EPA Needs to Improve Its Recording and Reporting of Fines and Penalties

^EDSr%

* o \

I g U.S. ENVIRONMENTAL PROTECTION AGENCY

% / OFFICE OF INSPECTOR GENERAL

%l c
-------
Report Contributors: Paul Curtis

Arthur Budelier
Cynthia R. Poteat
Sabrina Berry
Sheree James
Robert Evans
James Niergarth

Abbreviations

Billing Document

CFC

Cincinnati Finance Center

EPA

U.S. Environmental Protection Agency

Fiscal Year

GAO

Government Accountability Office

ICIS

Integrated Compliance and Information System

IFMS

Integrated Financial Management System

OECA

Office of Enforcement and Compliance Assurance

OIG

Office of Inspector General

RMDS

Resources Management Directive System

SFO

Servicing Finance Office

-------
vitD srAr.

\ U.S. Environmental Protection Agency 10-P-0077

March 9, 2010

Iwi

• U • O • ^1 I V11 vl 111ICI I LCI I I I UlUl/ll

\ Office of Inspector General

At a Glance

Catalyst for Improving the Environment

Why We Did This Review

We performed this review to
determine whether the U.S
Environmental Protection
Agency (EPA) (1) billed and
collected fines and penalties in
a timely manner; (2) took
appropriate action to collect
fines and penalties; and
(3) tracked the assessment,
billing, and collection of fines
and penalties to measure the
impact of the enforcement
program and promote accurate
and transparent reporting.

Background

EPA's Office of Enforcement
and Compliance Assurance
(OECA) monitors compliance
with environmental laws and
takes enforcement action
when needed. Assessing
penalties as part of an
enforcement action provides a
deterrent to noncompliance.
The Cincinnati Finance Center
(CFC) records and tracks the
billing and collection of fines
and penalties.

For further information,
contact our Office of
Congressional, Public Affairs
and Management at
(202) 566-2391.

To view the full report,
click on the following link:
www.epa.aov/oia/reports/2010/
20100309-10-P-0077.pdf

EPA Needs to Improve Its Recording and
Reporting of Fines and Penalties

What We Found

EPA did not consistently record fines and penalty billings in a timely manner.
Regional and program office personnel did not forward copies of source
documents timely to CFC, which delayed the recording of accounts receivable.
EPA did not record a receivable as required for two disputed stipulated penalties
totaling $2,839,500.

EPA generally took appropriate action to collect fines and penalties. However, it
did not monitor the collections on a $300,000 receivable as required.

EPA tracked the assessment, billing, and collection of fines and penalties. EPA
used the assessments, and not the collections, as one of its measures of the
enforcement program's impact. OECA's data system contained 7 errors totaling
$139,242 in the penalty assessment amounts out of 156 billings reviewed related
to 117 assessments. Due to these data errors and nondisclosure of collections,
EPA did not report penalty information with complete accuracy and transparency.

In November 2008, EPA upgraded the Regional Hearing Clerk database to notify
CFC of new receivable source documents. The enhancement improved CFC's
ability to record receivables more timely.

What We Recommend

We made various recommendations to EPA to address recording fines and penalty
billings more timely, monitoring delinquent debt, ensuring greater accuracy in
OECA's data system, and disclosing fines and penalties collected as well as
assessments when reporting the results of enforcement actions. We revised a
recommendation regarding testing internal controls over the forwarding of account
receivable source documents to CFC and added a recommendation to develop a
policy for recording stipulated penalties. EPA should provide estimated
completion dates for recommendations 2-2, 4-2, 4-3, and 5-1. Based on these
revisions, EPA agreed with all our recommendations.

-------
§ \ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

| | WASHINGTON, D.C. 20460

pro"*4-

OFFICE OF
INSPECTOR GENERAL

March 9, 2010

MEMORANDUM

SUBJECT: EPA Needs to Improve Its Recording and Reporting of Fines and Penalties

Report No. 10-P-0077

FROM: Melissa M. Heist

Assistant Inspector General for Audits

TO: Barbara J. Bennett

Chief Financial Officer

Cynthia Giles

Assistant Administrator for Enforcement and Compliance Assurance

The Office of Inspector General (OIG) of the U.S. Environmental Protection Agency (EPA)
conducted this report on the subject audit. This report contains findings that describe problems
we identified and corrective actions we recommend. This report represents our opinion and does
not necessarily represent the final EPA position. EPA managers will make final determinations
on matters in this report in accordance with established audit resolution procedures.

The estimated cost of this report - calculated by multiplying the project's staff days by the
applicable daily full cost billing rates in effect at the time - is $340,813.

Action Required

In accordance with EPA Manual 2750, you are required to provide a written response to this
report within 90 calendar days. You should include a corrective actions plan for agreed-upon
actions, including milestone dates. We have no objections to the further release of this report to
the public. This report will be available at http://www.epa.gov/oig.

If you or your staff have any questions regarding this report, please contact me at (202) 566-0899
or heist.melissa@epa.gov. or Paul Curtis at (202) 566-2523 or curtis.paul@epa.gov.

-------
EPA Needs to Improve Its Recording
and Reporting of Fines and Penalties

10-P-0077

Table of C

Chapter

1 Introduction 1

Purpose 1

Background 1

Noteworthy Achievements 2

Scope and Methodology 3

2 Billings and Collections Not Recorded Timely 4

CFC Did Not Consistently Record Fines and Penalty Billings Timely 4

EPA Did Not Record a Receivable for Two Stipulated Penalties 5

Conclusion 7

Recommendations 7

Preliminary Agency Actions 7

Agency Comments and OIG Evaluation 8

3 Improvements Needed in Monitoring EPA's Accounts Receivable 9

EPA Did Not Monitor the Collection Activity on a Receivable 9

Conclusion 10

Recommendations 10

Preliminary Agency Actions 10

Agency Comments and OIG Evaluation 11

4 Enforcement Penalty Data Not Completely Accurate 12

Errors in Penalty Data in ICIS Identified 12

Conclusion 13

Recommendations 13

Agency Comments and OIG Evaluation 14

5 EPA Reported Penalty Assessments but Not Collections 15

EPA Disclosed Penalty Assessments but Not Collections for

Enforcement Accomplishments 15

Conclusion 16

Recommendation 16

Agency Comments and OIG Evaluation 16

Status of Recommendations and Potential Monetary Benefits 18

-continued-

-------
EPA Needs to Improve Its Recording
and Reporting of Fines and Penalties

10-P-0077

Appendices

A Details on Scope and Methodology 19

B Agency Response to Draft Report 21

C Distribution 29

-------
10-P-0077

Chapter 1

Introduction

Purpose

We performed this review because Congress showed an interest in determining
the effectiveness of the U.S. Environmental Protection Agency's (EPA's) billing
and collection of fines and penalties.

The objectives of our review were to determine whether:

• EPA has billed and collected fines and penalties in a timely manner;

• EPA has taken appropriate action to collect fines and penalties; and

• EPA tracks the assessment, billing, and collection of fines and penalties to
measure the impact of the enforcement program and promote accurate and
transparent reporting.

Background

EPA's Office of Enforcement and Compliance Assurance (OECA) monitors
compliance with environmental laws and takes enforcement action when needed.
OECA assesses civil and criminal penalties as part of an enforcement action to
provide a deterrent effect to noncompliance. Civil penalties may be
administrative, judicial, or stipulated. Documents negotiated out of court, such as
an administrative order on consent, provide the basis for administrative penalties.
Judicial documents derived from court action, such as a consent decree, provide
the basis for judicial penalties. A stipulated penalty is a fixed sum of money that
a defendant agrees to pay for violating the terms of a consent decree.

Some of the major statutes that grant EPA the authority to assess penalties are the
Clean Air Act; Clean Water Act; Safe Drinking Water Act; Comprehensive
Environmental Response, Compensation, and Liability Act; Toxic Substances
Control Act; Federal Insecticide, Fungicide, and Rodenticide Act; and Resource
Conservation and Recovery Act.

OECA tracks civil fines and penalty assessments in its Integrated Compliance and
Information System (ICIS) database and reports fines and penalty assessments in
its annual Accomplishments Reports. For the 5 fiscal years ended September 30,
2008, EPA reported civil fines and penalty assessments of $724 million as
detailed in Table 1-1.

-------
10-P-0077

Table 1-1: EPA Civil Penalties Assessed1 (in thousands)

2004

2005

2006

2007

2008

Total

Administrative

$28,000

$27,000

$42,000

$30,700

$38,200

$165,900

Judicial

$121,000

$127,000

$82,000

$39,800

$88,400

$458,200

Stipulated

$68,000

$4,000

$10,000

$12,400

$5,500

$99,900

Total Civil Penalties

$217,000

$158,000

$134,000

$82,900

$132,100

$724,000

Source: OIG analysis of EPA data.

EPA assessed criminal penalties of $316 million for the 5 fiscal years ended
September 30, 2008. Criminal penalties are primarily payable to other entities.
Accordingly, the other entities were responsible for those billings and collections.

EPA, the Department of Justice, and the Treasury's Debt Management Services
all perform a role in the billing and collection of fines and penalties. EPA bills
and collects administrative settlements and penalties. The Department of Justice
bills and collects judicial settlements and penalties on behalf of EPA. EPA's
Cincinnati Finance Center (CFC) records and tracks the billing and collection for
debtors' current payments and issues dunning letters for delinquent accounts as
needed. For eligible delinquent receivables, the Treasury's Debt Management
Services provide collection services for EPA in accordance with the Debt
Collection Act of 1996.

For the 5 fiscal years ended September 30, 2008, EPA recorded fines and penalty
billings of $694 million in the Integrated Financial Management System (IFMS).
EPA's civil penalty assessments of $724 million for the same period exceeded its
billings by $30 million. We could not determine the reasons for the $30 million
difference. Reconciling ICIS to IFMS was difficult because the databases lacked
a common link or data field.

Of the $694 million assessed and billed by EPA, the uncollected receivables -
including interest, handling charges, and late payment penalties - totaled
$280 million as of April 14, 2009. Included in the uncollected receivables were
three large default judgment civil penalties2 totaling $230 million that EPA
considers to be uncollectible.

Noteworthy Achievements

In November 2008, EPA enhanced the Regional Hearing Clerk database with the
capability to notify CFC of new administrative documents and make electronic
copies of the documents available in the database. The enhancement improved
EPA's ability to record receivables more timely by providing timely notification
to CFC and eliminating the document mailing time from the regions to CFC.

1 The amounts EPA reported for stipulated penalties represent the amounts collected, while the administrative and
judicial penalties represent the amounts assessed.

2 The court may assess a default judgment penalty for the maximum amount provided by law when the defendant
fails to appear in court to defend a lawsuit.

-------
10-P-0077

Scope and Methodology

-------
10-P-0077

Chapter 2

Billings and Collections Not Recorded Timely

EPA did not consistently record fines and penalty billings in a timely manner.
Regional and program office personnel did not forward copies of source
documents timely to CFC as required by EPA's Resources Management Directive
System (RMDS). Also, EPA did not record a receivable for two disputed
stipulated penalties totaling $2,839,500. The Agency was uncertain about
recording penalty amounts in dispute and did not follow established guidance for
recording these accounts receivable. Untimely receipt of accounts receivable
source documentation delays the recording of accounts receivable and the process
of collecting delinquent receivables. The unrecorded receivable accounts
understated the accounts receivable in the financial statements.

CFC Did Not Consistently Record Fines and Penalty Billings Timely

CFC received the source documents for 7 of 32 billings in our review more than
30 work days after the effective date of the legal document that established a debt
to the Agency. Table 2-1 illustrates the billings, number of work days from the
effective date to the receipt date, and the reason for the delays.

Table 2-1: Documents Received Over 30 Work Days from the Effective Date

Billing
Document
Number

Billed
Amount

Number of
Work Days from
Effective Date to
Receipt Date

Reason for Delays

1. 2740860A149

$11,400,000

Time off and holiday leave.

2. 2750803A004

$140,000

Regional personnel could not
give a reason for the delay.

3. 4CD904312TX

$122,000

Determining a penalty
allocation between EPA and
State required more time.

4. 2740803A142

$1,250,000

Regional personnel waited for
an allocation of funds between
regions.

5. 2730842R247

$3,164,555

Misunderstanding over which
party would send documents.

6. 6CIVH01097X

$37,500

Regional personnel could not
give a reason for the delay.

7. 2750930B093

$1,259,695

Regional personnel could not
give a reason for the delay.

Source: OIG analysis of EPA data.

EPA did not consistently record fines and penalty billings in a timely manner.
The Office of Regional Counsel and program offices did not forward copies of the

-------
10-P-0077

source documents to CFC timely. EPA personnel offered the following reasons
for the delays in forwarding source documents: time off and holiday leave,
determination of a penalty allocation that required more time, and a
misunderstanding over which party would send the documents to CFC. For some
documents, EPA could not provide a reason for the delay.

RMDS 2550D, Chapter 14, Superfund Accounts Receivable and Billings, requires
regional counsel and enforcement offices to forward copies of all entered
Superfund consent decrees and judgments to the finance office within 3 work
days of receipt from the Department of Justice or the court. RMDS 2540,
Chapter 9, Receivables and Billings, requires the responsible EPA office to
forward a copy of the action document to the finance office within 5 days of
determining that a debt is owed to EPA. Although EPA's requirements are 3 and
5 work days, we used a less rigorous standard of 30 work days in our testing.

Other factors also contributed to EPA's untimely recording of fines and penalties.
EPA did not:

• Monitor the timely forwarding of documents to CFC,

• Establish performance measures to track the timely forwarding of source
documents to CFC and to enforce accountability of Office of Regional
Counsel and program office personnel, and

• Test the timeliness of forwarding source documents to CFC as a part of
the Office of Management and Budget Circular A-123 review of internal
controls.

The untimely receipt of accounts receivable source documents delays the
recording of accounts receivable and the process of collecting delinquent
receivables. Delayed recording of fines and penalties understates the accounts
receivable in the financial statements.

EPA Did Not Record a Receivable for Two Stipulated Penalties

CFC did not record a receivable from a debtor corporation for two disputed
stipulated penalties totaling $2,839,500. EPA established a valid claim when it
issued stipulated penalty demand letters based on the company's violation of
provisions in a consent decree. Federal accounting standards require a federal
entity to recognize a receivable when it establishes a claim against another entity.
EPA's guidance requires a Servicing Finance Office (SFO) to carry any
receivable amount that is under appeal or in litigation as an open receivable. The
Agency was uncertain about recording penalty amounts in dispute and did not
follow established guidance for recording these accounts receivable.

-------
10-P-0077

The consent decree provided for stipulated penalties under the Clean Air Act if
the debtor did not comply with the terms of the agreement. When the debtor did
not comply, EPA had a valid legal claim to the penalties and issued stipulated
penalty demand letters. The consent decree requires the debtor to pay the
penalties within 30 days of receiving EPA's written demand. If the debtor
disputed the stipulated penalties, the consent decree stated that stipulated penalties
shall continue to accrue during the dispute resolution, but need not be paid until
the dispute was resolved.

Through inquiry of CFC personnel, we determined that CFC was unsure about
recording the receivable. The Agency questioned the appropriateness of
recording the disputed penalties because the judge's final order might change the
penalty amount. CFC was looking into the matter and trying to determine what
should be recorded.

Although the consent decree did not require payment of the penalties during
dispute resolution, accounting standards and guidance requires EPA to record a
receivable when established and carry it as an open receivable during the dispute
resolution process. If the dispute resolution changed the penalty amount, EPA
could then adjust the receivable. EPA, the Federal Accounting Standards
Advisory Board, and the Government Accountability Office (GAO) have
established guidance for recording accounts receivable when a claim is
established and for recording transactions timely:

• RMDS 2540, Chapter 9, Receivables and Billings, states that the SFO
must ensure that a debt is recorded in IFMS no later than 3 work days after
receipt of the documents or other information informing them of the debt.
SFOs must carry any amount that is under appeal or in litigation as open
until the government changes its position regarding the amount that is due
and payable, either as a result of a court decision or as a result of an
administrative settlement directed by a responsible government official.

• The Federal Accounting Standards Advisory Board's Statement of Federal
Accounting Standards Number 1, Accounting for Selected Assets and
Liabilities, states that a receivable should be recognized when a federal
entity establishes a claim to cash or other assets against other entities,
either based on legal provisions or goods or services provided.

• GAO's Standards for Internal Control in the Federal Government, dated
November 1999, defines the five standards for the minimum level of
quality acceptable for internal control in government. The standard for
control activities requires accurate and timely recording of transactions
and events.

The unrecorded receivable understated the accounts receivable in the financial
statements.

-------
10-P-0077

Conclusion

EPA did not consistently record fines and penalty billings in a timely manner
because regional and program office personnel did not forward copies of source
documents timely to CFC. EPA also did not monitor whether documents were
forwarded timely to CFC, establish performance measures for timeliness, or test
the related internal controls. If EPA implemented those control activities, it could
become more timely in forwarding source documents to CFC, recording accounts
receivable, and collecting receivables.

EPA did not initially record a receivable for two disputed stipulated penalties.
The Agency was uncertain about recording penalty amounts in dispute and did not
follow established guidance for recording these accounts receivable. Accounting
standards and guidance required CFC to record the receivable when it was
established. By recording receivables timely, EPA would properly state the
accounts receivable in the financial statements.

Recommendations

We recommend that the Chief Financial Officer:

2-1 Work with the Agency program offices to implement performance

measures to track the timeliness of forwarding accounts receivable source
documents to CFC and issue performance reports to the Agency program
offices and regions for accountability.

2-2 Analyze and document the current process of forwarding accounts
receivable source documents to CFC and review it for effectiveness.

Upon completion, develop a plan for testing key internal controls and
correcting any deficiencies as part of the Office of Management and
Budget Circular A-123 review of internal controls.

2-3 Record the billings in IFMS for the two stipulated penalties.

2-4 Develop a policy on fines and penalties to clarify when a stipulated
penalty becomes an account receivable.

Preliminary Agency Actions

Subsequent to our audit field work, EPA established a receivable for the two
stipulated penalties. CFC recorded the first penalty for $1,682,500 because EPA
received a judge's verbal ruling and the second penalty for $1,157,000 because
EPA received a judge's written opinion and order. EPA's corrective action has
satisfied our Recommendation 2-3 to record the billings in IFMS for the two
stipulated penalties.

-------
10-P-0077

Agency Comments and OIG Evaluation

The OIG made changes to the report based on the Agency's comments where
appropriate. Appendix B provides the full text of the Agency comments.

EPA agreed with recommendations 2-1 and 2-3. We revised recommendation 2-2
to provide for analysis and documentation of the current process of forwarding
accounts receivable source documentation to CFC before testing the effectiveness
of the internal controls. We also added recommendation 2-4 to develop a policy
for recording stipulated penalties. Based on these revisions, EPA agreed with all
four recommendations.

EPA believes it generally recorded fines and penalties in a timely manner, and
OIG's findings were only exceptions. We believe our statement that EPA did not
consistently record fines and penalty billings in a timely manner is fair and our
review results support it. We reported that CFC received the source documents
for 7 of 32 billings in our review more than 30 work days after the effective date
of the legal document that established a debt to the Agency. The rate of untimely
receipt of documents is significant. In fact, if we had used EPA's requirements of
3 or 5 days, the error rate would have been 18 of 32 received late.

OECA does not believe that the initial demand letter for payment of stipulated
penalties is always a basis for creating an account receivable. Accordingly, EPA
plans to develop a policy for recording accounts receivable for stipulated
penalties. We do not object to EPA developing a policy if it complies with the
standards of the Federal Accounting Standards Advisory Board. Therefore, we
added a recommendation for EPA to develop a policy. Federal Accounting
Standards Advisory Board number 1, Accounting for Selected Assets and
Liabilities, states that a receivable should be recognized when a federal entity
establishes a claim to cash or other assets against other entities, either based on
legal provisions, such as a payment due date (e.g., taxes not received by the date
they are due), or goods or services provided. If the exact amount is unknown, a
reasonable estimate should be made. We believe that an initial demand letter for
stipulated penalties based on a legal document, such as a consent decree, is a basis
for creating an account receivable. RMDS 2540, Chapter 9, requires EPA to carry
any amount that is under appeal or in litigation as open until the government
changes its position regarding the amount that is due and payable, either as a
result of a court decision or as a result of an administrative settlement directed by
a responsible government official. We believe the RMDS 2540 standard should
apply to a stipulated penalty.

-------
10-P-0077

Chapter 3

Improvements Needed in Monitoring EPA's
Accounts Receivable

EPA generally took appropriate action to collect fines and penalties. However,
EPA did not monitor the collections on a Region 10 Superfund receivable as
required by EPA's guidance. CFC did not request the regional staff to resolve the
outstanding delinquent debt, which at the time of our review was $298,851, and
regional staff did not assign the responsibility for collecting the outstanding debt.
Due to the lack of monitoring, EPA was not collecting payments on the debt.

EPA Did Not Monitor the Collection Activity on a Receivable

We reviewed EPA's collection efforts on 30 delinquent penalties totaling
$19,215,096, or 56 percent of the testing universe totaling $34,353,418. EPA
performed its collection efforts satisfactorily on 29 of the 30 samples reviewed.
However, EPA did not monitor the collections on a Region 10 Superfund
receivable for a criminal restitution penalty, billing document (BD)
#2700630B058. The local county government court required the debtor to serve a
jail sentence and make $300,000 restitution to EPA, payable monthly based on a
percent of his income during and after his jail term. At the time of our review, the
account balance was $298,851. CFC identified the receivable as delinquent and
requested an EPA attorney to provide an estimate of collectibility. However, no
one at EPA monitored the debtor's release from jail and subsequent employment
or investigated the reason why periodic collections were not received.

RMDS 2550D, Chapter 14, Superfund Accounts Receivable and Billings, states
that the SFO provides general accounting and financial management services in
the regions and field offices and for Headquarters. The SFO's responsibilities
include:

• Monitoring the status of accounts receivable until paid or liquidated;

• Advising the legal and program offices when a receivable becomes
delinquent; and

• Requesting that the assigned regional Legal Enforcement Office/Office of
Regional Counsel staff initiate the appropriate enforcement action to
resolve the outstanding debt.

CFC did not request the regional staff to resolve the outstanding delinquent debt
and regional staff did not assign the responsibility for collecting the outstanding
debt. EPA employees from the regional counsel, regional program office,

-------
10-P-0077

Criminal Investigation Division, and CFC who were familiar with the case stated
that they were not responsible for tracking the collections on the receivable.
Region 10 relied on the U.S. Attorney's Office in the region to monitor the
receivable and relied on the probation officer to monitor the debtor's activities.
However, the Department of Justice did not get involved with the case because
the local county court assessed the receivable. Region 10 could improve its
collection experience by assigning responsibility for monitoring the receivable
and for resolving the debt.

The local county government's office stated that the debtor was making payments
from his paycheck to the county, which in turn paid EPA. The county office
could not forward the November 12, 2008, and April 28, 2009, payments of $24
each to EPA because the post office returned the November payment due to an
incorrect mailing address. EPA was not aware of the debtor's current ability to
pay or the local county government's undelivered payments to EPA. Due to the
lack of monitoring, EPA was not collecting payments on the debt.

Conclusion

Based on our testing, we found one unusual instance in Region 10 involving a
local court order that required payments from a criminal defendant. EPA did not
monitor collections on this receivable as required by EPA's guidance. Our testing
otherwise indicated that EPA generally took appropriate action to collect fines
and penalties. Region 10 could improve its collection experience by assigning
responsibility for monitoring the Superfund receivable and resolving the debt.
OECA is responsible for Superfund enforcement efforts.

Recommendations

We recommend that the Chief Financial Officer:

3-1 Notify the regional assignee that the debt for BD #2700630B058 is
delinquent and request they work to resolve it.

We recommend that the Assistant Administrator for Enforcement and Compliance
Assurance:

3-2 Ensure that Region 10 assigns the responsibility for monitoring the

outstanding debt for BD #2700630B058 and provides the name of the
assignee to CFC.

Preliminary Agency Actions

Subsequent to our audit field work, CFC notified Region 10 that the debt for BD
#2700630B058 is delinquent and requested they work to resolve it. Region 10
assigned the responsibility for monitoring the outstanding debt and provided the

-------
10-P-0077

name of the assignee to CFC. EPA's corrective actions have satisfied
recommendations 3-1 and 3-2.

Agency Comments and OIG Evaluation

EPA agreed with our recommendations. The OIG made changes to the report
based on the Agency's comments where appropriate. Appendix B provides the
full text of the Agency's comments.

-------
10-P-0077

Chapter 4

Enforcement Penalty Data Not Completely Accurate

We found seven errors totaling $139,242 in OECA's ICIS database during our
review of Fiscal Year (FY) 2008 civil penalty assessments of $100,000 or higher.
OECA's reporting and certification process did not detect the errors. OECA
requires regions and OECA offices to certify that the data entered in the national
database are complete and correct. OECA did not reconcile the penalty
assessment amounts to billings recorded in IFMS, a control activity that would
have helped EPA detect the errors, because it was not involved with penalty
billings. As a result, OECA reported some inaccurate penalty data.

Errors in Penalty Data in ICIS Identified

We found seven incorrect penalty amounts that overstated the annual penalty
assessment by $139,242. We reviewed 156 FY 2008 civil penalty billings of
$100,000 or higher related to 117 assessments. EPA personnel in the regions and
OECA offices enter penalty assessment data into ICIS. OECA's Enforcement and
Compliance FY 2008 Reporting Plan requires regions and OECA offices to
certify that the data entered in the national database are complete and correct

Table 4-1 provides the details of the penalty misstatements in ICIS.

Table 4-1: Penalty Misstatements in ICIS

Enforcement
Action Identifier

Final
Order
Date

Federal
Penalty
Assessed
(in ICIS)

Billing
Document
Number

Billed
Amount
(in IFMS)

Overstated
(Understated)
in ICIS

01-2007-5000

06/30/08

$125,311

2710842R106

$31,724

$93,587

03-2008-0103

09/18/08

$122,982

2730875Z356

$50,000

$72,982

04-2006-9037

04/09/08

$6,700,000

2740843W296

$6,719,598

$(19,598)

05-2003-0255

01/29/08

$750,000

2750803A199

$760,000

$(10,000)

08-2003-0244

05/14/08

$211,593

2780843W130

$181,124

$30,469

08-2006-0080

03/26/08

$150,000

2780803A101

$176,000

$(26,000)

09-2008-7002

08/21/08

$2,640,000

2790847X313

$2,642,198

$(2,198)

Totals

$10,699,886

$10,560,644

$139,242

Source: OIG analysis of EPA data.

OECA's reporting and certification process did not detect all the penalty errors in
the ICIS database. Reconciling the assessment amounts in ICIS to the billings
recorded in IFMS is a control activity that would have helped EPA to detect the
errors. OECA did not perform the reconciliation because it was not involved with
penalty billings. CFC records and tracks all EPA penalty billings and collections.
Since EPA tracked penalty assessments and billings through separate program
offices, the ICIS and IFMS databases did not have a common data field, or

-------
10-P-0077

common link, that would facilitate a reconciliation of penalties recorded in the
databases. We attempted to reconcile the penalty amounts in ICIS and IFMS and
found the reconciliation to be difficult without a common link. We were not able
to reconcile the $30-million difference between OECA's penalty assessments and
CFC's billings for the 5 fiscal years ended September 30, 2008.

Reconciliations are a control activity to verify the completeness and accuracy of
data. GAO's Standards for Internal Control in the Federal Government, dated
November 1999, states that control activities, including reconciliations, are an
integral part of an entity's planning, implementing, reviewing, and accountability
for stewardship of government resources and achieving effective results.

As a result of the errors in ICIS, OECA reported some inaccurate data in its
annual Accomplishments Report. Without performing a reconciliation,
management assumes a greater risk that financial data may not be complete and
accurate.

Conclusion

OECA's ICIS database contained errors in the FY 2008 penalty assessment
amounts that OECA's reporting and certification process did not detect. EPA
could implement a control activity to detect penalty data errors by reconciling the
penalty amounts in ICIS and IFMS. The reconciliation would reduce the risk of
errors and promote more accurate reporting.

Recommendations

We recommend that the Assistant Administrator for Enforcement and Compliance
Assurance:

4-1 Correct the fines and penalty errors identified in this report in ICIS.

We recommend that the Chief Financial Officer and the Assistant Administrator
for Enforcement and Compliance Assurance work together to:

4-2 Develop a common link between ICIS and IFMS to facilitate the

reconciliation of the penalty-assessed amounts in ICIS to the penalty-
billed amounts in IFMS.

4-3 Perform an annual reconciliation of the penalty-assessed amounts in ICIS
to the penalty-billed amounts in IFMS.

-------
10-P-0077

Agency Comments and OIG Evaluation

EPA agreed with our recommendations. The OIG made changes to the report
based on the Agency's comments where appropriate. Appendix B provides the
full text of the Agency's comments.

-------
10-P-0077

Chapter 5

EPA Reported Penalty Assessments
but Not Collections

EPA tracked the assessment, billing, and collection of fines and penalties but used
the assessments, and not the collections, as one of the measures of the
enforcement program's impact. OECA publicly reported in its annual
Accomplishments Report the penalty assessments but not the collections. OECA
believes that assessments are the key measure for reporting to the public.
However, OECA's report without collection data did not promote transparency
and open government. A January 2009 Presidential memorandum called for a
commitment to open government and transparency, which promotes
accountability and provides information for citizens about what their government
is doing. Since EPA did not collect a significant amount of penalty assessments,
EPA's reporting of penalty information was not completely accurate and
transparent and may have overstated the impact of the enforcement program.

EPA Disclosed Penalty Assessments but Not Collections for
Enforcement Accomplishments

OECA publicly reported in the annual Accomplishment Report the amount of
fines and penalties assessed but not the amount of collections. For the 5 fiscal
years ended September 30, 2008, OECA reported civil fines and penalties
assessed of $724 million. As of April 14, 2009, EPA had not collected
$279,644,975 of the penalties, a significant portion of the assessed amount. The
uncollected penalties include three large default judgment penalties from civil
judicial cases totaling $229,706,860. The Agency believes these three penalties
are unlikely ever to be collected, and the removal of these penalties would result
in a significant reduction in the overall level of penalties that EPA reports.

The President's Memorandum on Transparency and Open Government, dated
January 21, 2009, states that the Administration is committed to creating an
unprecedented level of openness in government. According to the memo,
"Government should be transparent. Transparency promotes accountability and
provides information for citizens about what their government is doing." By
disclosing penalty collections along with assessments, EPA would help support
the Administration's commitment to openness and transparency in government.

GAO recommended that EPA report its penalty collections. The GAO report,
Environmental Enforcement: EPA Needs to Improve the Accuracy and
Transparency of Measures Used to Report on Program Effectiveness, dated
September 18, 2008, stated that EPA is overstating the impact of the enforcement
programs by reporting penalties assessed against violators rather than actual

-------
10-P-0077

penalties that the U.S. Treasury received. This situation may overstate the impact
of the enforcement programs by reflecting penalties that have not or will not be
collected. GAO recommended that when reporting the amount and nature of
penalties stemming from enforcement actions, the EPA Administrator should
disclose federal penalties collected as well as assessed. OECA responded to GAO
that it did not report penalty collections because it believes that reporting penalties
assessed is the key measure for reporting to the public.

Since EPA did not collect a significant amount of assessments, OECA may have
overstated the impact of the enforcement program by reporting penalty
assessments but not the collections. OECA's reporting may undermine the
transparency and accuracy of EPA's reported outcomes, cause EPA to overstate
its enforcement achievements, and create the potential for Congress and the public
to misunderstand the Agency's enforcement outcomes.

Conclusion

EPA used penalty assessments as one of the measures of the enforcement
program's impact. OECA publicly reported the penalty assessments but not the
collections. Since EPA did not collect a significant amount of the penalty
assessments, OECA's reports might have overstated the impact of the
enforcement program. EPA could support the Administration's commitment to
openness and transparency in government by reporting penalty collections as well
as the assessments.

Recommendation

We recommend that the Assistant Administrator for Enforcement and Compliance
Assurance:

5-1 Disclose fines and penalties collected as well as assessed when reporting
the amount and nature of fines and penalties based on enforcement
actions. Since EPA does not collect all penalties in the year assessed,
reporting total assessments and collections for a combined group of years
may be a reasonable approach to disclosure.

Agency Comments and OIG Evaluation

EPA agreed with our recommendation. The OIG made changes to the report
based on the Agency's comments where appropriate. Appendix B provides the
full text of the Agency's comments.

EPA emphasized that if it provided public information on its penalty collections,
the report would need to consider the important timing differences between
penalty assessments, billings, and collections. We agree there are timing
differences between the assessment and collection of penalties. However, timing

-------
10-P-0077

differences accounted for only a small portion of the uncollected penalties in our
review. For the 5 fiscal years ended September 30, 2008, EPA recorded penalties
totaling $694 million, with $280 million of that amount uncollected as of
April 14, 2009. Of the $280 million, $264 million was delinquent and only
$16 million was not yet due. We believe that when EPA provides public
information on its penalty collections, EPA should develop the report considering
the reasons for delinquencies as well as timing differences. The OIG
recommendation provides EPA considerable discretion in determining how it will
report penalty collections.

OECA stated that the billing and collection of penalties are not an enforcement
function. We disagree because billings and collections both represent
accomplishments and serve as a deterrent to noncompliance with environmental
statutes. EPA could increase its transparency by reporting penalty collections to
the public as well as assessments.

-------
10-P-0077

Status of Recommendations and
Potential Monetary Benefits

RECOMMENDATIONS

POTENTIAL MONETARY
BENEFITS (In $000s)

Rec.
No.

Page
No.

Subject

Status1

Action Official

Planned
Completion
Date

Claimed
Amount

Agreed To
Amount

2-1 7 Work with the Agency program offices to

implement performance measures to track the
timeliness of forwarding accounts receivable
source documents to CFC and issue performance
reports to Agency program offices and regions for
accountability.

2-2 7 Analyze and document the current process of

forwarding accounts receivable source documents
to CFC and review it for effectiveness. Upon
completion, develop a plan for testing key internal
controls and correcting any deficiencies as part of
the Office of Management and Budget Circular
A-123 review of internal controls.

2-3 7 Record the billings in IFMS for the two stipulated
penalties.

2-4 7 Develop a policy on fines and penalties to clarify

when a stipulated penalty becomes an account
receivable.

3-1 10 Notify the regional assignee that the debt for BD

#2700630B058 is delinquent and request they work
to resolve it.

3-2 10 Ensure that Region 10 assigns the responsibility for

monitoring the outstanding debt for BD
#2700630B058 and provides the name of the
assignee to CFC.

4-1 13 Correct the fines and penalty errors identified in

this report in ICIS.

4-2 13 Develop a common link between ICIS and IFMS to
facilitate the reconciliation of the penalty-assessed
amounts in ICIS to the penalty-billed amounts in
IFMS.

4-3 13 Perform an annual reconciliation of the penalty-
assessed amounts in ICIS to the penalty-billed
amounts in IFMS.

5-1 16 Disclose fines and penalties collected as well as

assessed when reporting the amount and nature of
fines and penalties based on enforcement actions.
Since EPA does not collect all penalties in the year
assessed, reporting total assessments and
collections for a combined group of years may be a
reasonable approach to disclosure.

Chief Financial Officer

December
2010

Chief Financial Officer

Assistant Administrator for
Enforcement and
Compliance Assurance

Chief Financial Officer and
Assistant Administrator for
Enforcement and
Compliance Assurance

Assistant Administrator for
Enforcement and
Compliance Assurance

08/18/09

12/31/10

05/04/09

07/30/09

01/06/10

$2,840

$299

O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress

-------
10-P-0077

Appendix A

Details on Scope and Methodology

We conducted this audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives. We conducted our audit from January through
October 2009. We reviewed EPA's processes for billing and collection of fines and penalties.
To gain an understanding of the processes, we interviewed personnel in CFC and OECA. We
reviewed OECA's Accomplishments Reports and obtained data reports of fines and penalty
assessments, billings, and collections for FYs 2004 through 2008.

We conducted field work for billing and collections in CFC where the accounts receivable and
collection processing occurs. For billings, we tested a sample of fines and penalties to determine
whether EPA recorded them timely. We used the monetary unit method of statistical sampling to
select 32 billings totaling $63,198,005 out of 2,453 billings totaling $133,087,641 from FY 2008
and the first quarter of FY 2009. For collections, we tested a sample of uncollected fines and
penalties to determine whether EPA took appropriate action to collect them. We used
judgmental sampling to select a diversified sample of penalty accounts with different status
codes, aging, and amounts. We selected 30 fines and penalties totaling $19,215,096 out of 385
totaling $264,060,278 from the 5 fiscal years ended September 30, 2008. We separately
reviewed three large default judgment civil penalties totaling $229,706,860 that EPA considered
uncollectible.

We assessed EPA's internal controls related to the tracking and reporting of assessments and the
billing and collection of fines and penalties. We gained an understanding of the internal controls
through interviews of finance office and OECA personnel, examination of supporting
documentation for selected billing and collection transactions, and comparison of assessment
data in ICIS to billing data in IFMS. We did not review the internal controls over IFMS from
which we obtained data reports, but relied on the review conducted during the audit of EPA's
FY 2008 financial statements.

We reviewed the following prior EPA OIG and GAO reports that had findings and
recommendations related to billing and collections and to accurate and transparent reporting of
OECA's program effectiveness.

-------
10-P-0077

Table A-1: Prior Reports Reviewed

Report Title

Report No.

Date

Environmental Enforcement: EPA Needs to Improve the
Accuracy and Transparency of Measures Used to Report
on Program Effectiveness

GAO-08-1111R

September 18, 2008

Audit of EPA's Fiscal Year 2007 and 2006 (Restated)
Consolidated Financial Statements

08-1-0032

November 15, 2007

Region 5's Billing and Collection of Accounts Receivable

E1AMB6-05-0079-7100139

March 26, 1997

Source: OIG analysis.

Both OIG reports disclosed internal control weaknesses in establishing receivables timely
because the regional offices did not timely forward accounts receivable source documents to the
finance office. Our current review found that these internal control weaknesses still exist.
According to the GAO report, EPA overstated the impact of the enforcement program by
reporting penalties assessed against violators rather than actual penalties that the Treasury
received. EPA disagreed with GAO's recommendation to report penalties collected as well as
assessments. EPA stated that reporting penalties assessed is the key measure for reporting to the
public. While EPA agreed that penalties collected is a useful internal management measure,
EPA did not believe that penalties collected should be publicly reported when EPA announces
individual case settlements or in its Annual Results.

-------
10-P-0077

Appendix B

Agency Response to Draft Report

December 23, 2009

MEMORANDUM

SUBJECT: Response to the Office of Inspector General Draft Audit Report: EPA Needs to
Improve Its Recording and Reporting of Fines and Penalties.

FROM: Barbara J. Bennett

Chief Financial Officer

TO: Bill A. Roderick

Acting Inspector General

Thank you for providing us with the opportunity to comment on and respond to the
findings and recommendations made in the "Draft Audit Report: EPA Needs to Improve Its
Recording and Reporting of Fines and Penalties." On behalf of the Agency, attached is our
response to the specific audit findings and recommendations made in the report.

If you have any questions concerning the audit response, please contact Stefan Silzer,
Acting Director, Office of Financial Management, at 564-5389 or Jeanne Conklin, Staff Director,
Financial Policy and Planning Staff, at 564-5342.

Attachments

cc: Paul Curtis

Arthur Budelier
Cynthia Giles
Mathy Stanislaus
Maryann Froehlich
Joshua Baylson
Stefan Silzer
Raffael Stein

-------
10-P-0077

OCFO's Response to OIG Draft Report

"EPA Needs to Improve its Recording and Reporting of Fines and Penalties "

Assignment No. 2009 - 0803

This document is comprised of the following sections:

1. Table of Response to OIG's nine recommendations

2. General comments regarding the recommendations

3. OCFO/OECA Specific Joint Comments by page number

4. OECA Specific Comments by page number

1. Table of Response to OIG's nine recommendations

Rec.

No.

Subject

Action
Official (s)

Recommendation

Planned
Completion
Date

2-1

Work with the Agency program
offices to implement
performance measures to track
the timeliness of forwarding
accounts receivable source
documents to CFC and issue
performance reports to Agency
program offices and regions for
accountability.

OCFO/OFM

OCFO agrees with this recommendation.
OCFO Office of Financial Management
will establish an Agency-wide workgroup
to develop and implement performance
measures and performance reports.

Dec. 2010

2-2

Test the timeliness of forwarding
accounts receivable source
documents to CFC as part of the
Office of Management and
Budget Circular A-123 review of
internal controls.

OCFO/OFS

In accordance with A-123 guidance, tests of
operating effectiveness will not be
developed for ineffectively designed
controls. Rather, we recommend this
recommendation be changed to: "Analyze
and document the current process and
review it for effectiveness. Upon
completion thereof, management will
develop a plan for testing key internal
controls and correcting any deficiencies."

In support of OCFO, OECA and the EPA
regions will take steps to assure that penalty
assessments are timely forwarded to OCFO.

Ongoing

2-3

Record the billings in IFMS for
the two stipulated penalties.

OCFO/OFS

EPA established a receivable for the two
stipulated penalties

Completed

3-1

Notify the regional assignee that
the debt for BD# 2700630B058
is delinquent and request they
resolve it.

OCFO/OFS/CFC

CFC has contacted the regional office
through 'Collection Estimate' emails, which
indicate a debt is outstanding and request
information regarding the debt. Since this
is a restitution case, there is no additional
work they can do to 'resolve' the debt.
However, CFC will work with Region 10 to
maintain a current status of this debtor
through the Court system.

Ongoing

3-2

Ensure that the Region 10 Office
of Regional Counsel assigns the
responsibility for monitoring the
outstanding debts for BD#
2700630B058 and provides the
name of the assignee to CFC.

Re-assign to

OECA

Region 10 has assigned the responsibility
for monitoring the outstanding debt and
provided the name of the assignee to CFC.

Completed

-------
10-P-0077

4-1

Correct the fines and penalty
errors identified in this report in
ICIS.

OECA

OECA will correct the errors.

March 31, 2010

4-2

Develop a common link between
ICIS and IFMS to facilitate the
reconciliation of the penalty-
assessed amounts in ICIS to the
penalty-billed amounts in IFMS.

OECA/OCFO
(CFC)

OECA mid OCFO will jointly explore
potential methods and their costs for
reconciling penalty data. We anticipate
selecting an appropriate method for
reconciliation by March 31, 2010, with the
intention of performing a first reconciliation
in FY 2010.

Ongoing

4-3

Perform an annual reconciliation
of the penalty- assessed amounts
in ICIS to the penalty-billed
amounts in IFMS.

OECA/OCFO
(CFC)

See response to 4-2 above.

Ongoing

5-1

Disclose fines and penalties
collected as well as assessed
when reporting the amount and
nature of fines and penalties
based on enforcement actions.
Since EPA does not collect all
penalties in the year assessed,
reporting total assessments and
collections for a combined group
of years may be a reasonable
approach to disclosure.

OECA

OECA and OCFO will jointly undertake a
feasibility assessment to examine
approaches to public disclosure of penalties
collected data. This feasibility assessment
will be completed by the end of the first
quarter of FY 2011. OECA and OCFO
believe their first priority is to address IG
recommendations 4-2 and 4-3 in an effort to
gain better understanding of the
recommendations once implemented.

Ongoing

2. General comments regarding the recommendations

A) OECA and OCFO appreciate the work performed on this audit and will use this opportunity
to further improve procedures. It is our belief with a few exceptions as reported in this audit that
EPA records all penalty assessments, as well as billings and collections in a timely and accurate
manner. In our opinion this report treats these exceptions as if they are the rule not exceptions to
the rule.

Overall, the report demonstrates the level of success that OECA has had in the accuracy of its
recording and reporting of penalty data. Although the IG makes very little mention of this, it is a
fact established by the IG's findings that the errors found were a small percentage of the numbers
of reports and the total dollar values involved. For example, on page 10 of the draft report, the
IG states EPA's penalty assessments announced for FY 2008 "overstated" the actual amount by
$139,242. The errors found represent only 0.1% of the total penalties assessed. OECA considers
this a success, and would like the IG to consider recognizing it as such.

OECA will continue to strive to identify and amend all data errors. OECA agrees that there must
be reconciliation between their penalty assessment numbers and our billing and collection
numbers.

Below we suggest a number of edits to the report that reflect the overall quality of the work that
OCFO and OECA are performing today. Both OCFO and OECA continue to remain open to
implement the recommendations of the IG in order to make further improvements.

B) There are important timing differences the IG should recognize that require differential
treatment of penalty assessments and penalty billing and collections. Not all penalty assessments
are due immediately. The time period can range from one to two months, and in some cases, may
extend for years. Accordingly, this time must be factored in for billings and collections

-------
10-P-0077

purposes. This means that when EPA determines a civil penalty during a fiscal year, that does
not mean that all of that amount is legally due and should have been billed and collected in that
same fiscal year. Thus, to the extent the Agency decides to provide public information on its
penalty collections, this report will need to be developed considering these factors.

3. OCFO/OECA Specific Joint Comments by page number

A) OECA disagrees with the statement on page 12 of the draft report, "Since EPA did not collect
a significant amount of penalty assessments, OECA did not promote accurate and transparent
reporting and may have overstated the impact of the enforcement program." The billing and
collection of penalties are not an enforcement function. Therefore, if some penalties are not
collected or deemed not collectable this does not represent an overstatement of the
accomplishments of EPA's enforcement program. While recognizing that billing and collection
information is important, penalty assessments are an equally important measure of the deterrent
value of EPA enforcement actions. Penalty assessments serve to notify the regulated community
and the public concerning the important consequences for noncompliance.

Contrary to the IG's statement, OECA has accurately and transparently reported penalties
assessed. Given the circumstances of the uncollectible penalties identified, (i.e., assessed via
default judgment), it should be noted that uncollectible penalties in no way represent a
shortcoming of any EPA program. OECA's role is to obtain penalty assessments.

Nevertheless, OECA and OCFO recognize there is an opportunity to provide the public with
information on penalty collections and thus are committed to exploring the feasibility of doing
so. OECA and the regions recognize that it is necessary to convey assessment information to
OCFO in a timely manner so that OCFO can carry out its function.

B) The IG indicates on page 10 that it reviewed 156 FY 2008 civil penalty assessments of
$100,000 or higher. OECA's list of the $100,000 or higher FY 2008 civil penalty assessments
shows only 117 such assessments. Attachment 1 is OECA's list. Since OECA has not seen the
IG's list of 156 assessments, we do not know why there is a difference in our counts. We believe
the IG is counting a penalty assessment in a single case that was internally split among the
regions, as a separate penalty assessment for each region that received a split of the penalty. In
contrast, OECA only counts one penalty assessment for such cases and ignores the internal
allocations of the penalty amounts among the regional offices that participated in the case.

OECA increases its count to 167 if all the regions pieces of these cases are counted. The IG and
OECA should confirm this is correct before the final report is published.

C) OECA does not believe that the initial demand letter concerning payment of stipulated
penalties is necessarily or always a basis for creating an accounts receivable. The initial demand
letter often is just the beginning of the process for obtaining the facts and analysis that lead to a
specific penalty amount that would support creating an accounts receivable. The stipulated
penalty amount that is finally agreed upon is based on additional information received from the
defendant about the purported violations that underlie the initial demand, including factual issues
and mitigating circumstances.

-------
10-P-0077

OECA and OCFO believe that a policy must be issued that would assist the EPA regions in
making the determination whether stipulated penalty requests constitute a penalty assessment,
thus requiring an accounts receivable to be opened. To remedy this situation, OCFO's Office of
Financial Management will be establishing a workgroup in January 2010 with the objective of
writing a policy on fines and penalties.

OECA and OCFO, with assistance from the Office of General Counsel, and in conformance with
the FASAB standards, will draft this policy. One portion of this policy will be to clarify when a
stipulated penalty becomes an account receivable, thus prompting OECA to notify OCFO. This
policy will be completed and issued by the end of CY 2010. The IG is welcome to add this
commitment to the Report as an additional recommendation.

4. OECA-specific comments by page number

A) In the summary section of the report, titled, "At A Glance: What We Found":

1. The language used by the IG in this summary paragraph is overly harsh. EPA
generally does a very good job tracking penalty assessments, billings, and collections
despite some obstacles. OECA does not believe that the IG's findings support the use of
the harsh language in this section or elsewhere in the report.

2. The IG makes the statement, "EPA tracked the assessment, billing, and collection of
fines and penalties. However, it used only the assessments, and not the collections, to
measure the impact of the enforcement program." OECA wants to assure that the IG
understands that EPA uses measures in addition to penalty assessments to measure the
impact of our enforcement program (e.g., pollutant reduction, value of injunctive relief,
health benefits). The way this sentence is drafted implies that EPA only uses penalty
assessments as a measure.

3. To acknowledge the general success of EPA in tracking penalty assessments, EPA
proposes that the IG change the first and third paragraphs to read,

EPA generally recordedfines and penalty billings in a timely manner, though we
found a few exceptions. Regional and program office personnel generally
forwarded copies of source documents timely to CFC, though again there were a
few exceptions which delayed the recording of accounts receivable. EPA did not
record a receivable as requiredfor two disputed stipulated penalties totaling
$2,839,500.

EPA tracked the assessment, billing, and collection offines and penalties. EPA
used the assessments, and not the collections, to measure the impact of the
enforcement program. OECA 's data system for tracking EPA enforcement
actions contained seven errors totaling $139,242 in the penalty assessment
amounts out of 156 assessments reviewed. These seven errors constituted 0.13
percentage of the total amount from these 117 assessments. Due to these data
errors, information released by EPA on its enforcement actions was not

-------
10-P-0077

completely accurate. Assuring more accurate reporting would increase the
transparency of EPA 's penalty data.

B) Regarding the data table at the top of page 2 of the report and the text related to this table, the
stipulated penalty amounts that EPA measures are stipulated penalty paid amounts, not assessed
amounts. EPA adds judicial and administrative penalties together for an annual civil penalty
assessed total but we do not add in stipulated penalties. We report stipulated penalties
separately. The administrative and judicial penalties that we count are the penalty amounts
assessed by the court or administrative law judge. The stipulated penalty amounts are penalty
amounts that have been paid. We don't add them together to avoid combining unlike figures.

C) Again, to recognize EPA's generally strong performance, OECA suggests that the first
paragraph on page 4 be changed to read,

EPA generally recordedfines and penalty billings in a timely manner, though there were
some exceptions. Regional and program office personnel generally forwarded copies of
source documents timely to CFC as required by EPA's Resources Management Directive
System, though again there were exceptions. Also, EPA did not record a receivable for
two disputed stipulated penalties totaling $2,839,500. The Agency was uncertain about
whether to record penalty amounts in dispute and did not follow established guidance for
recording these accounts receivable. Untimely receipt of accounts receivable source
documentation delays the recording of accounts receivable and the process of collecting
delinquent receivables. The unrecorded receivable understated the accounts receivable
in the financial statements.

For the same reasons, OECA also proposes that the paragraph that begins at the bottom of page 4
be revised to read,

Though EPA generally recordedfines and penalty billings in a timely manner there were
seven exceptions identified. Where these exceptions occurred, the Office of Regional
Counsel and program offices had not forwarded copies of the source documents to CFC
timely. EPA personnel offered the following reasons for the delays in forwarding the
source documents in these instances: time off and holiday leave, determination of a
penalty allocation that required more time, and a misunderstanding over which party
would send the documents to CFC. For three of the seven documents, EPA could not
provide a reason for the delay.

OECA also proposes that the associated section titles be changed to match the more positive tone
of this revised paragraph.

D) Again, to recognize the generally strong job that EPA does in recording penalty billings, we
request that the first sentence of the conclusion on Page 7 be changed to read,

EPA generally recordedfines and penalty billings in a timely manner though there were
exceptions that occurred because regional and program office personnel had not timely
forwarded copies of source documents timely to CFC.

-------
10-P-0077

E) Concerning the Chapter 3 conclusion on page 9 of the report, to clearly note the very unusual
circumstance surrounding the problem uncovered, we propose that it be changed to read,

Based on our testing, we concluded that EPA generally took appropriate action to collect
fines and penalties. We didfind one instance, in a very unusual case involving a local
court order that required a criminal defendant to make payments to EPA, that EPA did
not monitor the collections on a Region 10 receivable as required by EPA 's guidance.
Region 10 could improve its collection experience by assigning responsibility for
monitoring the Superfund receivable and resolving the debt. The Office of Enforcement
and Compliance Assurance is responsible for Superfund enforcement efforts.

Also, EPA criminal enforcement matters, Superfund and otherwise, are an OECA responsibility,
not a responsibility of the Office of Solid Waste and Emergency Response. This necessitates a
change to the language of recommendation 3-2 as well.

F) On page 10, EPA proposes that the subtitle be changed to, "EPA Maintained Highly Accurate
Penalty Data in ICIS, though Several Errors were Identified." This again is to reflect EPA's
generally strong performance. For the same reason, we suggest the language of the paragraph
that follows this subtitle be changed to read,

EPA personnel in the regions and OECA offices enter penalty assessment data into ICIS.
OECA's Enforcement and Compliance FY 2008 Reporting Plan requires regions and
OECA offices to certify that the data entered in the national database is complete and
correct. However, OECA 's FY 2008 ICIS penalty assessments data was not completely
accurate. We reviewed 156 FY 2008 civil penalty assessments of $100,000 or higher and
found seven incorrect penalty amounts that overstated the annual penalty assessment
total by $139,242 which was only 0.13 percent of the penalty amounts we reviewed.

Table 4-1 provides the details of the seven penalty misstatements in ICIS.

F) Concerning the last sentence of the paragraph that carries over to the top of page 13, "OECA
believes it should not publicly report collections when EPA announces individual case
settlements or publishes its Accomplishment Reports," we wish to assure that it is understood
that it would not be possible to announce collections at the time we announce settlements in that
penalties are not due to be paid at the time that EPA issues its individual case press releases, at
the point of lodging of the judicial consent decree or approval of the administrative consent
agreement. The penalties are due some time later, usually 30 or 60 days later.

H) To acknowledge the impact of the time lag between assessment and payment of penalties,
OECA proposed revisions of recommendation 5-1 to read as follows:

Disclose total fines and penalties collected as well as assessed when publicly reporting the
amount offines and penalties. Since there are legitimate time lags between when a penalty is
assessed, when it becomes legally due and the billing and collection process, EPA may need
to develop a separate way to report penalty collections from its existing annual penalty
assessment reports.

-------
10-P-0077

I) OECA has additional minor, editorial comments on the report that they would like to share
with OIG at OIG's convenience.

-------
10-P-0077
Appendix C

Distribution

Office of the Administrator
Chief Financial Officer

Assistant Administrator for Enforcement and Compliance Assurance
Director, Office of Compliance, Office of Enforcement and Compliance Assurance
Agency Follow-up Coordinator
General Counsel

Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs

Audit Follow-up Coordinator, Office of the Chief Financial Officer

Audit Follow-up Coordinator, Office of Enforcement and Compliance Assurance

Acting Inspector General

-------