you-can-do-
vour-community
EPA regional offices:
https://www.epa.gov/aboutepa/visi ting-
regional-office
Information sources: https://www.epa.gov/quality/epa-information-
quality- guidelines Hotlines and clearinghouses:
https://www.epa.gov/home/epa-hotlines Publications:
https://nepis.epa.gov/EPA/html/pubindex.html
Education resources: www.epa.gov/students/
Office of Environmental Education: www.epa.gov/education
About EPA: www.epa.gov/aboutepa
EPA organizational structure: www.epa.gov/aboutepa/epa-organizational-structure
EPA programs with a geographic focus: https://www.epa.gov/environmental-
topics/environmental-information-location
EPA for business and nonprofits:
https://www.epa.gov/grants/guidance-non-profit-organizations-
purchasing-supplies-equipment-and-services-under-epa-grants
Small Business Gateway: www.epa.gov/osbp/
Grants, fellowships, and environmental financing: https://www.epa.gov/grants
Budget and performance: www.epa.gov/planandbudget
Careers: www.epa.gov/careers/
EPA en Espanol: espanol.epa.gov
EPA tieng Viet: https://www.epa.gov/lep/vietnamese
EPA jiL: https://www.epa.gov/lep/korean
203
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APPENDIX B ACRONYMS AND
ABBREVIATIONS
204
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ACE Affordable Clean Energy
ADA Anti-deficiency Act
ADP Action Development Process
AFR Agency Financial Report
AICPA American Institute of Certified Public
Accountants
APPS Act to Prevent Pollution from Ships
APR Annual Performance Report
ASAP Automated Standard Application for
Payments
B&F Building and Facilities
BFS Bureau of Fiscal Services
BP British Petroleum
CAA Clean Air Act
CACSO Certain Alaskan Cruise Ship Operations
CARES Coronavirus Aid, Relief and Economic
Security Act
CEC Commission of the North American
Agreement on Environmental
Cooperation
CERCLA Comprehensive Environmental
Response Compensation and Liability
Act
CDPHE Colorado Department of Public Health
and Environment
CFO Chief Financial Officer
CFR Code of Federal Regulations
CO Co ntr acting 0 ffice r
CSRS Civil Service Retirement System
CW Clean Water
CWA Clean Water Act
CWSRF Clean Water State Revolving Fund
GHG Greenhouse Gases
GMO Grants Management Office
GSA U.S. General Services Administration
GTAS Governmentwide T reasury Accounting
Symbol Adjusted Trial Balance System
HVAC Heating, Ventilation, and Air Conditioning
IA Interagency Agreement
IBC Interior Business Center
IPIA Improper Payments Information Act
IPP Invoice Processing Platform
IRIS Integrated Risk Information System
IT Information T echnology
LUST Leaking U nderground Storage T ank
MOU Memorandum of Understanding
MVECP Motor Vehicle and Engine Compliance
Fee Program
MPRSA Marine, Protection, Research, and
Sanctuaries Act
NAS National Academy of Sciences
NEIC National Enforcement Investigations
Center
NPL National Priorities List
NRDA Natural Resource Damages Assessment
OCE Office of Civil Enforcement
OECA Office of Enforcement and Compliance
Assurance
OCFO Office of the Chief Financial Officer
OFR Office of the Federal Register
OGD Office of Grants and Debarment
OIG Office of Inspector General
OMB Office of Management Budget
OPA Oil Pollution Act
0PM Office of Personnel Management
OPP Office of Pesticide Program
205
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DATA
Data Accountability and Transparency
OPPTS
Office of Pollution Prevention and Toxics
Act
ORD
Office of Research and Development
DCAA
Defense Contract Audit Agency
PFCRA
Program Fraud Civil Remedies Act
DM&R
Deferred Maintenance and Repairs
PIIA
Payment Integrity Information Act
DNP
Do Not Pay
PMA
President's Management Agenda
DW
Drink Water
PO
Project Officer
DWH
Deepwater Horizon
PFAS
Per-and Polyfluoroalkyl Substance
DWSRF
Drinking Water State Revolving Fund
PP&E
Plant, Property and Equipment
EDSP
Endocrine Disruptor Screening
PRASA
Puerto Rico Aqueduct and Sewer
Program
Authority
EJ
Environmental Justice
PRIA
Pesticides Registration Improvement Act
EO
Executive Order
PROMESA
Puerto Rico Oversight, Management, and
EPA
U.S. Environmental Protection Agency
Economic Stability Act
EPCRA
Emergency Planning and Community
PRP
Potential Responsible Party
Right-to-know Act
RCRA
Resource Conservation and Recovery Act
R&I
Repair and Improvement
EPM
Environmental Programs and
RMDS
Resource Management Directives System
Management
RTF
Reduce the Footprint
FAR
Federal Acquisition Regulations
RTP
Research Triangle Park
FAS
Fixed Assets Subsystem
SARA
Superfund Amendments and
FASAB
Federal Accounting Standards
Reauthorization Act
Advisory Board
SDWA
Safe Drinking Water Act
FBWT
Fund Balance with Treasury
SCORPIO
Superfund Cost Recovery Package Imaging
FECA
Federal Employees Compensation Act
and Online System
FERS
Federal Employees Retirement System
SFFAS
Statement of Federal Financial Accounting
FFMIA
Federal Financial Management
Standards
Improvement Act of 1996
SOP
Standard Operating Procedures
FIFRA
Federal Insecticide, Fungicide and
SRF
State Revolving Fund
Rodenticide Act
SSC
Superfund State Contracts
FISMA
Federal Information Security
S&T
Science & Technology
Modernization Act
STAG
State and Tribal Assistance Grants
FMFIA
Federal Managers' Financial Integrity
TED
Talent Enterprise Diagnostic
Act of 1982
T reasury
U.S. Department of Treasury
FR
Financial Report
TSCA
Toxic Substance Control Act
FRPP
Federal Real Property Profile
ULO
Unliquidated Obligation
206
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FY
Fiscal Year
U.S.C.
United States Code
GAAP
Generally Accepted Accounting
USSGL
U.S. Standard General Ledger
Principles
WCF
Working Capital Fund
GAO
Government Accountability Office
WIFIA
Water Infrastructure Finance and
Innovation Act
207
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WE WELCOME YOUR COMMENTS!
Thank you for your interest in the U.S. Environmental Protection Agency's Fiscal Year 2021 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 the Controller
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.
.#•*«>sr^
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U.S. Environmental Protection Agency
Fiscal Year 2021 Agency Financial Report
EPA-190-R-21-004
November 15,2021
208
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