*¦ Audit of the EPA's Fiscal Years 2023 and 2022 (Restated) Consolidated Financial Statements November 15, 2023 [ Report No. 24-F-0009 ^spec7-0 7"al PR0' ------- Report Contributors Wanda Arrington Lasharn Barnes Elizabeth Brinson Vincent Campbell Safiya Chambers Nancy Dao Edgar Dumeng Amir Eskarous Robert Evans Robert Hairston Tanishia Heilig Jennifer Hutkoff Damon Jackson Eric Jackson Sheree James Alyssa Jolly Carol Kwok Shannon Lackey Mairim Lopez Ethel Lowery Sheila May Demetrios Papakonstantinou Shaheryar Qureshi Maria Ramirez-Grigortsuk Joshua Rodriguez Gina Ross Kevin Ross Scott Sammons Connie Song Wendy Swan Ryan Watren Philip Weihrouch Abbreviations C.F.R. Code of Federal Regulations CIO Chief Information Officer EPA U.S. Environmental Protection Agency FFMIA Federal Financial Management Improvement Act of 1996 FY Fiscal Year ISA and MOA Interconnection Security Agreement and Memorandum of Agreement OCFO Office of the Chief Financial Officer OIG Office of Inspector General OMB Office of Management and Budget SSC Superfund State Contract U.S.C. United States Code Cover Image EPA headquarters building. (EPA image) 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.qov Learn more about our OIG Hotline. EPA Office of Inspector General 1200 Pennsylvania Avenue, NW (241OT) Washington, D.C. 20460 (202) 566-2391 www.epaoiq.gov Subscribe to our Email Updates. Follow us on X (formerly Twitter) @EPAoiq. Send us your Project Suggestions. ------- At a Gla 24-F-0009 November 15, 2023 Audit of the EPA's Fiscal Years 2023 and 2022 (Restated) Consolidated Financial Statements Why We Did This Audit To accomplish this objective: We performed this audit in accordance with the Government Management Reform Act of 1994, which requires the U.S. Environmental Protection Agency 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: Financial statements were fairly stated in all material respects in accordance with generally accepted accounting principles. Internal control over financial reporting was in place. Management complied with applicable laws, regulations, contracts, and grant agreements. This requirement for audited financial statements was enacted to help improve agencies' financial management practices, systems, and control so that timely, reliable information is available for managing federal programs. To support this EPA mission-related effort: Operating efficiently and effectively. Address inquiries to our public affairs office at (202) 566-2391 or OIG.PublicAffairs@epa.gov. The EPA Receives an Unmodified Opinion for Fiscal Years 2023 and 2022 (Restated) We rendered an unmodified opinion on the EPA's consolidated financial statements for fiscal years 2023 and 2022 (restated), meaning that they were fairly presented and free of material misstatement. We found the EPA's financial statements to be fairly presented and free of material misstatement. Significant Deficiencies Noted We noted the following significant deficiencies: The EPA did not provide accurate information for its revenue accruals. The EPA did not deobligate unneeded funds in a timely manner. The EPA operated under an expired Interconnection Security Agreement and Memorandum of Agreement, which could hamper invoice processing. The EPA did not review user accounts for EPA contracting personnel every 60 days, as required by its information security procedure. Compliance with Applicable Laws, Regulations, Contracts, and Grant Agreements We did not note any significant noncompliance with laws, regulations, contracts, and grant agreements. Recommendations and Planned Agency Corrective Actions We make seven recommendations to the EPA, including that the chief financial officer instruct the regions to take action to correct the accrual and to provide information on a quarterly basis, develop and implement plans to deobligate unneeded funds in a timely manner and to ensure that future Interconnection Security Agreement and Memorandum of Agreement documents are reauthorized before the current agreements expire, and determine how to review user accounts in compliance with the EPA's information security procedure. We also recommend that the Great Lakes National Program Office review accrual information to ensure its accuracy. The EPA agreed with all seven recommendations, completed corrective actions in response to one, and provided acceptable planned corrective actions and estimated milestone dates for the others. List of OIG reports. ------- OFFICE OF INSPECTOR GENERAL U.S. ENVIRONMENTAL PROTECTION AGENCY November 15, 2023 MEMORANDUM SUBJECT: Audit of the EPA's Fiscal Years 2023 and 2022 (Restated) Consolidated Financial Statements Report No. 24-F-0009 FROM: Damon Jackson, Director Qomm Qxickd&n- Financial Directorate Office of Audit TO: Faisal Amin, Chief Financial Officer Teresa Siedel, Director Great Lakes National Program Office This is our report on the subject audit conducted by the U.S. Environmental Protection Agency Office of Inspector General. The project number for this audit was QA-FY23-0078. 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 management in accordance with established audit resolution procedures. The Office of the Chief Financial Officer and the Great Lakes National Program Office are responsible for the issues discussed in the report. In accordance with EPA Manual 2750, your offices completed corrective actions for Recommendation 3. Your offices also provided acceptable planned corrective actions and estimated milestone dates in response to Recommendations 1, 2, 4, 5, 6, and 7. These recommendations are resolved, and no final response to this draft 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 justification. We will post this report to our website at www.epaoig.gov. To report potential fraud, waste, abuse, misconduct, or mismanagement, contact the OIG Hotline at (888) 546-8740 or OIG.Hotline@epa.gov. ------- Table of Contents 1 Report on the Audit of the Financial Statements 1 2 Required Supplementary Information 3 3 Report on Internal Control over Financial Reporting 4 4 Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements 6 5 Other Governmental Reporting Requirements 8 6 Prior Audit Coverage 8 A Significant Deficiencies 9 B Status of Prior Audit Report Recommendations 19 C Status of Recommendations and Potential Monetary Benefits 21 1 The EPA's Fiscal Years 2023 and 2022 Consolidated Financial Statements (with Restatement) 22 2 Agency Response to Draft Report 82 3 Distribution 86 24-F-0009 i ------- Inspector General's Report on the EPA's Fiscal Years 2023 and 2022 (Restated) Consolidated Financial Statements The Administrator U.S. Environmental Protection Agency Report on the Audit of the Financial Statements Opinion We have audited the consolidated financial statements of the U.S. Environmental Protection Agency, which comprise the consolidated balance sheets, as of September 30, 2023 and 2022 (restated); and the related consolidated statement 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. 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, 2023 and 2022 (restated), in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America, known as generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our report. We are required to be independent of the EPA and to meet our ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter Restatements of Fiscal Year 2022 As described in note 30, "Restatements," to the financial statements, the EPA restated its fiscal year 2022 financial statements. The Water Infrastructure Finance and Innovation Act of 2014 loan financing account was previously reported as a dedicated collections fund, but it is specifically excluded from such per Statement of Federal Financial Accounting Standards 27, Identifying and Reporting Funds from Dedicated Collections, and Statement of Federal Financial Accounting Standards 43, Dedicated Collections: Amending SFFAS 27, Identifying and Reporting Earmarked Funds. 24-F-0009 1 ------- The restatement resulted in an $8,206,000 increase to the funds from dedicated collections net position and an $8,206,000 decrease to the funds other than those from dedicated collections net position. There was no impact to the total net position. The change impacts the FY 2022 balance sheet and statement of changes in net positioncumulative results of operations between funds from dedicated collections and funds from other than dedicated collections. Our opinion is not modified with respect to these corrections. Responsibilities of Management for the Financial Statements The EPA's management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and for 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 Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with generally accepted auditing standards, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the EPA's internal control. Accordingly, we express no such opinion. 24-F-0009 2 ------- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. 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 the OIG are not material to the EPA's financial statements. The OIG is organizationally independent with respect to all other aspects of the Agency's activities. 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 is the responsibility of management and, although not a part of the basic consolidated financial statements, is required by the Office of Management and Budget, or 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 inquiring management about the methods of preparing and comparing the information 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. 24-F-0009 3 ------- Report on Internal Control over Financial Reporting Results of Our Consideration of Internal Control over Financial Reporting Our consideration of 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, 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. We noted certain matters, which we discuss below, involving internal control and its operation that we consider to be significant deficiencies. These issues are summarized below and detailed in Attachment A. Significant Deficiencies The EPA Did Not Provide Accurate Information for Its Revenue Accruals We found multiple instances in which the Agency did not provide accurate information for its revenue accruals resulting from cost-share agreements for Superfund State Contracts, or SSCs, and Great Lakes Legacy Act project agreements. Revenue is an inflow of resources that the government earns. An accrual is an estimate of the percentage of completion based on the work performed under cost-share agreements. Agency directives describe the processes for managing the financial aspects of the revenue accruals; however, not all Agency personnel followed these processes, which resulted in the Cincinnati Finance Center not having all the information that it needed to properly calculate the revenue accruals. In addition, over $1.5 million of Superfund appropriated funds were not available for other site cleanup projects that would help to protect human health. Furthermore, without accurate information, revenue accruals and the financial statements may be misstated. The EPA Did Not Deobligate Unneeded Funds in a Timely Manner The EPA did not deobligate in a timely manner $10 million of unneeded funds that it identified during its annual review of unliquidated obligations. We also identified this deficiency during the FY 2022 consolidated financial statement audit. Furthermore, while we made no determination as to whether the funds were needed, we recently reported that from FY 2018 through 2023, the EPA had over $1.55 billion in unliquidated obligations with inactivity of 180 days or more. This includes approximately $429 million in Infrastructure Investment and Jobs Act appropriations in FY 2022 and 2023. Agency directives require that responsible offices annually review unliquidated obligations, including inactive unliquidated obligations, and take appropriate action to deobligate unneeded funds. While the EPA met 24-F-0009 4 ------- the requirement to review unliquidated obligations at least annually, it did not take timely actions to deobligate the unneeded funds. As a result, almost $10 million in unobligated funds were not deobligated and made available for other uses. Further, without the timely deobligation of unneeded funds, the EPA does not have reasonable assurance that unliquidated obligations are accurate and represent valid obligations. The EPA Operated Under an Expired Interconnection Security Agreement and Memorandum of Agreement, Which Could Hamper Invoice Processing The Office of the Chief Financial Officer and Treasury operated under an expired Interconnection Security Agreement and Memorandum of Agreement, a combined single document referred to as the ISA and MOA, for more than six months, from March to September 2023. The ISA and MOA document each entity's responsibility to design and implement security controls for the connection between the EPA's Compass Financials system and Treasury's Invoice Processing Platform. This connection, which implements the OMB's requirement for electronic invoicing, must be secure to protect the confidentiality, integrity, and availability of the invoice processing function. Furthermore, security controls are needed to protect the data being transmitted over this connection, which contain not only federal financial information but also data subject to the Privacy Act, 5 U.S.C. § 552a. A lack of an approved ISA and MOA could cause the EPA and Treasury to be unaware of changes made either to the connection or to the design configurations of the systems, which could disrupt operations and potentially prevent vendors from submitting invoices and EPA personnel from approving invoices in a timely manner. The EPA Did Not Review User Accounts for EPA Contracting Personnel Every 60 Days As Required By Its Information Security Procedure The OCFO's management of EPA employee user accounts that can access Treasury's Invoice Processing Platform is not compliant with the Agency's information technology account management requirements. The Invoice Processing Platform was fully implemented within the EPA on May 23, 2023, for EPA contracting personnel to manage and approve vendor invoices. Despite EPA requirements to conduct user account reviews every 60 days, the OCFO had not conducted the required review as of September 30, 2023. These user account reviews help confirm whether all of the EPA's approximately 2,300 active Invoice Processing Platform user accounts are still necessary. Removing unnecessary user accounts could help reduce the risk of unauthorized access, which could potentially lead to the disclosure, modification, or destruction of financial information and the disruption of system operations. Attachment B contains the status of issues reported in prior year reports on the EPA's consolidated financial statements. The issues included in Attachment B should be considered among the EPA's significant deficiencies for FY 2023. We reported less significant internal control matters to the Agency during the course of the audit. We will not issue a separate management letter. Basis for Results of Our Consideration of Internal Control Over Financial Reporting We performed our procedures related to the EPA's internal control over financial reporting in accordance with government auditing standards generally accepted in the United States of America. 24-F-0009 5 ------- Responsibilities of Management for Internal Control over Financial Reporting The EPA's management is responsible for designing, implementing, and maintaining effective internal control over financial reporting relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibilities for Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements as of and for the year ended September 30, 2023, in accordance with generally accepted auditing standards, we considered the EPA's internal control over financial reporting as a basis for designing audit procedures, which are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements and of complying with OMB Bulletin 24-01, Audit Requirements for Federal Financial Statements, but not for the purpose of expressing 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. Intended Purpose of Report on Internal Control over Financial Reporting Because of inherent limitations in internal control, misstatements, losses, or noncompliance may nevertheless occur and not be detected. Comparison of the EPA's Federal Managers' Financial Integrity Act Report with Our Evaluation of Internal Control OMB Bulletin 24-01 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 24-01 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. Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements Providing an opinion on compliance with 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. 24-F-0009 6 ------- Basis of Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements 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. Responsibilities of Management for Compliance with Laws, Regulations, Contracts, and Grant Agreements The EPA's management is responsible for complying with laws, regulations, contracts, and grant agreements applicable to the Agency. Auditor's Responsibilities for Tests of Compliance with Laws, Regulations, Contracts, and Grant Agreements We also performed certain other limited procedures as described in the American Institute of Certified Public Accountants' Codification of Statements on Auditing Standards, AU-C 250.14-16, "Consideration of Laws and Regulations in an Audit of Financial Statements." OMB Bulletin 24-01 mandates that we evaluate compliance with federal financial statement system requirements, including those 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. Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements The purpose of this report is solely to describe the scope and results of our testing of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements, and not to provide an opinion on compliance. This report is an integral part of an audit performed in accordance with government auditing standards generally accepted in the United States of America. Accordingly, this report on compliance with laws, regulations, contracts, and grant agreements is not suitable for any other purpose. FFMIA 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. 24-F-0009 7 ------- The results of our tests did not disclose any instances of noncompliance with FFMIA requirements, including where the Agency's financial management systems did not substantially comply with the applicable federal accounting standard. We did not identify any significant matters involving compliance with laws, regulations, contracts, or grant agreements related to the Agency's financial management systems during the course of the audit. Other Governmental Reporting Requirements Audit Work Required Under the Hazardous Substance Superfund Trust Fund We also performed audit work to comply with 42 U.S.C. § 9611(k), including the requirement to conduct an annual audit of payments, obligations, reimbursements, or other uses of the Hazardous Substance Superfund Trust Fund. The significant deficiencies reported above also relate to Superfund. Prior Audit Coverage During previous financial statement audits, we reported significant deficiencies, as detailed in Attachment B. These deficiencies include that: Originating offices did not forward accounts receivable source documents to the finance center in a timely manner. The EPA did not deobligate unneeded funds in a timely manner. This report is intended solely for the information and Congress, and it is not intended to be and should not parties. use of the management of the EPA, the OMB, and be used by anyone other than these specified Qamoit Qxtckd&w, Damon Jackson Certified Public Accountant Director, Financial Directorate Office of Audit Office of Inspector General U.S. Environmental Protection Agency November 9, 2023 24-F-0009 8 ------- Attachment A Significant Deficiencies Table of Contents 1 The EPA Did Not Provide Accurate Information for Its Revenue Accruals 10 2 The EPA Did Not Deobligate Unneeded Funds in a Timely Manner 13 3 The EPA Operated Under an Expired Interconnection Security Agreement and Memorandum of Agreement, Which Could Hamper Invoice Processing 15 4 The EPA Did Not Review User Accounts for EPA Contracting Personnel Every 60 Days As Required by Its Information Security Procedure 17 24-F-0009 9 ------- 1 - The EPA Did Not Provide Accurate Information for Its Revenue Accruals We found multiple instances in which the Agency did not provide accurate information for revenue accruals resulting from cost-share agreements for SSCs and Great Lakes Legacy Act project agreements. Agency directives describe the processes for managing the financial aspects of the revenue accruals; however, not all Agency personnel followed these processes, which resulted in the Cincinnati Finance Center not having all the information that it needed to properly calculate the revenue accruals. In addition, over $1.5 million of Superfund appropriated funds were not available for other site cleanup projects that would help to protect human health. Furthermore, without accurate information, revenue accruals and the financial statements may be misstated. Regulations and Agency Directives Require Accurate Information Be Provided EPA regulations at 40 C.F.R. § 35.6805 state that an SSC "remains in effect until the financial settlement of project costs and final reconciliation of response costs (including all change orders, claims, overmatch of cost share, reimbursements, etc.) ensures that both [the] EPA and the State have satisfied the cost share requirement" in section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act, as amended. This Act is informally known as Superfund. Also pertaining to SSCs, the EPA's Resource Management Directive System 2550D-09-P1, Financial Management of Superfund Program - State Cost Share Provisions for Superfund State Contracts and Remedial Cooperative Agreements, directs regional offices to conduct the SSC financial closeout process, which includes the reconciliation of the state's final cost share and reclassification of disbursements when applicable. When the EPA has not used reimbursable (TR1) resources concurrently with Superfund appropriated (T) obligations, a TR1 resource reclassification may be appropriate. The directive further states that the SSC accrual calculation for a financially closed SSC should be reviewed and adjusted, if needed, to reflect a zero-accrual balance. In addition, the directive describes the EPA's process for managing the financial aspects of Superfund program remedial state cost-share provisions in state contracts and cooperative agreements. Regional program offices are responsible for the overall management of SSCs. The directive requires regions, on a quarterly basis, to respond to the Cincinnati Finance Center's request for information with respect to new and amended SSCs. Pertaining to the Great Lakes Legacy Act project agreements, the EPA's Resource Management Directive System 2540-09-P6, Accounts Receivable - Non-Federal Sponsor Cost Share Provisions for Great Lakes Legacy Act Project Agreements, contains the procedures for financial management of Great Lakes Legacy Act cost-share provisions. The Great Lakes Legacy Act of 2002 requires a minimum of a 35 percent nonfederal cost share for all projects carried out under the Act. The EPA Did Not Always Follow Processes to Provide Accurate Information We found multiple instances in which the Agency did not provide accurate information for its revenue accruals. Specifically, during FY 2023, we identified the following issues: 24-F-0009 10 ------- The EPA did not properly analyze its revenue accruals for financially closed SSCs with available reimbursable funds. During our analysis of the SSC accrual, we found eight financially closed SSCs with available reimbursable funds that resulted in corresponding accruals totaling over $1.5 million. These SSCs should have been closed and their accrual should have been zero. Table 1-1 lists the financially closed SSCs with available reimbursable funds. Table 1-1: Financially closed SSCs with available reimbursable funds Site identification I I Available reimbursable funds ($) 019L 38,179.39 02GP 41,612.74 0277 47,751.00 A301 73,541.64 0417 512,348.87 047U 46,291.76 047U 200,693.96 0441 625,360.23 Total 1,585,779.59 Source: OIG analysis of EPA data. (EPA OIG table) SSC credits were not included in the accrual. Approved SSC credits totaling $3,048,485 for one Region 10 Superfund site, 102Q, were not included in the accrual. The total of $3,048,485 had been previously approved by Region 10 as meeting the definition of Superfund SSC credits and applied toward the state's 10 percent cost-share obligation. Of this amount, $2,497,029 was approved as SSC creditable costs earned from FY 2003 through 2008, and the remaining $551,456 was approved for costs earned from FY 2008 through 2015. The Great Lakes Legacy Act accruals contained inaccurate project amounts and site numbers. Four Great Lakes Legacy Act accruals did not contain either the correct project amount or site numbers, which are used to track the appropriated and reimbursable disbursements and collections for the accrual. Table 1-2 lists the exceptions that we identified. Table 1-2: Great Lakes Legacy Act accruals with project amount and site number errors Project number Project amount recorded in accrual ($) Correct project amount ($) Site numbers recorded in accrual Correct site numbers GLLA2004-007A-C 45,000,000.00 44,200,000.00 GLLA2013-005 35,112,354.00 70,892,940.00 GLLA2018-002 551222 551222 551224 GLLA2011-005 251201T1 251201T2 551224 251201T1, 251201T2 Source: OIG analysis of EPA data. (EPA OIG table) 24-F-0009 11 ------- These reclassification errors occurred because the regions did not follow the Agency SSC closeout process and did not review SSCs on the accrual to financially close the lines and reclassify the Superfund appropriated T fund disbursements to reimbursable TR1 fund disbursements. Therefore, SSC final financial reconciliations were not complete on the accrual, resulting in regions assessing accruals for closed SSCs. In addition, over $1.5 million of Superfund appropriated funds were not available for other site cleanup projects that would help to protect human health. Without accurate information, revenue accruals and the financial statements may be misstated. The other errors occurred because Region 10 and the Great Lakes National Program Office did not follow Agency directives and did not provide the Cincinnati Finance Center with accurate information. In response to our inquiries, Region 10 and the Great Lakes National Program Office subsequently provided the Cincinnati Finance Center with the SSC credit and Great Lakes Legacy Act project information required to properly calculate the SSC and Great Lakes Legacy Act accruals. Recommendations We recommend that the chief financial officer: 1. Instruct the regions to perform an analysis of financially closed Superfund State Contracts to reclassify appropriated and reimbursable disbursements and financially close lines on the accrual. 2. Instruct the regions to provide current Superfund State Contract information quarterly to the Cincinnati Finance Center. We recommend that the director for the Great Lakes National Program Office: 3. Review the Great Lakes Legacy Act accrual project information prior to its submission to the Cincinnati Finance Center to ensure its accuracy. Agency Response and OIG Assessment The EPA agreed with our recommendations. The Agency provided an acceptable planned corrective actions for Recommendations 1 and 2, as well as an estimated milestone date of June 30, 2024, for Recommendation 1 and January 15, 2024, for Recommendation 2. We consider these recommendations resolved with corrective action pending. The Agency completed Recommendation 3 on October 18, 2023. 24-F-0009 12 ------- 2 - The EPA Did Not Deobligate Unneeded Funds in a Timely Manner The EPA did not deobligate in a timely manner $10 million of unneeded funds that it identified during its annual review of unliquidated obligations. We also identified this deficiency during our FY 2022 consolidated financial statement audit. Furthermore, while we made no determination as to whether the funds were needed, we recently reported that from FY 2018 through 2023, the EPA had over $1.55 billion in unliquidated obligations with inactivity of 180 days or more. This includes approximately $429 million in Infrastructure Investment and Jobs Act appropriations in FY 2022 and 2023.1 Agency directives require that responsible offices annually review unliquidated obligations and inactive unliquidated obligations and take appropriate action to deobligate unneeded funds. While the EPA met the requirement to review unliquidated obligations at least annually, it did not take timely actions to deobligate the unneeded funds. As a result, almost $10 million in unobligated funds were not deobligated and made available for other uses. Further, without timely deobligation of unneeded funds, the EPA has does not have reasonable assurance that unliquidated obligations are accurate and represent valid obligations. Resource Management Directive System 2520-03-P1, Responsibilities for Reviewing Unliquidated Obligations, requires all responsible parties to review at least annually all current and prior year unliquidated obligations to ensure that all recorded obligations are still valid and properly documented. According to the directive, an inactive obligation is one in which there has been no activity for six months (180 days) or more, and a valid obligation is one "for which appropriated funds are still available for the purpose and time period specified, and for which an actual need still exists within the life of the appropriation." Resource Management Directive System 2520-03-P1 requires that all unneeded funds be deobligated by the end of each fiscal year. The directive requires that all responsible officials certify that their office or region took the necessary actions to deobligate the funds as provided in the Office of the Controller's year-end requirement for the fiscal year. We found that the EPA did not deobligate unneeded funds in FY 2023 in a timely manner. During its annual review of unliquidated obligations, the Agency identified $10.5 million of unliquidated obligations that remained opened as of September 30, 2023. The EPA determined that $471,143 of these unliquidated obligations were valid and should remain open. As shown in Table 2-1, the Agency determined that approximately $10 million of unliquidated obligations were unneeded, but these funds were not deobligated by the end of fiscal year, as required. Table 2-1: Unneeded funds identified for deobligation Offices and regions Funds ($) Office of the Administrator 4,889.65 Office of Chemical Safety and Pollution Prevention 498,527.83 OCFO 455,920.35 1 OIG Report No. 23-N-0036, Status of Unliquidated Obligations for Programs Receiving Funding from the Infrastructure Investment and Jobs Act, issued September 28, 2023. 24-F-0009 13 ------- I Offices and regions | Funds ($) 1 Office of International and Tribal Affairs 777,898.62 Office of Land and Emergency Management's Office of Emergency Management 360,659.99 Office of Land and Emergency Management's Office of Superfund Remediation and Technology Innovation 270,564.22 Office of Research and Development 5,759.45 Region 3 2,980,930.07 Region 5 70,339.76 Region 6 175,785.59 Region 8 1,292,038.52 Region 9 *3,102,619.85 Total 9,995,933.90 Source: OIG analysis of EPA data. (EPA OIG table) * This amount includes $2,518,007.12 for Region 8 for a mixed-funded contract with Regions 8 and 9 funds. Program offices and regions noted several reasons why unliquidated obligations were not deobligated by the end of the fiscal year. Some said that they experienced technical issues related to the EPA's adoption of the Treasury's Invoice Processing Platform in May 2023, while some said that they were awaiting final invoices before deobligating funds. In addition, others noted either that the deobligation of funds should occur, was in process, or would occur in FY 2024 or that the funds would be expended in FY 2024. By not taking timely and appropriate action to deobligate unneeded funds, the EPA does not have reasonable assurance that the unliquidated obligations are accurate and represent valid obligations reported in the financial statements. Further, obligated funds are overstated if unneeded funds are not deobligated. By deobligating funds no longer needed for their original purpose by the required deadline, the EPA can make these funds available for other purposes. Recommendation We recommend that the chief financial officer: 4. Develop a plan to improve the Office of the Chief Financial Officer processes for headquarters program offices and regional offices to deobligate unneeded funds in a timely manner by the end of the fiscal year, as required. Agency Response and OIG Assessment The EPA agreed with our recommendation and provided an acceptable planned corrective action and estimated milestone date of July 1, 2024. We consider this recommendation resolved with corrective action pending. 24-F-0009 14 ------- 3 - The EPA Operated Under an Expired ISA and MOA, Which Could Hamper Invoice Processing The OCFO and the Treasury were operating under an expired ISA and MOA for more than six months, from March to September 2023. The ISA and MOA documents each entity's responsibility to design and implement security controls for the connection between the EPA's Compass Financials system and the Treasury's Invoice Processing Platform. This connection, which implements the OMB's requirement for electronic invoicing, must be secure to protect the confidentiality, integrity, and availability of the invoice processing function. Furthermore, security controls are needed to protect the data being transmitted over this connection, which contain not only federal financial information but also data subject to the Privacy Act, 5 U.S.C. § 552a. A lack of an approved agreement could cause the EPA and the Treasury to be unaware of changes made either to the connection or to the design configurations of the systems, which could disrupt operations and potentially prevent vendors from submitting invoices and EPA personnel from approving invoices in a timely manner. OMB Memorandum M-15-19, Improving Government Efficiency and Saving Taxpayer Dollars Through Electronic Invoicing, dated July 17, 2015, mandates that federal agencies implement electronic invoicing. The EPA implements the electronic invoicing requirement via a connection between its financial system, Compass Financials, and the Treasury's Invoice Processing Platform. Section CA-3, "Information Exchange," of the EPA Chief Information Officer Directive No. CIO 2150-P-04.3, Information Security- Assessment, Authorization and Monitoring Procedure, signed June 8, 2023, requires the approval and management of the exchange of information between systems using an ISA or MOA. The directive also requires that the ISA and MOA be reviewed and updated "as agreed upon by the participating signatories but not to exceed three (3) years or whenever there is a significant change to any of the systems covered by the agreements." In accordance with CIO 2150-P-04.3, the OCFO and the Treasury signed the ISA and MOA on March 14, 2020, for a new connection between the Compass Financials system and the Invoice Processing Platform to implement the OMB's electronic invoicing requirement. The ISA and MOA documents each entity's responsibility to implement security controls to protect the confidentiality, integrity, and availability of invoice processing between the Compass Financials system and the Invoice Processing Platform. The data being transmitted over this connection contain federal financial information, as well as data subject to the Privacy Act, 5 U.S.C. § 552a. Consistent with CIO 2150-P-04.3, this original agreement was in effect for a three-year period, expiring on March 14, 2023. Section 5, "Timeline," of the expired ISA and MOA states: This agreement will remain in effect for three (3) years after the last date on either signature in the signature block below. After three (3) years, this agreement will expire without further action. If the parties wish to extend this agreement, they may do so by reviewing, updating, and reauthorizing this agreement. However, a new ISA and MOA was not reauthorized before the original agreement expired. As such, the OCFO and the Treasury were operating without an approved agreement for approximately six months, 24-F-0009 15 ------- from March to September 2023. Furthermore, the OCFO did not start the ISA and MOA renewal process until February 2023, one month before the expiration of the original agreement. The OCFO did not explain why the ISA and MOA was not renewed prior to the original agreement expiring; it only provided us with a timeline of its progress in updating and renewing the agreement. According to that timeline, the renewal process was in process for more than seven months, from February to September 2023. A new ISA and MOA was signed and became effective on September 25, 2023. Based on the timeline provided to us, we concluded that the OCFO did not have a plan with milestone dates to ensure that the ISA and MOA would be reauthorized prior to its expiration. Without a current ISA and MOA in place that accounts for any system updates that would affect the connection and related security controls for the Compass Financials system and the Invoice Processing Platform, the EPA and the Treasury had no enforceable agreement to govern the development, management, operation, and security of the systems' connection. This leaves both federal entities with limited assurance that they are fully aware of any significant changes or updates that could impact the connection between the two systems. As a result, they cannot ensure that the security controls are properly designed to protect the transmission of financial and privacy information across the connection. Recommendation We recommend that the chief financial officer: 5. Develop and implement a plan with milestones to ensure that future Interconnection Security Agreement and Memorandum of Agreement documents for each external connection with Office of the Chief Financial Officer systems are reauthorized before the current agreements expire. Agency Response and OIG Assessment The EPA agreed with our recommendation and provided an acceptable planned corrective action and estimated milestone date of June 30, 2024. We consider this recommendation resolved with corrective action pending. 24-F-0009 16 ------- 4 - The EPA Did Not Review User Accounts for EPA Contracting Personnel Every 60 Days As Required By Its Information Security Procedure The OCFO's management of EPA employee user accounts that can access the Treasury's Invoice Processing Platform are not compliant with the Agency's information technology account management requirements. The Invoice Processing Platform was fully implemented within the EPA on May 23, 2023, for EPA contracting personnel to manage and approve vendor invoices. Despite the EPA requirements to conduct user account reviews every 60 days starting June 8, the OCFO had not conducted the required review as of September 30, 2023. The user account reviews help confirm whether all of the EPA's approximately 2,300 active Invoice Processing Platform user accounts are still necessary. Removing unnecessary user accounts could help reduce the risk of unauthorized access, which could lead to the disclosure, modification, or destruction of financial information and the disruption of system operations. Section AC-2, "Account Management," of Chief Information Officer Directive No. CIO 2150-P-01.3, Information Security - Access Control Procedure, signed June 8, 2023, requires service managers for systems operated by or on behalf of the EPA to take security measures including: 1. Review accounts for compliance with account management every 60 (sixty) days and align account management processes with personnel termination and transfer processes. 2. Create, enable, modify, disable, and remove accounts in accordance with EPA information security requirements. 3. Notify account managers, Information Security Officer, and Information System Security Officers within: a) Three (3) days when accounts are no longer required. b) Four (4) hours of departure for involuntary terminations and same day of departure for voluntary terminations when users are terminated or transferred. c) Three (3) days when system usage or need-to-know changes for an individual. In addition to the EPA's 60-day user account reviews, the Treasury requires an annual user account recertification. The OCFO conducted only the annual user account recertification in June 2023, despite CIO 2150-P-01.3 requirements to conduct user account reviews every 60 days. The OCFO advised us that it did not adhere to CIO 2150-P-01.3 because it is developing standard operating procedures that will not include the 60-day requirement but will instead leverage the Treasury's annual user account recertification process. However, the OCFO's plans to incorporate account management practices for the Invoice Processing Platform user accounts as part of an annual user account recertification process do not comply with CIO 2150-P-01.3 requirements that accounts be reviewed every 60 days. Additionally, the OCFO stated that it intends to rely on Invoice Processing Platform system controls that disable a user account when there is a period of inactivity as part of its account management practices. According to 24-F-0009 17 ------- Treasury personnel, the Invoice Processing Platform will disable a user account after 120 days of inactivity. However, this period is twice the duration of the EPA's required 60-day user account reviews. The Invoice Processing Platform provides contracting personnel with the ability to approve vendor invoices ranging from hundreds to millions of dollars of federal funds. By not following the Agency's account management requirements, the OCFO risks exposing the EPA's systems and the Treasury's Invoice Processing Platform to unauthorized access, which could potentially lead to the disclosure, modification, or destruction of financial information and the disruption of system operations. The 60-day user account reviews required by EPA information technology directive serve as a preventive control to limit unauthorized access. Recommendations We recommend that the chief financial officer: 6. In consultation with the Office of Mission Support's chief information officer, determine how the Office of the Chief Financial Officer will conduct reviews of active Invoice Processing Platform user accounts to comply with Chief Information Officer Directive No. CIO 2150-P-01.3, Information Security - Access Control Procedure. 7. Develop and implement a strategy to ensure that future reviews of active Invoice Processing Platform user accounts comply with Chief Information Officer Directive No. CIO 2150-P-01.3, Information Security - Access Control Procedure. Agency Response and OIG Assessment The EPA agreed with these recommendations and provided acceptable planned corrective actions. For both recommendations, the EPA provided an estimated milestone date of June 30, 2024. We consider these recommendations resolved with corrective actions pending. 24-F-0009 18 ------- Attachment B 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 FY 2023, 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 implemented the following actions to strengthen its audit management procedures: Worked closely with the Agency's audit follow-up coordinators to ensure adherence to corrective action dates and submission of the required certification memorandums. The OCFO efforts were critical and significantly helped with the EPA's responses to the OIG's Semiannual Report to Congress published in May 2023. Conducted a comprehensive review of open OIG and U.S. Government Accountability Office recommendations and corrective actions to identify common themes and challenges. The review included data calls and interviews with individual offices and a brief to OCFO and Agency leadership. Provided monthly reporting for the agencywide metric on the number of past-due audit corrective actions. The metric measures the completion of Agency-identified corrective actions that were not completed by the proposed completion date. The intended purpose of the monthly reporting is to facilitate the implementation of Agency corrective actions in response to OIG audit recommendations and to decrease the number of late audit corrective actions. Enhanced the utility of the Enterprise Audit Management System, the Agency's audit tracking tool, for improved tracking of OIG and Government Accountability Office audits and evaluations. The Enterprise Audit Management System facilitates the Agency's activities and corrective actions in response to the OIG and Government Accountability Office audits and evaluations. Prepared regular reports on OIG and Government Accountability Office audits and evaluations for broad agency distribution. The report includes the most recent audit and evaluation updates, open recommendations, and metric status. Maintained the audit community intranet site, which serves as a resource for the Agency's audit follow-up coordinators and audit liaisons. The collaborative site includes resources and reference materials, such as standard operating procedures, response templates, frequently asked questions, reporting links, deadlines, and other useful information. Continued regular use of the audit community's internet site for the Agency's audit follow-up coordinators and audit liaisons to work collaboratively, share best practices, and contribute to community projects. 24-F-0009 19 ------- Provided training during the OCFO technical training series for Agency subject matter experts participating in OIG or Government Accountability Office projects. The training provided best practices for audit preparedness. Established biweekly meetings with audit follow-up coordinators and audit liaisons agencywide to provide regular updates, offer training, and discuss audit-related issues and concerns. 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 have not been fully implemented. Table B-1: Significant deficiency issues not fully resolved Originating Offices Did Not Forward Accounts Receivable Source Documents to the Finance Center in a Timely Manner During our FY 2021 audit, we found that EPA regions did not submit supporting source documents to the EPA's Cincinnati Finance Center for accounts receivable in a timely manner, which then delayed recording and processing of those receivables. The EPA's Resource Management Directives state that the responsible offices must forward to the Cincinnati Finance Center source documents supporting an accounts receivable for settlements or orders demonstrating a debt owed to the Agency within five business days. The regional program office, the Office of Regional Counsel, and the regional legal enforcement office staff are responsible for providing these documents to the Cincinnati Finance Center. When the Cincinnati Finance Center 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. While we have noted some improvements in the timely receipt of legal documents, we still identified instances of untimely receipt from FY 2015 through FY 2023. Therefore, the Agency's corrective actions are not completely effective, and we will continue to evaluate whether the Agency receives legal source documents in a timely manner going forward. The EPA Did Not Deobligate Unneeded Funds in a Timely Manner During the FY 2022 audit, we found the EPA did not deobligate in a timely manner the $5.8 million of unliquidated obligations that it identified in its FY 2022 unliquidated obligations annual review. Agency directives require that unliquidated obligations be reviewed annually and that responsible offices review inactive unliquidated obligations at least annually. As a result, the EPA has no assurance that unliquidated obligations are accurate and represent valid and viable obligations. We recommended that the chief financial officer reiterate to headquarters program offices and regional offices the importance of deobligating by the end of the fiscal year the unneeded funds that they identified during their annual unliquidated obligations review. The EPA concurred with our recommendation and completed corrective action on May 8, 2023. However, during our 2023 audit, we continued to find that unneeded funds were not deobligated by the required deadline. Therefore, the Agency's corrective action is not completely effective, and we will continue to evaluate whether the Agency deobligates unneeded funds by the required deadline in FY 2024. Source: OIG analysis of prior-year recommendations and the Agency's corrective actions. (EPA OIG table) 24-F-0009 20 ------- Attachment C Status of Recommendations and Potential Monetary Benefits Rec. No. Page No. Recommendation Status* Action Official Potential Planned Monetary Completion Benefits Date (in $000s) 12 Instruct the regions to perform an analysis of financially closed Superfund State Contracts to reclassify appropriated and reimbursable disbursements and financially close lines on the accrual. 12 Instruct the regions to provide current Superfund State Contract information quarterly to the Cincinnati Finance Center. 12 Review the Great Lakes Legacy Act accrual project information prior to its submission to the Cincinnati Finance Center to ensure its accuracy. 14 Develop a plan to improve the Office of the Chief Financial Officer processes for headquarters program offices and regional offices to deobligate unneeded funds in a timely manner by the end of the fiscal year, as required. 16 Develop and implement a plan with milestones to ensure that future Interconnection Security Agreement and Memorandum of Agreement documents for each external connection with Office of the Chief Financial Officer systems are reauthorized before the current agreements expire. 18 In consultation with the Office of Mission Support's chief information officer, determine how the Office of the Chief Financial Officer will conduct reviews of active Invoice Processing Platform user accounts to comply with Chief Information Officer Directive No. CIO 2150-P-01.3, Information Security - Access Control Procedure. 18 Develop and implement a strategy to ensure that future reviews of active Invoice Processing Platform user accounts comply with Chief Information Officer Directive No. CIO 2150-P-01.3, Information Security - Access Control Procedure. Chief Financial Officer Chief Financial Officer 6/30/24 1/15/24 $1,586 Director for the Great Lakes 10/18/23 National Program Office Chief Financial Officer Chief Financial Officer 7/1/24 6/30/24 $9,995 Chief Financial Officer 6/30/24 Chief Financial Officer 6/30/24 * C = Corrective action completed. R = Recommendation resolved with corrective action pending. U = Recommendation unresolved with resolution efforts in progress. 24-F-0009 21 ------- Appendix 1 The EPA's Fiscal Year 2023 and 2022 Consolidated Financial Statements (with Restatement) 24-F-0009 22 ------- EPA's Fiscal Year 2023 and 2022 Consolidated Financial Statements (With Restatement) Financial Section ------- Table of Contents Principal Financial Statements 1 Notes to the Financial Statements. 8 Note 1. Summary of Significant Accounting Policies 8 Note 2. Fund Balance with Treasury (FBWT) 16 Note 3, Cash and Other Monetary Assets 17 Note 4. Investments, Net 17 Note 5. Accounts Receivable, Net 18 Note 6. Inventory and Related Property 18 Note 7. Loans Receivable, Net 18 Note 8. Accounts Payable 21 Note 9. Property, Plant and Equipment, Net 22 Note 10. Debt 24 Note 11. Stewardship Property, Plant and Equipment 25 Note 12. Liability to the General Fund for Custodial Assets 25 Note 13. Other Liabilities 26 Note 14. Leases 27 Note 15. Advances from Others and Deferred Revenue 28 Note 16. Commitments and Contingencies 28 Note 17. Funds from Dedicated Collections (Restated) 31 Note 18. Environmental and Disposal Liabilities 36 Note 19. State Credits 37 Note 20. Preauthorized Mixed Funding Agreements 37 Note 21. Custodial Revenues and Accounts Receivable 37 Note 22. Statement of Budgetary Resources 38 Note 23. Imputed Financing 40 Note 24. Federal Employee and Veteran Benefits Payable 41 Note 25. Non-Exchange Revenue, Statement of Changes in Net Position 42 Note 26. Reconciliation of Net Cost of Operations to Net Outlays 43 Note 27. Amounts Held by Treasury 46 Note 28. COVED-19 Activity. 50 Note 29. Reclassified Financial Statements for Govemment-wide Reporting 50 Note 30. Restatement 52 Required Supplementary Information (Unaudited) 53 Deferred Maintenance 53 Supplemental Combining Statement of Budgetary Resources 57 ------- Principal Financial Statements United States Environmental Protection Agency Consolidated Balance Sheet (Restated) As of September 30, 2023 and 2022 (Dollars in Thousands) ASSETS: Intragovernmental Assets: Fund Balance With Treasury (Note 2) Investments, Net (Note 4) Accounts Receivable, Net (Note 5) Advances and Prepayments Total Intragovernmental Assets Other Than Intragovernmental Assets: Cash and Other Monetary Assets (Note 3) Accounts Receivable, Net (Note 5) Loans Receivable, Net (Note 7) Inventory and Related Property, Net (Note 6) Property, Plant and Equipment, Net (Note 9) Advances and Prepayments Total Other Than Intragovernmental Assets Total Assets Stewardship Property Plant and Equipment (Note 1 I) LIABILITIES: Intra go v ernmental Liabilities: Accounts Payable (Note 8) Debt (Note 10) Advances from Others and Deferred Revenue Other Liabilities Liability to the General Fund for Custodial Assets (Note 12) Other (Note 13) Total Intragovernmental Liabilities Other Than Intragovernmental Liabilities: Accounts Payable (Note 8) Federal Employee and Veteran Benefits Payable (Note 24) Environmental and Disposal Liabilities (Note 18) Advances from Others and Deferred Revenue (Note 15) Other Liabilities (Note 13) Total Other Than Intragovernmental Liabilities Total Liabilities Commitments and Contingencies (Note 16) NET POSITION: Unexpended Appropriations - Funds from Dedicated Collections (Note 17) Unexpended Appropriations - Funds from Other than Dedicated Collections Total Unexpended Appropriations (Consolidated) Cumulative Results of Operations - Funds from Dedicated Collections (Note 17, 30) Cumulative Results of Operations - Funds from Other than Dedicated Collections (Note 30) Total Cumulative Results of Operations (Consolidated) Total Net Position Total Liabilities and Net Position 2023 74,589,768 12,159,283 7,686 1.569.525 88.326.262 10 520,692 2,401,922 626 743,207 1 1.602 3,678,059 2,921 2,953,225 173,381 105,995 208.187 3.443.709 116,234 229,748 37,357 3,676,206 623.349 4.682.894 281 74.602.484 74,602,765 9,309,893 9,274,953 83.877.718 92,004.321 (Restated) 2022 (34.940) 64,103,829 10,297,779 5,717 261.776 74.669.101 10 548,525 1,291,508 531 730,992 10.536 2.582.102 92,004,321 $ 77.251.203 3,067 1,557,180 183,791 106,560 199.697 2.050.295 62,913 223,785 32,156 3,666,198 597.993 4.583.045 8.126.603 $ 6.633.340 178 62.618.529 62,618,707 7,744,123 255.033 7.999.156 70.617.863 77.251.203 The accompanying notes are an integral part of these financial statements. 1. ------- United States Environmental Protection Agency Consolidated Statement of Net Cost For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) 2023 2022 COSTS Gross Costs $ 12,487,285 $ 10,142,639 Less: Earned Revenue 520.394 400.059 NET COST OF OPERATIONS (Note 26) $ 11.966.891 $ 9.742.580 The accompanying notes are an integral part of these financial statements. 2. ------- United States Environmental Protection Agency Statement of Net Cost by Major Program For the Fiscal Years Ending September 30, 2023 (Dollars in Thousands) Environmental Programs & Management Costs: Gross Costs S 3,152,262 WCF Elimination Total Costs 3.152.262 Less: Earned Revenue 37,771 WCF Elimination Total Earned Revenue 37.771 NET COST OF OPERATIONS $ 3,114.491 Leaking Underground Storage Tanks S 91,478 Science & Technology S 799,818 Superfund S 1,690,188 91.478 799.818 1.690.188 - 4,711 239,104 _ 4.711 239.104 $ 91.478 $ 795.107 $1,451,084 State & Tribal Assistance Agreements Other T otals 5 5,871,185 S 1,238,522 S 12,843,453 - (356.168) (356.168) 5.871.185 882.354 12.487.285 594,976 876,562 (356.1681 (356.168) 238.808 520.394 $5.871.185 $ 643.546 $ 11.966.891 United States Environmental Protection Agency Statement of Net Cost by Major Program For the Fiscal Years Ending September 30, 2022 (Dollars in Thousands) Environmental Programs & Management Leaking Underground Storage Tanks Science & T echnology Superfund State & Tribal Assistance Agreements Other Totals Costs: Gross Costs WCF Elimination S 3,161,870 S 92,373 S 784,144 S 1,350,585 5 4,254,533 S 821,116 (321,982) S 10,464,621 (321,982) Total Costs 3,161,870 92,373 784,144 1,350,585 4,254,533 499,134 10,142,639 Less: Earned Revenue WCF Elimination 35,036 - 6,328 202,969 477,708 (321,982) 722,041 (321,982) Total Earned Revenue 35,036 - 6,328 202,969 155,726 400,059 NET COST OF OPERATIONS $ 3.126.834 $ 92.373 $ 777.816 $1,147,616 $4,254,533 $ 343.408 $ 9.742.580 The accompanying notes are an integral part of these financial statements. 3. ------- United States Environmental Protection Agency Consolidated Statement of Changes in Net Position For the Fiscal Years Ending September 30, 2023 (Dollars in Thousands) Funds from Funds from Other Than Dedicated Dedicated Consolidated Collections Collections Totals UNEXPENDED APPROPRIATIONS: (Note 17) Beginning Balance $ 178 $ 62,618,529 $ 62,618,707 Appropriations Received 23,138,776 23,138,776 Appropriations Transferred In/(Oul) - (1,500) (1,500) Other Adjustments - (34,496) (34,496) Appropriations Used 103 H 1.118.825) (1 1.118.722) Net Change in Unexpended Appropriations 103 1 1,983,955 11,984,058 Total Unexpended Appropriations $ 281 $ 74,602,484 $ 74.602.765 CUMULATIVE RESULTS OF OPERATIONS: Beginning Balanee $ 7,744,123 $ 255,033 $ 7,999,156 Other Adj ustments - (52,084) (52,084) Appropriations Used (103) 11,118,825 11,118,722 Non-Exchange Revenue (Note 25) 1,880,795 - 1,880,795 Transfers-In/(Out) Without Reimbursements 1,195,958 (1,172,693) 23,265 Imputed Financing (Note 23) 38,002 203,655 241,657 Other - 30.333 30.333 Net Cost of Operations (1.548.882) (10.418.009) (11.966.891) Net Change in Cumulative Results of Operations 1,565,770 (289,973) 1,275,797 Total Cumulative Results of Operations 9,309,893 (34,940) 9,274,953 Net Position S 9.310.174 $ 74.567.544 $ 83.877.718 The accompanying notes are an integral part of these finaneial statements. 4. ------- United States Environmental Protection Agency Consolidated Statement of Changes in Net Position For the Fiscal Years Ending September 30, 2022 (Dollars in Thousands) (Restated) (Restated) Funds from Funds from Other Than (Restated) Dedicated Dedicated Consolidated Collections Collections Totals UNEXPENDED APPROPRIATIONS: (Note 17) Beginning Balance $ 187 $ 10,400,345 $ 10,400,532 Appropriations Received - 65,051,983 65,051,983 Other Adjustments - (20,398) (20,398) Appropriations Used (9) M 2.813.40 1* M 2.813.410* Change in Unexpended Appropriations (9) 52,218,184 52,218,175 Total Unexpended Appropriations $ 178 $ 62.618.529 $ 62.618.707 CUMULATIVE RESULTS OF OPERATIONS: Beginning Balance $ 3,559,846 $ 372,822 $ 3,932,668 Other Adjustments (Note 30) - (769) (769) Appropriations Used 9 12,813,401 12,813,410 Non-Exchange Revenue (Note 25) 752,635 - 752,635 Transfers-In/(Out) Without Reimbursements (Note 30) 4,633,057 (4,610,710) 22,347 Imputed Financing (Note 23) 26,687 242,257 268,944 Other (Note 30) - (47.499) (47.499* Net Cost of Operations (Note 30) M.228.1 in (8.514.469* (9.742.580* Net Change in Cumulative Results of Operations 4,184,277 (117,789) 4,066,488 Total Cumulative Results of Operations 7,744,123 255,033 7,999,156 Net Position S 7.744.301 $ 62.873.562 S 70.617.863 The accompanying notes are an integral part of these finaneial statements. 5. ------- United States Environmental Protection Agency Combined Statement of Budgetary Resources For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) 2023 2022 BUDGETARY RESOURCES Unobligated Balance From Prior Year Budget Authority, Net (discretionary and mandatory) (Note 22) Appropriations (discretionary and mandatory) Borrowing Authority (discretionary and mandatory) Spending Authority from offsetting collections (discretionary and mandatory) Total Budgetary Resources Non- Non- Budgetary Budgetary Credit Reform Credit Reform Financing Financing Budgetary Account Budgetary Account $ 57,282,366 $ $ 5,674,107 $ 25,003,271 - 70,271,764 - - 2,884,452 - 3,693,794 639.195 374.140 542.709 181,898 S 82.924.832 S 3.258.592 $ 76.488.580 S 3.875.692 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 22) Total Budgetary Resources $ 23,652,487 $ 3,258,592 $ 19,513,330 $ 3,875,692 59,166,962 600 104.783 59.272.345 56,844,168 24,464 106.618 56.975.250 S 82.924.832 S 3.258.592 S 76.488.580 S 3.875.692 OUTLAYS, NET AND DISBURSEMENTS, NET Outlays, Net (total) (discretionary and mandatory) $ 14,155,184 $ 14,318,219 Distributed Offsetting Receipts (-) (Note 22) (1.568.936) f5.038.8201 Agency Outlays, Net (discretionary and mandatory) $ 12.586.248 $ 9.279.399 Disbursements, Net (total) (mandatory) $ 1.379.374 $ 840.409 The accompanying notes are an integral part of these finaneial statements. 6. ------- United States Environmental Protection Agency Statement of Custodial Activity For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) 2023 2022 Total Custodial Revenue: Sources of Cash Collections: Fines and Penalties $ 85,601 $ 56.390 Other (25.935) (3.810* Total Cash Collections 59,666 52,580 Accrual Adjustments 29.999 5.935 Total Custodial Revenue (Note 21) $ 89.665 $ 58.515 Disposition of Collections: Transferred to Others (General Fund) $ 106,802 $ 52,761 Increases/Decreases in Amounts to be Transferred (17.137* 5.754 Total Disposition of Collections $ 89.665 X 58.515 Custodial Revenue Less Disposition of Collections $ - $ - The accompanying notes are an integral part of these finaneial statements. 7. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (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 2023 financial statements are presented on a consolidated basis for the Balance Sheet, Statement of Net Cost, Statement of Net Costs by Major Program, and Statement of Changes in Net Position. The Statement of Custodial Activity and the Statement of Budgetary Resources are presented on a combined basis. The financial statements include the accounts of all funds described in this note by their respective Treasury fund group. B. Basis of Presentation The accompanying financial statements have been prepared to report the financial position and results of operations of the U.S. Environmental Protection Agency (the EPA or Agency) as required by the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. The reports have been prepared from the financial system and records of the Agency in accordance with Office of Management and Budget (OMB) Circular No. A-136, Financial Reporting Requirements revised May 19, 2023, 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 user 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 (W1FIA) 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 loans. 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 reestimated loans that occur in subsequent years after the loans are disbursed. The Agency received two-year appropriations in fiscal years 2023 and 2022 to finance the administrative portion of the program. 8. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) EPA reestimates the risk on each individual loan annually. Proceeds issued by EPA cannot exceed forty-nine percent of eligible project costs. Project costs must exceed a minimum of $20 million for large communities and $5 million for communities with populations of 25,000 or less. After substantial completion of a project, the borrower may defer up to five years to start loan repayment and cannot exceed thirty-five years for the final loan maturity date. Funds transferred from other federal agencies are processed as non-expenditure transfers. Clearing accounts and receipt accounts receive no appropriated funds. Amounts arc 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. On November 15, 2021, the Infrastructure Investment and Jobs Act (Public Law 117-58) was signed into law, appropriating approximately $60 billion to the Agency over fiscal years 2022 through 2026; some funds have five- year availability but most are available until expended. The Inflation Reduction Act (IRA), signed in August 2022, appropriated the Agency an additional $42 billion, available for a minimum of two and a maximum of ten fiscal years. II. Revolving Funds Funding of the Pesticides 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 (PR1A) 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). 9. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) V. Trust Funds Congress enacts an annual appropriation for the Hazardous Substance Superfund, Leaking Underground Storage Tank (LUST) and the Inland Oil Spill Programs accounts to remain available until expended. Transfer accounts for the Superfund and LUST Trust Funds have been established to record appropriations moving from the Trust Fund to allocation accounts for purposes of carrying out the program activities. As the Agency disburses obligated amounts from the expenditure account, the Agency draws down monies from the Superfund and LUST Trust Funds held at Treasury to cover the amounts being disbursed. The Agency draws down all the appropriated monies from the Principal Fund of the Oil Spill Liability Trust Fund when Congress enacts the Inland Oil Spill Programs appropriation amount to the EPA's Inland Oil Spill Programs account. In 2015, the EPA established a receipt account for Superfund special account collections. Special accounts are comprised of settlements from other federal agencies and 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. 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, and 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 with FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 5 Accounting for Liabilities of the Federal Government. 10. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) E. Revenue and Other Financing Sources As a component of the Government-wide reporting entity, the entity is subjeet to the Federal budget proeess, whieh involves appropriations that are provided annually and appropriations that are provided on a permanent basis. The financial transactions that are supported by budgetary resources, which include appropriations, are generally the same transactions reflected in entity and Government-wide financial reports. The reporting entity's budgetary resources reflect past congressional action and enable the entity to incur budgetary obligations, but they do not reflect assets to the Government as a whole. Budgetary obligations are legal obligations for goods, services, or amounts to be paid based on statutory provisions (e.g., Social Security benefits). After budgetary obligations are incurred. Treasury will make disbursements to liquidate the budgetary obligations and finance those disbursements in the same way it finances all disbursements, using some combination of receipts, other inflows, and borrowing from the public (if there is a budget deficit). The following EPA policies and procedures to account for the 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 settlements from other federal agencies and proceeds from PRPs under CERCLA Section 122(b)(3), which are placed into special accounts. Special accounts and corresponding interest are classified as mandatory appropriations due to the 'retain and use' authority under CERCLA 122(b) (3). Cost recovery settlements that are not placed in special accounts are deposited in the Superfund Trust Fund. II. Other Funds Funds under the Federal Credit Reform Act of 1990 receive program guidance and funding needed to support loan programs through appropriations which may be used within statutory limits for operations and capital expenditures. The W1FIA 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 F1FRA 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 a range 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). 11. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) F. Fund Balance with Treasury (See Note 2) FBWT is an asset of a reporting entity and a liability of the General Fund, Similarly, investments in Federal Government seeurities that are held by Dedieated Collections accounts are assets of the reporting entity responsible for the Dedicated Collections and liabilities of the General Fund. In both cases, the amounts represent commitments by the Government to provide resources for particular programs, but they do not represent assets to the Government as a whole. When the reporting entity seeks to use FBWT or investments in Government securities to liquidate budgetary obligations, Treasury will finance the disbursements in the same way it finances all other disbursements, using some combination of receipts, other inflows, and borrowing from the public (if there is a budget deficit). The Agency does not maintain cash in commercial bank accounts; cash receipts and disbursements are handled by Treasury. The major funds maintained with Treasury are General Funds, Revolving Funds, Trust Funds, Special Funds, Deposit Funds, and Clearing Accounts. These funds have balances available to pay current liabilities and finance authorized obligations, as applicable. G. Investments in U.S. Government Securities (See Note 4) 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. H. Marketable Securities (See Note 4) 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. I. Accounts Receivable and Interest Receivable (See Note 5) Super fund 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. The Agency also records allocations receivable from the Superfund Trust Fund, which are eliminated in the consolidated totals. The Agency records accounts receivable from PRPs for Superfund site response costs when a consent decree, judgment, administrative order, or settlement is entered. These agreements are generally negotiated after at least some, but not necessarily all, of the site response costs have been incurred. It is the Agency's position that until a consent decree or other form of settlement is obtained, the amount recoverable should not be recorded. The Agency also records 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 intra governmental reimbursements receivable, and refunds receivable for the STAG appropriation. 12. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) J. Advances and Prepayments Advances and prepayments represent funds paid to other entities both internal and external to the Agency for which a budgetary expenditure has not yet occurred. K. Loans Receivable (See Note 7) 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 arc made pursuant to the terms of the loan agreement with the option to repay loan amounts early. L. Appropriated Amounts Held by Treasury (See Note 27) Cash available to the Agency that is not needed immediately for current disbursements of the Super fund 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 (See Note 9) The LPA 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-hcld personal property are depreciated using the straight-line method over the specific asset's useful life, ranging from two to fifteen years. Personal property includes capital leases. To be defined as a capital lease, a lease, at its inception, must have a lease term of two or more years and the lower of the fair value or present value of the projected minimum lease payments must be $75 thousand or more. Capital leases containing real property (therefore considered in the real property category as well), have a $150 thousand capitalization threshold. In addition, the lease must meet one of the following criteria: transfers ownership at the end of the lease to the EPA; contains a bargain purchase option; the lease term is equal to 75 percent or more of the estimated economic service life; or the present value of the projected cash flows of the lease and other minimum lease payments is equal to or exceeds 90 percent of the fair value. Superfund contract property used as part of the remedy for 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. 13. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Real property consists of land, buildings, capital and leasehold improvements and capital leases. In FY 2017, the EPA increased the capitalization threshold for real property, other than land, to $150 thousand from $85 thousand for buildings and improvements and $25 thousand for plumbing, heating, and sanitation projects. The new threshold was applied prospectively. Land is capitalized regardless of cost. Buildings are valued at an estimated original cost basis, and land is valued at fair market value, if purchased prior to FY 1997. Real property purchased after FY 1996 is valued at actual cost. Depreciation for real property is calculated using the straight-line method over the specific asset's useful life, ranging from 10 to 50 years. Leasehold improvements are amortized over the lesser of their useful life or the unexpired lease term. Additions to property and improvements not meeting the capitalization criteria, expenditures for minor alterations, and repairs and maintenance are expensed when incurred. Internal use software includes purchased commercial off-the-shelf software, contractor-developed software, and software that was internally developed by Agency employees. In FY 2017, the EPA reviewed its capitalization threshold levels for PP&E. The Agency performed an analysis of the values of software assets, reviewed capitalization of other federal entities, and evaluated the materiality of software account balances. Based on the review, the Agency increased the capitalization threshold from $250 thousand to $5 million to better align with major software acquisition investments. The $5 million threshold was applied prospectively to software acquisitions and modifications/enhancements placed into service after September 30, 2016. Software assets placed into service prior to October 1, 2016 were capitalized at the $250 thousand threshold. Internal use software is capitalized at full cost (direct and indirect) and amortized using the straight-line method over its useful life, not exceeding five years. Internal use software purchased or developed for the working capital fund is capitalized at $250 thousand and is amortized using the straight-line method over its useful life, not exceeding five years. N. Liabilities (See Notes 8 & 13) 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 arc 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 (See Note 10) 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. P. Accrued Unfunded Annual Leave (See Note 24) 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 "Federal Employee and Veteran Benefits Payable". Sick leave earned but not taken is not accrued as a liability; it is expensed as it is used. Q. Retirement Plan (See Note 24) 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 contribu tes 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. 14 ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) With the issuance of SFFAS No. 5, Accounting for Liabilities of the Federal Government, accounting and reporting standards were established for liabilities relating to the federal employee benefit programs (Retirement, Health Benefits, and Life Insurance). SFFAS No. 5 requires that the employing agencies recognize the cost of pensions and other retirement benefits during their employees' active years of service. SFFAS No. 5 requires that the Office of Personnel Management (OPM), as administrator of the CSRS and FERS, the Federal Employees Health Benefits Program, and the Federal Employees Group Life Insurance Program, provide federal agencies with the actuarial cost factors to compute the liability for each program. R. Prior Period Adjustments and Restatements Prior period adjustments, if any, are made in accordance with SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles. Specifically, prior period adjustments will only be made for material prior period errors to: (1) the current period financial statements, and (2) the prior period financial statements presented for comparison. Adjustments related to changes in accounting principles will only be made to the current period financial statements, but not to prior period financial statements presented for comparison. S, Deepwater Horizon Oil Spill The April 20, 2010 Deepwater Horizon (DWH) Oil Spill was the largest oil spill in U.S. history. In the wake of the spill, the National Contingency Plan regulation was revised to reflect the EPA's designation as a DWH Natural Resource Trustee. The DWH Natural Resources Damage Assessment 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. 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 and footnotes in accordance with Office of Management and Budget (OMB) Circular No. A-136, Financial Reporting Requirements revised May 19, 2023. As a result, the form and content of the Balance Sheet, Statement of Changes in Net Position and footnotes have been changed to conform with OMB Circular No. A-136. 15. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 2. Fund Balance With Treasury (FBW'T) Fund Balance with Treasury as of September 30, 2023 and 2022 consists of the following: 2023 2022 Entity Assets Non-Entity Assets Total Entity Assets Non-Entity Assets Total Trust Funds: Supcrfund $ (56,699) $ $ (56,699) $ 244,972 1 £ $ 244,972 LUST 20.603 - 20,603 24,166 - 24.166 Oil Spill & Misc. 20.556 - 20,556 18,919 - 18,919 Revolving Funds: FIFRA/T olerance 30.826 - 30,826 31,338 - 31,338 Working Capital 116,764 - 116,764 112,992 - 112,992 E-Manifest 45.425 - 45,425 32,240 - 32,240 NRDA 2,544 - 2,544 2,123 - 2,123 W1F1A 17.441 - 17,441 769 - 769 Appropriated 73,765,838 - 73,765,838 63,039,162 - 63,039,162 Other Fund Types 622.876 3.594 626.470 592.723 4.425 597.148 Total $ 74.586.174 $ 3.594 $ 74.589.768 S 64.099.404 1 S 4.425 S 64.103.829 Entity fund balances, except for special fund receipt accounts, arc 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: 2023 2022 Unobligated Amounts in Fund Balance: Available for Obligation $ 59,166,962 $ 56,789,464 Unavailable for Obligation 114,325 188,011 Net Receivables from Invested Balances (8,822,692) (8,748,354) Balances in Treasury Trust Fund (Note 27) (182,653) 117,500 Obligated Balance not yet Disbursed 23,705,591 15,179,725 Non-Budgetary FBWT 608.235 577.483 Total $, 74,589.768 S 64.103.829 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 generally balances in expired funds, which are available only for adjustments of existing obligations. For September 30, 2023 and 2022, 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. 16. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 3. Cash and Other Monetary Assets As of September 30, 2023 and 2022, the balance in the imprest fund was $ 10. Note 4. Investments, Net As of September 30, 2023 and 2022, investments consist of the following: Amortized Amortization (Premium) Interest Investments, Market Cost Method Discount Receivable .Net Value Intra governmental Securities: Non- Marketable FY 2023 $ 12,438,324 Straight Line 289,586 10,545 12,159,283 $ 12,159,283 Non- Marketable FY 2022 $10,610,897 Straight Line 317,928 4,810 10,297,779 $ 10,297,779 CLRCLA, as amended by SARA, authorizes the LPA to recover monies to clean up Supcrfund 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 sources other than intragovemmental 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. 17. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 5. Accounts Receivable, Net Accounts Receivable as of September 30, 2023 and 2022, Intragovernmental: Accounts & Interest Receivable Less: Allowance for Uncollectible Accounts Total Other Than Intragovernmental: Unbilled Accounts Receivable Accounts & Interest Receivable Less: Allowance for Uncollectible Accounts Total sist of the following: 2023 2022 $ 8,938 $ 6,579 (1.252) (862) $ 7.686 $ 5.717 2023 2022 $ 110,567 $ 130,572 2,647,893 2,625,563 (2.237.768) (2.207.610) s 520.692 $ 548.525 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 for additional information. Note 6. Inventory and Related Property Inventory and related property as of September 30, 2023 and 2022, consist of the following: 2023 2022 Inventory Purchased for Resale $ 626 $ 531 Total S 626 $ 531 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. The EPA does not have any loans obligated prior to 1992. The HPA administers the WIFIA Direct Loans program. In fiscal years 2023 and 2022, the Agency received borrowing authority of $6 billion and $6 billion respectively for the non-subsidy portion of loan proceeds disbursed. For the fiscal years ended September 30, 2023 and 2022, the Agency closed $6 billion and $6 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, 2023 and 2022, the WIFIA program has incurred $550 million and $256 million in administrative expenses, respectively. 18. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Obligated after FY 1991 Direct Loan Program WIFIA 2023 Loans Receivable, Gross $ 3,261,931 Interest and Fees Receivable 1,398 Foreclosed Property/ Allowance for Loao Losses Value of Assets Allowance for Related to Subsidy Direct Cost Loans, Net (861,407)$ 2,401,922 Direct Loan Program WIFIA 2022 Loans Receivable, Gross $ 1,681,958 Interest and Fees Receivable 1,998 Foreclosed Property/ Allowance for Loan Losses Value of Assets Related to Direct Loans, Net (392,448) $ 1,291,508 Allowance for Subsidy Cost Total Amount of Direct Loans Disbursed (Post-1991) Direct Loan Program 2023 2022 WIFIA $ 1,594,232 $ 955,452 Subsidy Expense for Direct Loans by Program and Component Subsidy Expense for New Direct Loans Disbursed 2023 Interest Fees and Other Other Subsidy Direct Loan Program Differential Defaults Collections Costs Total WIFIA $ - - - (8,687) $ (8,687) Direct Loan Program 2022 Interest Differential WIFIA $ Modifications and Reestimates Direct Loan Program WIFIA 2023 Total Modifications $ Defaults 76,295 Fees and Other Other Subsidy Collections Costs Interest Rate Reestimates Technical Reestimates 461,383 Total (5,015) $ (5,015) FAI Reestimates Total Reestimates 537,678 2022 Interest Total Rate Technical FAI Total Direct Loan Program Modifications Reestimates Reestimates Reestimates Reestimates WIFIA $ - 22,769 208,342 7,536 $ 238,647 19. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Total Direct Loans Subsidy Expense Direct Loan Program 2023 2022 WIFIA $ 8,687 $ 5,015 Budget Subsidy Rates for Direct Loans for the Current Year Cohort 2023 Interest Fees and Other Other Subsidy Direct Loan Program Differential Defaults Collections Costs Total WIFIA 0.0% 0.73% 0% 0% 0.73% 2022 Interest Fees and Other Other Subsidy Direct Loan Program Differential Defaults Collections Costs Total WIFIA 0.02% 0.47% 0% 0% 0.49% The subsidy rates disclosed pertain to the eurrent year's cohort. The rates cannot be applied to the direet loans disbursed during the eurrent 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 reestimates. Schedule for Reconciling Subsidy Cost Allowance Balances Beginning Balance, Changes and Ending Balance 2023 2022 Beginning Balance of the Subsidy Allowance $ (392,448) $ (148,785) Add: Subsidy Expense for Direct Loans Disbursed During the Reporting Years by Component Other Subsidy Costs (8,688) (5,015) Reversal of PY subsidy costs 3.815 Total of the Above Subsidy Expense Components $ (4,873) S (5,015) Adjustments Subsidy Allowance Amortization 73.592 - Ending Balance of the Subsidy Cost Allowance Before Reestimates (323,729) (153,800) Add or Subtract Subsidy Reestimates by Component Interest Rate Reestimates (76,295) (22,769) Techniea 1/Defau 11 Reestimates (461,383) (208,343) FAI Adjustment - (7.536) Total of the Above Reestimate Components $ (537.678 * S (238.648* Ending Balance of the Subsidy Cost Allowance $ (861.407) $ (392.448) 20. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) 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 2023 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. 2023 2022 Beginning balance of loans receivable, net $ 1,291,508 $ 586,138 Add loan disbursements 1,594,232 955,452 Less principal and interest payments received (46,601) (28,498) Add interest accruals 32,125 21,745 Add fees accrued (384) 334 Add upward reesti mates (687,880) (164,438) Less downward reestimates 514,526 48,268 Allowance for loan and interest loss adjustments - (127,493) Subsidy allowance (295.604"! - Ending balance of loans receivable, net $ 2,401,922 $ 1,291.508 Note 8. Accounts Payable Accounts Payable are current liabilities and consist of the following amounts as of September 30, 2023 and 2022: Covered by Budgetary Resources 2023 2022 Intragovernmental: Accounts Payable $ 16 $ 159 Disbursements in Transit 2.905 2.908 Total $ 2.921 $ 3.067 2023 2022 Other Than Intragovernmental: Accounts Payable $ 53,978 $ 39,579 Advances Payable 4 4 Interest Payable 24 15 Disbursements in Transit 62.228 23.315 Total $ 116.234 $ 62.913 21. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 9. Property, Plant and Equipment, Net Property, plant, and equipment (PP&E) eons is t of software, real property, EPA-held and con trae tor-held personal property, and eapital leases. See Note 1 paragraph M for additional information. As of September 30, 2023, PP&E Cost consisted of the following: 2023 EPA- Contractor Land Held Software Software Held and Capital Equipment (Production) (Development) Equipment Buildings Leases Total Balance, Beginning of Year S 332,195 $ 440,896 $ 96,640 S 39,526 S 862,775 $ 24,485 $ 1,796,517 Additions 13,543 - 15.122 693 1.105 - 30,463 Dispositions (13,489) - - (3,914) - - (17,403) Revaluations - - 8.784 - 18.234 - 27.018 Balance, September $ 332.249 S 440.896 $ 120.546 $ 36.305 $ 882.114 S 24.485 $ 1.836.595 30, 2023 As of September 30, 2023, PP&E Accumulated Depreciation consisted of the following: 2U23 EPA- Contractor Land Held Software Software Held and Capital Equipment (Production) (Development) Equipment Buildings Leases Total Balance, Beginning of Year $ 235,630 $ 438,507 $ - S 11,184 $ 357,624 S 22,580 $ 1,065,525 Dispositions (12,237) - - (3,914) - - (16,151) Revaluations - - - - 4 68 72 Depreciation Expense 17.243 1.207 - 7.489 17.188 815 43.942 Balance, September $ 240.636 S 439.714 S S 14.759 S 374.816 $ 23.463 S 1.093.388 30, 2023 22. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) As of September 30, 2023, PP&E, Net consisted of the following: 2023 EPA- Contractor Land Held Software Software Held and Capital Equipment (Production) (Development) Equipment Buildings Leases Total Balance, September $ 91.613 S 1.182 S 120.546 S 21.546 S 507.298 S 1.022 S 743,207 30, 2023 As of September 30, 2022, PP&E Cost consisted of the following: 2022 EPA- Contractor Land Held Software Software Held and Capital Equipment (Production) (Development) Equipment Buildings Leases Total Balance, Beginning of Year $ 330,579 S 440,896 $ 55,537 S 31,618 $ 828,716 $ 24,485 $ 1,711,831 Additions 12,239 - 38.844 - 52.018 - 103,101 Dispositions (10,623) - - - (6,986) - (17,609) Revaluations - - 2.259 7.908 (10.973) - (806) Balance, September $ 332.195 $ 440.896 S 96.640 S 39.526 $ 862.775 $ 24.485 $ 1.796,517 30, 2022 As of September 30, 2022, PP&E Accumulated Depreciation consisted of the following: 2022 Balance, Beginning of Year $ 225,982 Dispositions (9,799) Revaluations (301) Depreciation Expense 19.748 Balance, September $ 235,630 30, 2022 EPA- Contractor Land Held Software Software Held and Capital Equipment (Production) (Development) Equipment Buildings Leases Total 433,822 $ - S 19,851 $ 339,775 S 21,764 $ 1,041,194 (9,799) (8,667) - 1 (8,967) 4.685 - - 17.849 815 43.097 438,507 $ S 11,184 $ 357.624 $ 22.580 $ 1,065,525 23. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) As of September 30, 2022, PP&E, Net consisted of the following: 2022 EPA- Contractor Land Held Software Software Held and Capital Equipment (Production) (Development) Equipment Buildings Leases Total Balance, September $ 96.565 % 2.389 % 96.640 $ 28.342 $ 505.151 S 1.905 S 730.992 30, 2022 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. The 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, 2023 and 2022, the EPA had debt due to Treasury consisting entirely of funds borrowed to finance the non-subsidy portion of the WIFIA Direct Loan Program: 2022 2023 Beginning Net Ending Net Ending Balance Borrowing Balance Borrowing Balance Debt to the Treasury $ 746.839 $ 810.341 S 1.557.180 $ 1.396.045 S 2.953.225 See Note 1 paragraph O for additional information. 24. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (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) CER.CLA 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, 2023 and 2022. the Agency possessed the following land and land rights: 2023 2022 Superfund Sites with Easements: Beginning Balance 47 45 Additions 1 2 Ending Balance 48 47 Superfund Sites with Land Acquired: Beginning Balance 33 32 Additions - 1 Withdrawals (1) - Ending Balance 32 33 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, 2023 and 2022, custodial liability is approximately $ 105,995 and $106,560 respectively. 25. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 13. Other Liabilities Other Liabilities consist of the following as of September 30, 2023: Covered by Not Covered by Budgetary Budgetary Resources Resources Total Other Liabilities - Intragovernmental: Current Employer Contributions & Payroll Taxes $ 9,653 $ $ 9,653 Other Aeerued Liabilities 167,401 - 167,401 Loan Reestimates - 769 769 Non-Current Unfunded FECA Liability - 8,292 8,292 Unfunded Unemployment Liability - 72 72 Payable to Treasury Judgement Fund - 22.000 22.000 Total Intragovernmental S 177.054 $ 31.133 $ 208,187 Other Liabilities - Other Than Intragovernmental: Current Liability for Deposit Funds, Other Than $ 510 $ 4,313 $ 4,823 Intragovernmental Other Aeerued Liabilities 132,683 - 132,683 Grant Liabilities 446,873 - 446,873 Accrued Funded Payroll and Benefits 38,217 - 38,217 Capital Lease Liabilities - 1,007 1,007 Liability for Clearing Accounts - (254} (254} Total Other Than Intragovernmental $ 618.283 $ 5.066 $ 623.349 26. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Other Liabilities consist of the following as of September 30, 2022: Covered by Not Covered by Budgetary- Budgetary Resources Resources Total Current Employer Contributions & Payroll Taxes $ 16,126 $ $ 16,126 Other Accrued Liabilities 152,350 - 152,350 Loan Reesti mates - 769 769 Liability for Deposit Funds - (2) (2) Non-Current Unfunded FECA Liability - 8,447 8,447 Unfunded Unemployment Liability - 7 7 Payable to Treasury Judgement Fund - 22.000 22,000 Total Intragovernmental S 168,476 S 31,221 $ 199,697 Other Liabilities - Other Than Intragovernmental Current Liability for Deposit Funds, Other Than $ 5,128 $ $ 5,128 Intragovernmental Other Accrued Liabilities 126,411 - 126,411 Grant Liabilities 360,811 - 360,811 Accrued Funded Payroll and Benefits 103,166 - 103,166 Capital Lease Liabilities 1,476 - 1,476 Commitment and Contingencies - 1,770 1,770 Direct Loans Subsidy Liability - (769) (769) Total Other Than Intragovernmental: S 596.992 S 1.001 $ 597.993 Liabilities not eovered 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, 2023 and 2022, are as follows: Capital Leases: 2023 2022 Summary of Assets Under Capital Lease: Real Property $ 24.485 $ 24.485 Total 24.485 24.485 Accumulated Amortization $ 23.464 $ 22.581 27. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (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 2024 $ 970 2025 323 Total Future Minimum Lease Payments 1,293 Less: Imputed Interest (286) Net Capital Lease Liability 1.007 Liabilities not Covered by Budgetary Resources $ 1.007 Note 15. Advances from Others and Deferred Revenue As of September 30, 2023 Advances from Others and Deferred Revenue consist of the following: 2023 2022 Other Than Intragovernmental: Cashout Advances, Superfund $ 3,544,466 $ 3,541,093 Unearned Advances 131.740 125.105 Total S 3.676.206 S 3.666.198 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), cashout 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. 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. 28. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) 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, 2023, there were no accrued liabilities for commitments and potential loss contingencies. As of September 30, 2022, there were $2M of accrued liabilities for commitments and potential loss contingencies. FY 2023 Legal Contingencies: Reasonably Possible FY 2022 ' Legal Contingencies: Reasonably Possible Estimated Estimated Accrued Range of Loss- Range of Loss- Liabilities Lower End Upper End 7,522 $ 2,700 $ 7,522 2,700 Environmental Contingencies: Probable Reasonably Possible 1,770 $ 1,770 $ 1,770 A. Gold King Mine On August 5, 2015, the EPA and its contractors were investigating under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 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, 2023, legal claims exist for which the potential loss could not be determined related to HenniS v. United States. In this case, 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, 2023, legal claims exist for a claim made by an Environmental Restoration contractor for settlement costs of approximately $3M for the amount resolved through settlement with the Navajo Nation, and an additional claim made by an Environmental Restoration contractor for settlement costs in the amount of approximately $2M for the amount resolved through settlement with the state of New Mexico. 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; 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 29. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) reimbursement of its reasonable eosts 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 Seetion 107(a) for the response aetion ordered or that the Agency's seleetion of the response aetion was arbitrary and eaprieious or otherwise not in accordance with law. As of September 30, 2023, there is one ease related to Supcrfund. This case is August Mack Environmental, Inc. v. EPA for $3 million; it is only reasonably possible, and the outcome is not probable. August Mack Environmental (AME) was a contractor for Vertellus, one of three PRPs (Potentially Responsible Parties) 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. EPA Region 3 denied the claim and AME appealed to the Administrative Law Judge (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 the case was remanded back to the ALJ. D. Environmental Liabilities As of September 30, 2023, there are no cases pending against the EPA that are reported under Environmental Liabilities that the outcome is listed as either Probable or Reasonably Possible. E. Other Pending Cases As of September 30, 2023, legal claims exist for which the potential loss could not be determined. The case is for United Affiliates Corp., etal. v. United States, involving alleged taking of property for which plaintiff is seeking just compensation under the 5th Amendment. An additional case exists for Alaska v. US (S. Ct.), involving a bill of complaint for EPA's action under the Clean Water Act regarding the Pebble Mine, alleging breach of contract and takings. 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 a $22 million liability to the Treasury Judgment Fund for a payment made by the Fund to settle a contract dispute claim. As of September 30, 2023, 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 $3 million in FY 2023, and $4 million in FY 2022 to the CEC. 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 million in FY 2023, and $8 million in the FY 2022. 30. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 17. Funds from Dedicated Collections (Restated) Environmental Other Funds from Dedicated Total Funds from Dedicated Collections Eliminations between Dedicated Collections Total Funds from Dedicated Collections Balance Sheet as of September 30, 2023 Services LUST Suoerfund Collections Combined Funds Consolidated I ntrago veminent a 1 Fund Balance with Treasury S 604,057 S 20,603 S 182,369 S 118,170 S 925,199 $ (239,068) S 686,131 Investments, Net - 1,385,748 10,773,535 - 12,159,283 - 12,159,283 Accounts Receivable, Net - 91,438 8,732,394 240 8,824,072 (8,822,713) 1,359 Advances and Prepayments - 81 11.922 885 12.888 - 12,888 Total Intragovernmental Assets 604,057 1,497,870 19,700,220 119,295 21,921,442 (9,061,781) 12,859,661 Other Than Intragovernmental Accounts Receivable, Net 1 422,288 2,695 424,984 424,984 Loans Receivable, Net - . - - - - - General Property, Plant, and Equipment, Net Advances and Prepayments - 46 40,360 722 20,721 61,127 722 - 61,127 722 Total Other Than Intragovernmental _ 47 463.370 23.416 486.833 _ 486.833 Total Assets $ 604.057 $ 1.497.917 $ 20.163.590 $ 142.711 $ 22.408.275 $ (9.061.781) $ 13.346.494 I ntrago vernmenta 1 Accounts Payable s S 91,439 S 8,761,203 S s 8,852,642 S (8,822,692) S 29,950 Debt - - - - . - - Advances from Others and Deferred Revenue - . 155,870 4,473 160,343 - 160,343 Liability to the General Fund for Custodial Assets - - 22,362 - 22,362 - 22,362 Other Liabilities - 124 49.812 1.642 51.578 - 51.578 Total Intragovernmental Liabilities Other Than Intragovernmental Accounts Payable Federal Employee Benefits Payable Advances from Others and Deferred Revenue Deferred Revenue Other Liabilities 91.563 8.989.247 66 31,758 12 8,766 52,393 3,544,465 6.715 78.221 6.115 1,491 91 44,276 3.833 9.086.925 33,315 8,869 96,669 3,544,465 88.769 (8.822.692) 264.233 33,315 8,869 96,669 3,544,465 88.769 Total Other Than Intragovernmental Liabilities Total Liabilities 6.793 3.715.603 49.691 3.772.087 3.772.087 $ _ $ 98.356 $ 12.704.850 $ 55.806 $ 12.859.012 $ (8.822.6921 $ 4.036.320 Unexpended Appropriations S - S S - S 281 S 281 S S 281 Cumulative Results of Operations 604.057 1.399.561 7.458.740 86.624 9.548.982 (239.089) 9.309.893 Total Liabilities and Net Position $ 604.057 $ 1,497,917 $ 20.163.590 $ 142J11 $ 22*408,275 $ (9.061,781) $ 13.346.494 31. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Eliminations Total Funds between Total Funds Other Funds from Dedicated Dedicated from Dedicated Environmental from Dedicated Collections Collections Collections Statement of Net Cost as of September 30,2023 Services LUST SuDerfund Collections Combined Funds Consolidated Gross Program Costs S - S 91,478 S 1,690,189 S 104,605 S 1,886,272 S S 1,886,272 Less: Earned Revenues (247) - 477,469 98,533 575.755 (238,365) 337,390 Net Costs of Operations $ 247 $ 91.478 $ 1.212.720 $ 6.072 $ 1.310.517 $ 238.365 $ 1.548.882 Statement of Changes in Net Position as of September 30, 2023 Unexpended Appropriations Beginning Balance S - S - s (113) s 291 s 178 s - S 178 Appropriations Used - - 113 (10) 103 - 103 Total Unexpended Appropriations $ - $ - $ - $ 281 $ 281 $ - $ 281 Cumulative Results of Operations Beginning Balance S 572,474 S 1,235,638 s 5,865,045 s 70,987 s 7,744,144 s (21) S 7,744,123 Appropriations Used - - (112) 10 (102) - (102) Excise tax & customs - 205,374 1,204,868 - 1,410,242 - 1,410,242 Misc. taxes & receipts 31,830 48,791 389,277 1,357 471,255 (703) 470,552 T otal Other Than Intragovernmental Non-Exchange Revenue 31,830 254,165 1,594,145 1,357 1,881,497 (703) 1,880,794 Transfers-In/'(Out) Without Reimbursement - 1,000 1,175,029 19,929 1,195,958 - 1,195,958 Imputed Financing - 236 37,353 413 38,002 - 38,002 Net Cost of Operations (247) (91,478) (1,212,720) (6,072) (1,310,517) (238,365) (1,548,882) Net Change in Cumulative Results of Operations 31.583 163.923 1.593.695 15.637 1.804.838 f239.0681 1.565.770 Cumulative Results of Operations: Ending 604,057 1,399,561 7,458,740 86,624 9,548,982 (239,089) 9,309,893 Net Position, End of Period $ 604.057 $ U 99.561 $ 7.458,740 s 86.905 s 9,549.263 $ (239.089) $ 9.310.174 ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Environmental Balance Sheet as of September 30, 2022 Services LUST SuDerfund I nt rago v ernmenta 1 Fund Balance with Treasury S 572,474 S 24,166 S 551,926 Investments, Net - 1,218,255 9,079,524 Accounts Receivable, Net - 92,713 8,657,245 Advances and Prepayments - 88 20.272 Total Intragovernmental Assets 572,474 1,335,222 18,308,967 Other Than Intragovernmental Accounts Receivable, Net - - 460,932 Loans Receivable, Net - - - General Property, Plant, and Equipment, Net - 59 32,357 Advances and Prepayments - - 772 Total Other Than Intragovernmental - 59 494.061 Total Assets $ 572.474 $ 1.335.281 $ 18.803.028 Intragovernmental Accounts Payable S s 92,715 s 8,688,339 Debt - - - Advances from Others and Deferred Revenue - - 164,486 Liability to the General Fund for Custodial Assets - - 22,362 Other Liabilities - 485 41.337 Total Intragovernmental Liabilities - 93.200 8.916.524 Other Than Intragovernmental Accounts Payable - 49 33,685 Federal Employee Benefits Payable - 36 10,135 Advances from Others and Deferred Revenue - - 44,970 Deferred Revenue - - 3,541,093 Other Liabilities - 6.358 84.736 Total Other Than Intragovernmental Liabilities - 6.443 3.714.619 Total Liabilities s $ 99.643 $ 12.631.143 Unexpended Appropriations s s - s (113) Cumulative Results of Operations 572.474 1.235.638 6.171.998 Total Liabilities and Net Position $ 572.474 $ 1.335.281 $ 18,803.028 (Restated) Eliminations (Restated) Total Funds between Total Funds Other Funds from Dedicated Dedicated from Dedicated rom Dedicated Collections Collections Collections Collections Combined Funds ' Consolidated ; 104,870 S 1,253,436 S (306,954) S 946,482 - 10,297,779 - 10,297,779 261 8,750,219 (8,748,509) 1,710 1.007 21.367 - 21.367 106,138 20,322,801 (9,055,463) 11,267,338 4,540 465,472 - 465,472 20,593 53,009 _ 53,009 - 772 - 772 25.133 519.253 _ 519.253 ; 131.271 $ 20.842.054 $ (9.055.463) $ 11.786.591 s 8,781,054 s (8,748,489) S 8,781,054 4,789 169,275 _ 169,275 - 22,362 - 22,362 2.583 44.405 - 44.405 7.372 9.017.096 (8.748.489) 9.017.096 984 34,718 _ 34,718 261 10,432 - 10,432 45,988 90,958 - 90,958 - 3,541,093 - 3,541,093 5.388 96.482 . 96.482 52.621 3.773.683 _ 3.773.683 ; 59.993 $ 12.790.779 $ (8.748.489) S 4.042.290 ; 291 s 178 $ S 178 70.987 8.051.097 (306.974) 7.744.123 ; 131.271 $ 20.842.054 $ (9.055.463) S 11.786.591 33. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) (Restated) Eliminations (Restated) Total Funds between Total Funds Other Eunds from Dedicated Dedicated from Dedicated Environmental from Dedicated Collections Collections Collections Statement of Net Cost as of September 30,2022 Services LUST SuDerfund Collections Combined Funds ' Consolidated Gross Program Costs S - S 92,373 S 1,350,585 S 84,622 S 1,527,580 S S 1,527,580 Less: Earned Revenues (5131 - 506.923 97.013 603.423 (303.954) 299.469 Net Costs of Operations $ 513 $ 92.373 $ 843.662 $ (12.391) $ 924.157 $ 303.954 $ 1.228.111 Statement of Changes in Net Position as of September 30, 2022 Unexpended Appropriations Beginning Balance s - s - s (104) s 291 s 187 s S 187 Appropriations Used - - (91 - (91 . (91 Total Unexpended Appropriations $ - $ - $ (113) $ 291 $ 178 $ $ 178 Cumulative Results of Operations Beginning Balance S 546,001 S 1,072,946 s 1,899,380 s 41,539 s 3,559,866 s (20) S 3,559,846 Appropriations Used - - 9 - 9 - 9 Excise tax & customs - 245,048 413,002 - 658,050 - 658,050 Misc. taxes & receipts 26.986 9.716 60,652 230 97,584 (3.000) 94.584 T otal Other Than Intergovernmental Non-Exchange Revenue 26,986 254,764 473,654 230 755,634 (3,000) 752,634 Transfers-In/'(Out) Without Reimbursement - - 4,616,482 16,575 4,633,057 - 4,633,057 Imputed Financing - 301 26,135 251 26,687 - 26,687 Other Financing Sources - - - 1 1 - 1 Net Cost of Operations (513) (92,373) (843,662) 12,391 (924,157) (303,954) (1,228,1 1 1) Net Change in Cumulative Results of Operations 26.473 162.692 4.272.618 29.448 4.491.231 (306.9541 4.184.277 Cumulative Results of Operations: Ending 572,474 1,235,638 6,171,998 70,987 8,051,097 (306,974) 7,744,123 Net Position, End of Period $ 572.474 $ 1.235.638 $ 6.171.885 s 71.278 s 8.051.275 I (306.974) S 7.744.301 34. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) A. Funds from Dedicated Collections /. En vironmen tal Services Receipt A ccount: The Environmental Services Reeeipl 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. it. 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. iii. Superfund Trust Fund: In 1980, the Superfund Trust Fund was established by CERCLA to provide resources to respond to and clean up hazardous substance emergencies and abandoned, uncontrolled hazardous waste sites. The Superfund Trust Fund financing is shared by federal and state governments as well as industry. The EPA allocates funds from its appropriation to the Department of Justice to carry out CERCLA. Risks to public health and the environment at uncontrolled hazardous waste sites qualifying for the Agency's National Priorities List (NPL) are reduced and addressed through a process involving site assessment and analysis and the design and implementation of cleanup remedies. NPL cleanups and removals are conducted and financed by the EPA, private parties, or other Federal agencies. The Superfund Trust Fund includes Treasury's collections, special account receipts from settlement agreements, and investment activity. B. Other Funds from Dedicated Collections i. Inland Oil Spill Programs Account: The Inland Oil Spill Programs Account was authorized by the Oil Pollution Act of 1990 (OPA). Monies are appropriated from the Oil Spill Liability Trust Fund to the EPA's Inland Oil Spill Programs Account each year. The Agency is responsible for directing, monitoring and providing technical assistance for major inland oil spill response activities. This involves setting oil prevention and response standards, initiating enforcement actions for compliance with OPA and Spill Prevention Control and Countcrmeasurc 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. it. 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, 2027, 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 F1FRA Amendments of 1988, are to be paid by industry and deposited into this fund group. 35. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) iii. Reregistration and Expedited Processing Fund: The Revolving Fund was authorized by the F1FRA of 1972, as amended by the FIFRA Amendments of 1988 and as amended by the Food Quality Protection Aet 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. f'v. 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 Electron ic Man if est System: The Hazardous Waste Electronic Manifest System Fund (e-Manifest) was established as a result of the Hazardous Waste Manifest Establishment Act (Public Law 1 12-195, October 5, 2012). The "e-Manifest Aet" authorized the EPA to implement a national electronic manifest system and required that the costs of developing and operating the new e- Manifest system be recovered from user fees charged to those who use hazardous waste manifests to track off-site shipments of their wastes. To that end, the EPA charges and collects fees from facilities for each manifest they submit. 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 24 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, 2023, the EPA has no sites that require clean up stemming from its activities. The EPA has 82 sites for which it is required to fund the environmental cleanup. As of September 30, 2023, the estimated costs for site clean-up were $37 million unfunded, and $100 thousand funded. For September 30, 2022 the estimated cost for site clean-up was $32 million unfunded, with nothing funded. 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. 36. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) In FY 2023, the estimate for unfunded clean-up eosl increased by $5 million from the FY 2022 estimate. This is primarily due to increased 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 Supcrfund'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. 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, 2023 and 2022, the total remaining state credits have been estimated at $18 million, and $ 18 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, 2023, the EPA had three outstanding preauthorized mixed funding agreements with obligations totaling $7 million. As of September 30, 2022, the EPA had three outstanding preauthorized mixed funding agreements with obligations totaling $7 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, 2023 and 2022 Custodial Revenues and Accounts Receivable are: 2023 2022 Fines, Penalties and Other Miscellaneous Receipts S 89.665 $ 58.515 Accounts Receivable for Fines, Penalties and Other Miscellaneous Receipts: Accounts Receivable $ 200.312 $ 236,617 Less: Allowance for Uncollectible Accounts (134.259} n 52.300) Total s 66,053 s 84,317 37. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 22. Statement of Budgetary Resources The purpose of Federal budgetary accounting is to control, monitor, and report on funds made available to Federal ageneies bylaw and help ensure compliance with law. The following budget terms from OMB Circular A-l 1, Section 20.3 are commonly used: Appropriation: A provision of law (not necessarily in an appropriations act) authorizing the expenditure of funds for a given purpose. Usually, but not always, an appropriation provides budget authority. Budgetary resources: Amounts available to incur obligations in a given year. Budgetary resources consist of new budget authority and unobligated balances of budget authority provided in previous years. Distributed offsetting receipts: Amounts that an agency collects from the public or from other U.S. 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). Offsetting collections: Payments to the Government that, by law, are credited directly to expenditure accounts and deducted from gross budget authority and outlays of the expenditure account, rather than added to receipts. Usually, offsetting collections arc authorized to be spent for the purposes of the account without further action by Congress. They usually result from business-like transactions with the public, including payments from the public in exchange for goods and services, reimbursements for damages, and gifts or donations of money to the Government and from intragovernmcntal transactions with other Government accounts. The authority to spend offsetting collections is a form of budget authority. Offsetting receipts: Payments to the Government that are credited to offsetting receipt accounts and deducted from gross budget authority and outlays, rather than added to receipts. Usually, they are deducted at the level of the agency and subfunction, but in some cases they are deducted at the level of the Government as a whole. They are not authorized to be credited to expenditure accounts. The legislation that authorizes the offsetting receipts may earmark them for a specific purpose and either appropriate them for expenditure for that purpose or require them to be appropriated in annual appropriations acts before they can be spent. Like offsetting collections, they usually result from business-like transactions with the public, including payments from the public in exchange for goods and services, reimbursements for damages, and gifts or donations of money to the Government, and from intragovernmcntal transactions with other Government accounts. Obligation: A binding agreement that will result in outlays, immediately or in the future. Budgetary resources must be available before obligations can be incurred legally. Outlay: A payment to liquidate an obligation. Outlays generally are equal to cash disbursements and are the measure of Government spending. Budgetary resources, obligations incurred and outlays, as presented in the audited FY 2022 Statement of Budgetary Resources, will be reconciled to the amounts included in the FY 2022 Budget of the United States Government when they become available. The Budget of the United States Government with actual numbers for FY 2023 has not yet been published. We expect it will be published by early 2024, and it will be available on the Office of Management and Budget website at https://www.whitehouse.gov/ 38. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) The actual amounts published for the year ended September 30, 2022 are listed immediately below (dollars in millions): FY 2022 Budgetary Offsetting _ Resources Statement of Budgetary Resources Reported in the Budget of the U.S. Government $ 80.365 $ 23.389 $ 5.039 $ 15.159 $ 80.257 $ 23.357 $ 5.039 $ 15.160 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, 2023 and 2022: 2023 2022 Unobligated Balance Brought Forward, Oct 1. $ 56,975,250 S 5.372,585 Adjustments to Budgetary Resources Made l>uring the Current Year Downward Adjustments of Prior Year Undelivered Orders 331.528 310,599 Downward Adjustments of Prior Year Delivered Orders 13,047 11,898 Permanent Reduction Prior Year Balances (13,300) - Other Adjustments (24.159) (20.975) Total 307,116 301,522 Unobligated Balance from Prior Year Budget Authority, Net (discretionary and mandatory) $ 57.282.366 $ 5.674.107 Temporarily Not Available - Rescinded Authority $ (8.942) s (6.563) Permanently Not Available: Rescinded Authority $ $ - Cancelled Authority (21.196) 21.065 Total Permanently Not Available $ (21.196) $ 21.065 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 arc only available for upward adjustments of existing obligations. The unobligated balances available consist of the following as of September 30, 2023 and 2022: 2023 2022 Unexpired Unobligated Balance Expired Unobligated Balance Total $ 59,167,562 $ 56,868,632 104.783 106.618 $ 59.272.345 $ 56.975.250 39. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Budgetary resources obligated for undelivered orders as of September 30, 2023 and 2022: 2023 2022 Intr ago v ernment al: Unpaid Undelivered Orders $ 1,982,774 $ 1,309,147 Paid Undelivered Orders 1,643,300 330,617 Other Than Intragovernmental: Unpaid Undelivered Orders 36,792,410 27,441,476 Paid Undelivered Orders 8.275 3.736 Total S 40,426.759 S 29.084.976 Distributed offsetting reeeipts are amounts that an ageney eolleets from the public or from other Government agencies that are used to offset or reduce an agency's budget outlays. Ageney 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, 2023 and 2022, the following receipts were generated from these activities: Trust Fund Recoveries Special Fund Services Trust Fund Appropriation Miscellaneous Receipt and Clearing Accounts Total 2023 $ 238,365 55,443 1,218,809 56.319 S 1.568.936 2022 $ 303,954 29,368 4,675,799 29.699 $ 5.038.820 Note 23. Imputed Financing In accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government, Federal agencies must recognize the portion of employees' pensions and other retirement benefits to be paid by the OPM trust funds. These amounts are recorded as imputed costs and imputed financing for each Agency. Each year the OPM provides Federal agencies with cost factors to calculate these imputed costs and financing that apply to the current year. These cost factors are multiplied by the current year's salaries or number of employees, as applicable, to provide an estimate of the imputed financing that the OPM trust funds will provide for each Agency. In FY 2023, the Agency began recording OPM amounts quarterly; previously it was recorded annually. The estimates for FY 2023 are $196 million. For FY 2022, the estimates were $132 million. SFFAS No. 4, Managerial Cost Accounting Standards and Concepts and SFFAS No. 30, Inter-Entity Cost Implementation, requires Federal agencies to recognize the costs of goods and services received from other Federal entities that are not fully reimbursed, if material. The EPA estimates imputed costs for inter-entity transactions that are not at full cost and records imputed costs and financing for these unreimbursed costs subject to materiality. The EPA applies its Headquarters General and Administrative indirect cost rate to expenses incurred for intcr-cntity transactions for which other Federal agencies did not include indirect costs to estimate the amount of unreimbursed (i.e., imputed) costs. For FY 2023 total imputed costs were $37 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 2023, entries for Judgment Fund payments totaled $9 million. For FY 2022, entries for 40. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Judgment Fund payments totaled $98 million. Note 24. Federal Employee and Veteran Benefits Payable Payroll and benefits payable to the EPA employees for the fiscal years ending September 30, 2023 and 2022, consist of the following: Covered by Not Covered Budgetary by Budgetary Resources Resources Total FY 2023 Payroll and Benefits Payable Employer Contributions Payable - Thrift Savings Plan $ 1,003 $ $ 1,003 Actuarial FECA Liability - 44,349 44,349 Accrued Unfunded Annual Leave - 184.396 184.396 Total - Current $ 1.003 $ 228.745 $ 229.748 Covered by Not Covered Budgetary by Budgetary Resources Resources Total FY 2022 Payroll and Benefits Payable Employer Contributions Payable - Thrift Savings Plan $ 2,813 $ $ 2,813 Actuarial FECA Liability - 45,758 45,758 Accrued Unfunded Annual Leave - 175.214 175.214 Total - Current $ 2.813 S 220.972 $ 223.785 FECA (Federal Employees' Compensation Act) 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 allocates 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 2023 present value of these estimated outflows is calculated using a discount rate of 2.326 percent in the first year for wage benefits and 2.112 percent in the first year for medical benefits, and 2.326 percent in the years thereafter for wage benefits and 2.112 percent in the years thereafter for medical benefits. The estimated future costs are recorded as an unfunded liability. See Note 1 paragraph P for additional information. 41. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 25. Non-Exchange Revenue, Statement of Changes in Net Position Non-Exchange Revenue on the Statement of Changes in Net Position for the fiscal years ended September 30, 2023 and 2022: 2023 2022 Interest on Trust Fund Tax Revenue, Net of Refunds Fines and Penalties Revenue Special Receipt Fund Revenue Total Nonexchange Revenue Funds from Dedicated Collections $ 437,679 1,410,243 1,043 31.830 S 1.880.795 All Other Funds Funds from Dedicated Collections $ 66,012 658,050 1,587 26.986 $ 752.635 All Other Funds 42. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 26. Reconciliation of Net Cost of Operations to Net Outlays For the Fiscal Year Ended September 30, 2023: Other Than Intra- Intra- governmental governmental Total 2023 NET COST $ 2,194,312 $ 9,772,579 $ 11,966,891 Components of Net Cost That Are Not Part of Net Outlays: Property, Plant and Equipment Depreeiation - (44,010) (44.010) Inventory Depletion Expense - (260) (260) Property, Plant and Equipment Disposal & Revaluation - (1,244) (1,244) Applied Overhead/Cost Capitalization Offset - (57,677) (57,677) Increase^Decrease) in Assets: Aeeounts Receivable 1,939 (27,803) (25,864) Eoans Reeeivable (600) 1,579,973 1,579,373 Investments 95,214 - 95,214 Other Assets 1,307,749 1,066 1,308,815 (Increase)/Decrease in Liabilities: Aeeounts Payable and Aeerucd Liabilities (100,205) (53,320) (153,525) Loans Guarantee Liability (Non-FCRA)/Loans Payable (1,396,046) - (1,396,046) Environmental and Disposal Liabilities - (5,201) (5,201) Payroll and Benefits Payable - (5,962) (5,962) Other Liabilities 16,974 (35,834) (18,860) Other Financing Sources: Other Imputed Finaneing (241,657) - (241,657) Total Components of Net Cost That Are Not Part of Net Outlays 1.877.680 11.122.307 12.999.987 Components of Net Outlays That Are Not Part of Net Cost: Acquisition of Inventory 122 220 342 Acquisition of Investments - 1,766,289 1,766,289 Other - (452,123) (452,123) Other Financing Sources: Transfer Out (In) Without Reimbursement (20,033) - (20,033) Total Components of Budget Outlays That Are Not Part of Net Operating Cost (19.911) 1.314.386 1.294.475 Miscellaneous Items Distributed Offsetting Receipts (1,568,936) - (1,568,936) Custodial/Non-Exchange Revenue (181,970) 46,522 (135,448) Appropriated Receipts for Trust Fund/Special Funds - - - Other Temporary Timing Differences - (3,830) (3,830) NET OUTLAYS $ 106.863 $ 12.479.385 S 12.586.248 43. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) For the Fiscal Year Ended September 30, 2022: Other Than Intra- lntra- governmental governmental Total 2022 NET COST $ 1,840,316 $ 7,902,264 $ 9,742,580 Components of Net Cost That Are Not Part of Net Outlays: Property, Plant and Equipment Depreeiation - (43,097) (43,097) Property, Plant and Equipment Disposal & Revaluation - (952) (952) Applied Overhead/Cost Capitalization Offset - 109,348 109,348 Other - 32 32 Increase^Decrease) in Assets: Aeeounts Reeeivablc (1,941) (32,154) (34,095) Loans Receivable 1,432 947,601 949,033 Investments (44,891) - (44,891) Other Assets 15,839 3,238 19,077 (Increase)/Decrease in Liabilities: Aeeounts Payable and Accrued Liabilities 39,769 (9,498) 30,271 Loans Guarantee Liability (Non-FCRA)ZLoans Payable (810,341) - (810,341) Environmental and Disposal Liabilities - (6,433) (6,433) Payroll and Benefits Payable - 11,359 11,359 Other Liabilities (29,058) (73,967) (103,025) Other Financing Sources: Other Imputed Financing (268,943) - (268,943) Total Components of Net Cost That Are Not Part of Net Outlays 742.182 8.807.741 9.549.923 Components of Net Outlays That Are Not Part of Net Cost: Acquisition of Inventory - 309 309 Acquisition of Other Assets - 4,186,832 4,186,832 Other Financing Sources: Transfer Out (In) Without Reimbursement (17,397) - (17,397) Total Components of Budget Outlays That Are Not Part of Net Operating Cost (17.397^ 4.187.141 4.169.744 Miscellaneous Items Distributed Offsetting Receipts (5,038,820) - (5,038,820) Custodial/Non-Exchange Revenue 45 306,387 306,432 Appropriated Receipts for Trust Fund/Special Funds - 23,554 23.554 Other Temporary Timing Differences - 268,566 268,566 NET OUTLAYS $ (4.313.990) S 13.593.389 S 9.279.399 44. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (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. 45. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 27. Amounts Held by Treasury Amounts held by Treasury for future appropriations eonsist of amounts held in trusteeship by Treasury in the Superfund and LUST Trust Funds. A. Superfund Superfund is supported by general revenues, eost recoveries of funds spent to elean up hazardous waste sites, interest ineome, and fines and penalties. The following reflects the Superfund Trust Fund maintained by Treasury as of September 30, 2023 and 2022. The amounts contained in these notes have been provided by Treasury. As indicated, a portion of the outlays represent amounts received by the EPA's Superfund Trust Fund; such funds are eliminated on consolidation with the Superfund Trust Fund maintained by Treasury. In FY 2023, the EPA received an appropriation of $1 billion for Superfund. Treasury's Bureau of the Fiscal Service (BFS), the manager of the Superfund Trust Fund assets, records a liability to the EPA for the amount of the appropriation. BFS does this to indicate those trust fund assets that have been assigned for use and therefore are not available for appropriation. As of September 30,2023 and 2022, the Treasury Trust Fund has a liability to the EPA for previously appropriated funds and special accounts of $9 billion and $9 billion, respectively. SUPERFUND FY 2023 EPA Treasury Combined Undistributed Balances Uninvested Fund Balance $ - $ fl88.663) $ (188.663) Total Undistributed Balance - (188,663) (188,663) Interest Receivable - 9,182 9,182 Investments, Net 8.731.253 2.033.101 10.764.354 Total - Assets $ 8.731.253 S 1.853.620 S 10.584.873 Liabilities and Equity Equity $ 8.731.253 $ 1.853.620 $ 10.584.873 Total Liabilities and Equity $ 8,731.253 $ 1,853.620 $ 10.584.873 Receipts Corporate Environmental $ - $ 1,204.868 $ 1,204,868 Cost Recoveries - 238,365 238,365 Fines and Penalties - 703 703 Total Revenue - 1,443,936 1,443,936 Appropriations Received - 1,217,809 1,217,809 Interest Income - 387.576 387.576 Total Receipts $ - s 3.049.321 s 3.049.321 Outlays Transfers to/from EPA, Net $ 1.723.271 $ C1.723.27n $ - Total Outlays $ 1.723.271 $ f 1.723.271) s - Net Income S 1,723,271 s 1,326,050 $ 3.049.321 46. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) SUPERFUND FY 2022 EPA Treasury Combined Undistributed Balances Uninvested Fund Balance $ - $ 103.683 $ 103.683 Total Undistributed Balanee - 103,683 103,683 Interest Reeeivable - 4,694 4.694 Investments, Net 8.655.640 419.190 9.074.830 Total - Assets S 8,655,640 $ 527j567 $ 9.183,207 Liabilities and Equity Equity $ 8.655.640 $ 527.567 $ 9.183.207 Total Liabilities and Equity s 8.655.640 $ 527.567 S 9.183.207 Receipts Corporate Environmental $ - $ 413,002 $ 413,002 Cost Recoveries - 303,954 303,954 Fines and Penalties - 3.000 3.000 Total Revenue - 719,956 719,956 Appropriations Received - 4,675,799 4,675,799 Interest Income - 56.135 56.135 Total Receipts s - $ 5.451.890 $ 5.451.890 Outlays Transfers to/from EPA. Net $ 5.076.897 $ (5.076.8971 $ - Total Outlays $ 5.076.897 $ (5.076.897) $ - Net Income s 5.076.897 $ 374.993 $ 5.451.890 47. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) B. LUST LUST is supported primarily by a sales tax on motor fuels to elean up LUST waste sites. In FY 2023 and 2022, there were no fund reeeipts from eost reeoveries. The amounts eontained in these notes are provided by Treasury. Outlays represent appropriations received by the LPA's LUST Trust Fund; such funds are eliminated on consolidation with the LUST Trust Fund maintained by Treasury. LUST FY 2023 EPA Treasury Combined Undistributed Balances Uninvested Fund Balance $ - $ 6.010 $ 6.010 Total Undistributed Balance - 6,010 6.010 Interest Receivable - 1,364 1,364 Investments, Net 91.439 1.292,945 1.384.384 Total - Assets S 91.439 S 1.300.319 $ 1.391.758 Liabilities and Equity Equity $ 91.439 $ 1.300.319 $ 1.391.758 Total Liabilities and Equity $ 91.439 $ 1.300.319 S 1.391.758 Receipts Highway TF Tax $ - $ 192,656 $ 192,656 Airport TF Tax - 11,800 11,800 Inland TF Tax - 919 919 Total Revenue - 205,375 205,375 Interest Income - 48.792 48.792 Total Receipts $ - s 254.167 s 254.167 Outlays Transfers to/from EPA, Net $ 94.205 $ (94.205} $ - Total Outlays $ 94.205 $ (94.205) s - Net Income $ 94.205 s 159.962 s 254.167 48. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) LUST FY 2022 EPA Treasury Combined Undistributed Balances Uninvested Fund Balance $ - $ 13.817 $ 13.817 Total Undistributed Balanee - 13,817 13,817 Interest Receivable - 116 116 Investments, Net 92.714 1.125.426 1.218.140 Total - Assets S 92.714 $ 1.139.359 $ 1.232.073 Liabilities and Equity Equity $ 92.714 $ 1.139.359 $ 1.232.073 Total Liabilities and Equity $ 92.714 $ 1.139.359 $ 1.232.073 Receipts Highway TF Tax $ - $ 234.170 $ 234,170 Airport TF Tax - 7,607 7,607 Inland TF Tax - 3.270 3.270 Total Revenue - 245,047 245.047 Interest Ineome - 9.716 9.716 Total Receipts $ - $ 254.763 $ 254.763 Outlays Transfers to/from EPA. Net $ 92.293 $ (92.293) $ - Total Outlays $ 92.293 $ (92.293) s - Net Income s 92.293 $ 162.470 $ 254.763 49. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 28. 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 million to support Environmental Program Management, Science and Technology, Building and Facilities, and Superfund program efforts related to the virus. As of September 30, 2023, there have been no new obligations. On March 11, 2021, President Joe Bidcn 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. Additional COVID-19 activities are discussed in Section I, Management's Discussion and Analysis, Financial Analysis and Stewardship Information. COVID-19 Activity 2023 2022 Budgetary Resources: Unobligated (and unexpired) Balance Carried Forward from PY Budgetary Resources Obligated (-) Budgetary Resources: Ending Unobligated (and unexpired) Balance to be Carried Forward Outlays, Net (Total) S 33,129 $ 86,206 (26.653) (67.019) 6.476 19.187 $ (85.199) S (69.706) Note 29. Reclassified Financial Statement for Government-wide Reporting To prepare the Financial Report of the U.S. Government (Financial Report), 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 Government-wide Treasury Account Symbol Adjusted Trial Balance System (GTAS) to develop a Reclassified Statement of Net Cost. Treasury eliminates intra govern mental balances from the reclassified statements and aggregates lines with the same title to develop the Financial Report statements. This note shows the agency's financial statements and reclassified statements prior to elimination of intragovernmental balances and prior to aggregation of repeated Financial Report line items. A copy of the 2022 Financial Report can be found here: Bureau of the Fiscal Service - Reports, Statements & Publications (treasury.gov) and a copy of the 2023 Financial Report 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 "other than Inlragovernmcntal" 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. 50. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Reclassification of Statement of Net Cost to Line Items Used for the Government-wide Statement of Net Cost For the Year Ended September 30, 21123 FY 2023 EPA SNC Line Items lised to Prepare the FY 2(123 Government-wide SNC Financial Statement Line Amounts Dedicated Collections Combined Dedicated Collections Eliminations Other than Dedicated Collections (with Eliminations) Eliminations Between Dedicated & Other than Dedicated Total Reclassified Statement Line Gross Costs S 12,487,285 Other Than Intragovernmental Costs 1,404.475 9,091.122 10.495,597 Other Than Intragovernmental Gross Costs 1,404,475 9,091,122 10,495,597 Total Other Than Intragovernmental Costs Intraeo vernmental Costs - 99.612 - 395,4 1 0 - 495,022 Benefits Program Cos(s - 2,835 - 202,164 - 204.999 Imputed Costs - 379,347 - 759,5 8 5 - 1,138,932 Buy/Sell Costs . - - 122 - 122 Purchase of Assets 92,344 92,344 Borrowing and Other ln(erest Expense 9,181 9,181 Other Expenses (w/o Reciprocals) 481,794 1,458,806 1,940,600 Total Intragovernmental Costs Total Gross Costs S 12.487.285 S 1.886.269 $ S 10.549.928 S S 12.436.197 Total Reclassified Gross Costs Earned Revenue S 520,394 S (317,119) S 238,365 S 458,170 s S 379,416 Other Than Intragovernmental Earned Revenue Intragovernmental Revenue - (20,270) - 114,948 - 94,678 Buy/Sell Revenue - - - 122 - 122 Purchase of Assets Offset (20,270) 115,070 94,800 Total Intragovernmental Earned Revenue Total Earned Revenue S 520,394 S (337,389) S 238,365 S 573,240 s S 474,216 Total Reclassified Earned Revenue NET COST S 11.966,891 $ 2.223.658 $ (238.365) S 9,976.688 $ $ 11,961.981 NET COST 51. ------- United States Environmental Protection Agency Notes to the Financial Statements For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Note 30. Restatements FY 2022 has been restated. The WIFIA Loan Financing Account was previously reported as a dedicated collections fund but is specifically excluded from such per Statement of Federal Financial Accounting Standards (SFFAS) 27, Identifying and Reporting Funds from Dedicated Collections, and SFFAS 43, Dedicated Collections: Amending SFFAS 27, Identifying and Reporting Earmarked Funds. The restatement resulted in a $8,206 increase to the Funds from Dedicated Collections net position and a $8,206 decrease to the Funds Other than those from Dedicated Collections net position. There was no impact to total net position. The change impacts the FY 2022 Balance Sheet and Statements of Changes in Net Position - Cumulative Results of Operations between Funds from Dedicated Collections and Funds from Other Than Dedicated Collections. The Consolidated Totals on the Statement of Changes in Net Position remains unchanged. Footnote 17 Funds from Dedicated Collections was updated for this change. For the Year Ended September 30, 2022 Balance Sheet: Cumulative Results of Operations - Funds from Dedicated Collections Cumulative Results of Operations - Funds from Other than Dedicated Collections Total Cumulative Results of Operations (Consolidated) Total Net Position Previously Restated Reported Restatement Amount $ 7,717,484 $ 281,672 7,999,156 $ 70,617,863 $ 26,639 $ 7,744,123 (26,639) 255,033 7,999,156 $ 70,617,863 Statement of Changes in Net Position: Funds from Dedicated Collections: Cumulative Results of Operations Beginning Balance T ransfers-ln/(Out) Other Net Cost of Operations Total Cumulative Results of Operations $ 3,551,640 $ 4,584,789 48,268 (1,246,544) $ 7,717,484 $ 8,206 48,268 (47,268) 18,433 26,639 3,559,846 4,633,057 1.000 (1,228,1 11) 7,744,123 Funds from Other Than Dedicated Collections: Cumulative Results of Operations Beginning Balance Other Adj ustments Other Net Cost of Operations Total Cumulative Results of Operations $ 381,028 $ (48,268) (8,496,036) $ 281,672 $ (8,206) (769) 769 (18,433) (26,639) 372,822 (769) (47,499) (8,514,469) 255,033 Consolidated Totals: Cumulative Results of Operations Beginning Balance Other Adj ustments T ransfcrs-In/(Out) Other Net Cost of Operations Total Cumulative Results of Operations $ 3,932,668 $ (25,921) (9,742,580) $ 7,999,156 S (769) 48,268 (47,499) 3,932,668 (769) 22,347 (47,499) (9,742,580) 7,999,156 52. ------- Required Supplementary Information (Unaudited) United States Environmental Protection Agency For the Fiscal Years Ending September 30, 2023 and 2022 (Dollars in Thousands) Deferred Maintenance Deferred maintenance is maintenanee that was not performed when it should have been, that was seheduled and not performed, or that was delayed for a future period. Maintenanee is the aet of keeping property, plant, and equipment (PP&E) in aeeeptable operating condition and includes preventive maintenanee, 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 September 30, 2023 and 2022: 2023 2022 Asset Category Buildings $ 128,180 $ 142,324 EPA Held Equipment 1.700 - Total Deferred Maintenance $ 129.880 $ 142.324 53. ------- Required Supplementary Information (Unaudited) Cont. In Fiscal Year 2023, 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 policies are 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. 54. ------- Required Supplementary Information (Unaudited) Cont. 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. 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. 55. ------- Required Supplementary Information (Unaudited) Cont. 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 lor 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. Land: Estimated Acreage by Predominant Use Below details the predominant use of Land in Property, Plant and Equipment on the balance sheet by acreage. Commercial Conservation and Preservation End of FY 2022/Start of FY 2023 End of FY 2023 Operational 576 576 Total Estimated Acreage 576 576 All of EPA's land is for the Agency's operational facilities. The rights to this land are permanent and fully devoted to support the operational facilities contained therein. 56. ------- Supplemental Combining Statement of Budgetary Resources (Unaudited) United States Environmental Protection Agency For the Fiscal Years Ending September 30, 2023 (Dollars in Thousands) Leaking Environmental Underground Programs & Management Storage Tanks Seienee & State Tribal Assistance BUDGETARY RESOURCES Unobligated Balance From Prior Year Budget Authority, Net Appropriations (discretionary and mandatory) Borrowing Authority (discretionary and mandatory) Spending Authority From Offsetting Collection Total Budgetary Resources STATUS OF BUDGETARY RESOURCES New Obligations and Upward Adjustments (total) Unobligated Balance, End of Year Apportioned, Unexpired Accounts Unapponioned, Unexpired Accounts Expired Unobligated Balance, End of Year Unobligated Balance, End of Year (total): Total Status of Budgetary Resources OUTLAYS, NET Outlays, Net (total) (discretionary and mandatory) Distributed Offsetting Receipts (-) Agency Outlays, Net (discretionary and mandatory) Disbursements, Net (total) (mandatory) Other Totals s 3,867,261 S 20,819 S 177,825 S 6,372,484 S 8,088,109 $38,755,868 S 57,282,3 66 413,866 95,480 - 1,678,568 16,933,949 5,881,408 25,003,271 - - - - - 2,884,452 2.884,452 53,042 (1.275) (562) 14,948 - 947.183 1.013.336 s 4,334,169 S 115,024 s 177,263 S 8,066.000 S25.022.05 8 S48.468.911 S 86.183,425 s 704,843 s 96,290 s 160,444 S 2,799,778 S12,563,307 S 10,586,418 S 26,911,080 3,542,300 18,734 2,346 5,264,962 12,458,751 37,879,869 59,166,962 - - - 600 - - 600 87.026 . 14.473 660 . 2.624 104.783 3.629.326 18.734 16.819 5.266.222 12.458.751 37.882.493 59.272.345 s 4,334,169 s 115,024 s 177.263 S 8,066.000 525,022,058 S48.468.911 S 86,183.425 s 952,590 s 91,236 s 249,827 s 1,632,740 S 5,755,567 S 5,473,224 S 14,155,184 . (1.000) . (1.456.174) . (111.762) (1.568.936) s 952,590 s 90,236 s 249.827 s 176.566 S 5,755.567 S 5,361,462 S 12.586.248 S 1.379.374 S 1.379.374 57. ------- Appendix 2 Agency Response to Draft Report THE CHIEF FINANCIAL OFFICER WASHINGTON, D.C. 20460 November 14, 2023 MEMORANDUM SUBJECT: Response to the Office of Inspector General Draft Report, Project No. OA-FY23-0078, "Audit of the EPA's Fiscal Years 2023 and 2022 (Restated) Consolidated Financial Statements," dated November 13, 2023 FROM: Faisal Amin, Chief Financial Officer Office of the Chief Financial Officer Oignally sgred tiy Amn. Amin, Faisal ^2lS5 TO: Damon Jackson, 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. This response has been coordinated with Region 5. AGENCY*S OVERALL POSITION The draft report contains six recommendations for the Office of the Chief Financial Officer and one recommendation for the Director of the Great Lakes National Program Office, located in Region 5. The EPA agrees with the Office of Inspector General's recommendations. 24-F-0009 82 ------- AGENCY RESPONSE TO DRAFT REPORT RECOMMENDATIONS Recommendation Office High-Level Intended Corrective Action(s) Planned Date 1. Instruct the regions to perform an analysis of financially closed Superfund State Contracts to reclassify appropriated and reimbursable disbursements and financially close lines on the accrual. OCFO Concur. In addition to the Corrective Action listed for Recommendation 2, the OCFO's Cincinnati Finance Center will instruct the Regions to perform a thorough review of their respective financially closed sites for accuracy. We will request a written response once completed. 06/30/24 2. Instruct the regions to provide current Superfund State Contract information quarterly to the Cincinnati Finance Center. OCFO Concur. Starting with the first fiscal quarter of 2024, the OCFO's Cincinnati Finance Center will begin including not only the Program Contacts but also their management, Regional Comptrollers, and Mission Support Division Directors in guidance communications. OCFO's CFC will reinforce the importance of fully reviewing and updating regional data provided for the accuracy of the accrual and impact on the financial statements. 01/15/24 3. Review the Great Lakes Legacy Act accrual project information prior to its submission to the Cincinnati Finance Center to ensure its accuracy. R5/ GLNPO Concur. The Great Lakes National Program Office has already reviewed the Great Lakes Legacy Act accrual project information and fixed the errors identified in the OIG Point Sheet No. 6^ Completed 10/18/23 4. Develop a plan to improve the Office of the Chief Financial Officer processes for headquarters program offices and regional offices to deobligate unneeded funds in a timely manner by the end of the fiscal year, as required. OCFO Concur. The Office of the Controller's Policy, Training and Accountability Division will develop a plan to strengthen the unliquidated obligation reviews for the deobligations processes. This plan will enhance the current policies associated with the unliquidated obligation review and the subsequent deobligations of any unneeded funding. 7/1/24 24-F-0009 83 ------- Recommendation Office High-Level Intended Corrective Action(s) Planned Date 5. Develop and implement a plan with milestones to ensure that future Interconnection Security Agreement and Memorandum of Agreement documents for each external connection with Office of the Chief Financial Officer systems are reauthorized before the current agreements expire. OCFO Concur. The OCFO's Office of Technology Solutions will develop and implement a strategy with milestones to ensure that future Interconnection Security Agreement and Memorandum of Agreement documents for each external connection with OCFO systems are reauthorized before the current agreements expire. 6/30/24 6. In consultation with the Office of Mission Support's chief information officer, determine how the Office of the Chief Financial Officer will conduct reviews of active Invoice Processing Platform user accounts to comply with Chief Information Officer Directive No. CIO 2150-P- 01.3, Information Security - Access Control Procedure. OCFO Concur. The OCFO's Office of Technology Solutions will, in consultation with the Office of Mission Support's Chief Information Officer, determine how it will conduct reviews of active Invoice Processing Platform user accounts to comply with the Chief Information Officer Directive No: CIO 2150-P-01.3, Information Security - Access Control Procedure. 6/30/24 7. Develop and implement a strategy to ensure that future reviews of active Invoice Processing Platform user accounts comply with Chief Information Officer Directive No. CIO 2150-P-01.3, Information Security - Access Control Procedure. OCFO Concur. The OCFO's Office of Technology Solutions will develop and implement a strategy to ensure that future reviews of active Invoice Processing Platform user accounts comply with the Chief Information Officer Directive No: CIO 2150- P-01.3, Information Security - Access Control Procedure. 6/30/24 CONTACT INFORMATION If you have any questions regarding this response, please contact the OCFO's Audit Follow-up Coordinator, Andrew LeBlanc, at leblanc.andrewffiepa.gov or (202) 564-1761. cc: Debra Shore Cheryl Newton 24-F-0009 84 ------- Gregg Treml Lek Kadeli Meshell Jones-Peeler Michael Clanton Angel Robinson Adil Gulamali Derek David Wyatt Boyd Teresa Seidel OCFO-OC-MANAGERS Wanda Arrington Demetrios Papakonstantinou Shannon Lackey Mairim Lopez Sheila May Andrew Sheeran Gabrielle Hanson Mara Notbusch Nina Johnson Bob Shields Alana Maye Susan Perkins Andrew LeBlanc Jose Kercado 24-F-0009 85 ------- Appendix 3 Distribution The Administrator Deputy Administrator Chief of Staff, Office of the Administrator Deputy Chief of Staff for Management, Office of the Administrator Chief Financial Officer Regional Administrator for Region 5 Agency Follow-Up Coordinator General Counsel Associate Administrator for Congressional and Intergovernmental Relations Associate Administrator for Public Affairs Deputy Chief Financial Officer Associate Chief Financial Officer Deputy Regional Administrator for Region 5 Controller Deputy Controller Associate Deputy Controller Director, Office of Continuous Improvement, Office of the Chief Financial Officer Director, Great Lakes National Program Office, Region 5 Director, Office of Regional Operations 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 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 Office of Policy OIG Liaison Office of Policy GAO Liaison 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 Technology Solutions, Office of the Chief Financial Officer Audit Follow-Up Coordinator, Region 5 24-F-0009 86 ------- Whistleblower Protection U.S. Environmental Protection Agency The whistleblower protection coordinator's role is to educate Agency employees about prohibitions against retaliation for protected disclosures and the rights and remedies against retaliation. For more information, please visit the OIG's whistleblower protection webpage. Contact us: Congressional Inquiries: OIG.CoiwessionalAffairs(53epa.gov Media Inquiries: OIG,PublicAffairs@epa.gov line EPA OIG Hotline: OIG.Hotline@epa.gov -§rg- Web: epaoig.gov Follow us: X (formerly Twitter): (5)epaoig Linkedln: linkedin.com/company/epa-oig you I uDe: youtupe.com/epaoig [0] Instagram: {5)epa.ig.on.ig ------- |