U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

EPA Needs to Continue 

to Improve Controls for 

Improper Payment 

Identification 

Report No. 14-P-0171 April 10, 2014 

Scan this mobile 

code to learn more 

about the EPA OIG. 
 

Report Contributors: Heriberto Ibarra

 Janet Kasper 

 Doug LaTessa 

 Patrick McIntyre

 Mary Anne Strasser 

Abbreviations 

AFR Agency Financial Report 

CDW Compass Database Warehouse 

CWSRF Clean Water State Revolving Fund 

CY Calendar year 

DWSRF Drinking Water State Revolving Fund 

EPA U.S. Environmental Protection Agency 

FY Fiscal year 

IPERA Improper Payments Elimination and Recovery Act of 2010 

IPERIA Improper Payments Elimination and Recovery Improvement Act of 2012 

OCFO Office of the Chief Financial Officer 

OIG Office of Inspector General 

OMB Office of Management and Budget 

PER Program evaluation report 

SOP Standard operating procedure 

SRF State Revolving Fund 

Hotline Suggestions for Audits or Evaluations 

To report fraud, waste or abuse, contact us To make suggestions for audits or evaluations, 

through one of the following methods: contact us through one of the following methods: 

email: OIG_Hotline@epa.gov email: OIG_WEBCOMMENTS@epa.gov 

phone: 1-888-546-8740 phone: 1-202-566-2391 

fax: 1-202-566-2599 fax: 1-202-566-2599 

online: http://www.epa.gov/oig/hotline.htm online: http://www.epa.gov/oig/contact.html#Full_Info 

write:	 EPA Inspector General Hotline write: EPA Inspector General 

1200 Pennsylvania Avenue, NW 1200 Pennsylvania Avenue, NW 

Mailcode 2431T Mailcode 2410T 

Washington, DC 20460
 Washington, DC 20460 
 

U.S. Environmental Protection Agency 14-P-0171 

April 10, 2014 Office of Inspector General 

At a Glance
 

Why We Did This Review 

The Improper Payments 

Elimination and Recovery Act 

of 2010 (IPERA), as modified 

by the Improper Payments 

Elimination and Recovery 

Improvement Act of 2012 

(IPERIA), requires that each 

fiscal year the Inspector 

General of each agency 

determine whether the agency 

is in compliance with the law. 

In addition, the Office of 

Management and Budget 

(OMB) requires that Inspectors 

General evaluate the accuracy 

and completeness of agency 

reporting and the agency’s 

performance in reducing and 

recapturing improper 

payments. 

Our audit focused on the 

U.S. Environmental Protection 

Agency’s (EPA’s) compliance 

with IPERA because OMB’s 

draft implementation guidance 

states IPERIA requirements are 

not effective until fiscal year 

2014. 

This report addresses the 

following EPA theme: 

 Embracing EPA as a high 

performing organization. 

For further information, 

contact our public affairs office 

at (202) 566-2391. 

The full report is at: 

www.epa.gov/oig/reports/2014/ 

20140410-14-P-0171.pdf 

EPA Needs to Continue to Improve Controls 

for Improper Payment Identification 

What We Found 

The EPA was compliant with IPERA for the fiscal EPA’s fiscal year 2013 year 2013 reporting of improper payments. Agency Financial Report 

However, EPA regional offices were not reported inaccurate 

following State Revolving Fund (SRF) standard information for the SRF and 

operating procedures nor completing all required grant payment streams. 

fields of the transaction testing worksheet. We 

found several errors and inconsistencies in the EPA’s process for collecting data 

on improper payments. These errors and inconsistencies raise concerns 

regarding the accuracy of improper payments reported. 

The EPA also did not accurately report its recovery of SRF improper payments in 

the Agency Financial Report. No formal mechanism exists to track improper 

payment recovery through transaction testing for the Office of Water. During the 

audit, the EPA verified that $722,831 of overpayments was repaid by states 

between March and July 2013. Thus, the EPA was not accurately reporting the 

recovery of improper payments. 

The EPA understated the improper payments for grants in the fiscal year 2013 

Agency Financial Report by $16,086 because the accounts receivable and 

disallowed costs were not reconciled prior to reporting improper payments. 

 Recommendations and Planned Corrective Actions 

We recommend that the Assistant Administrator for Water coordinate with 

regions to address where differences occurred between improper payment 

testing and improper payments reported in the Agency Financial Report. In 

addition, we recommend providing regional staff with the current transaction 

testing worksheet and directions for completing the worksheet and require 

regional staff to review a sample of large negative draws to identify improper 

payments. We further recommend that a system be established for tracking the 

recovery of improper payments, and that disallowed costs in the compliance 

database be reconciled with accounts receivable in the financial system. The 

agency concurred with all of the recommendations and provided corrective 

actions and estimated completion dates.

 Noteworthy Achievements 

The EPA took substantial corrective actions during fiscal year 2013 to bring the 

agency back into compliance with IPERA. The EPA improved its testing of the 

SRF program by conducting statistical sampling of transactions, which resulted in 

a more accurate improper payment rate. 
 

SUBJECT: EPA Needs to Continue to Improve Controls for Improper Payment Identification 

 Report No. 14-P-0171 

FROM: Arthur A. Elkins Jr. 

Maryann Froehlich, Acting Chief Financial Officer 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

THE INSPECTOR GENERAL 

April 10, 2014 

MEMORANDUM 

TO: 

Nancy Stoner, Acting Assistant Administrator 

Office of Water 

Craig E. Hooks, Assistant Administrator 

Office of Administration and Resources Management 

This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the 

U.S. Environmental Protection Agency. This report contains findings that describe the problems the OIG 

has identified and corrective actions the OIG recommends. 

The offices responsible for implementing the audit recommendations include the Office of Water’s 

Office of Ground Water and Drinking Water and Office of Wastewater Management; the Office of 

Administration and Resources Management’s Office of Grants and Debarment; and the Office of the 

Chief Financial Officer’s Office of Financial Management and Las Vegas Finance Center. 

Action Required 

In responding to the draft report, the agency provided a corrective action plan for addressing the 

recommendations with milestone dates. Therefore, a response to the final report is not required. The 

agency should track corrective actions not implemented in the Management Audit Tracking System. 

This report will be available at http://www.epa.gov/oig. 

If you or your staff have any questions regarding this report, please contact Kevin Christensen, acting 

Assistant Inspector General for Audit, at (202) 566-1007 or christensen.kevin@epa.gov; or Janet Kasper, 

Director, Contracts and Assistance Agreements Audits, at (312) 886-3059 or kasper.janet@epa.gov. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Needs to Continue to Improve Controls 14-P-0171 

for Improper Payment Identification 

Table of Contents 

Chapters 

1 Introduction ........................................................................................................ 1

 Purpose ....................................................................................................... 1 

Background ................................................................................................. 1 

 Responsible Offices ................................................................................... 2 

 Noteworthy Achievements ........................................................................... 2 

 Scope and Methodology .............................................................................. 2 

2 Improved Controls Needed to Identify and Report 

SRF Improper Payments.................................................................................... 5
 

Guidance for Identifying and Reporting Improper Payments ......................... 5 

Errors and Inconsistencies Noted in Process for Collecting Data ............... 6
 

Regional Offices Need to Follow EPA Guidance......................................... 8 

Recommendations ...................................................................................... 8
 

Agency Comments and OIG Evaluation ...................................................... 9 

3 EPA Needs to Track Recovery of SRF Improper Payments........................... 10 

EPA Policy Requires Receivables to Be Recorded in Financial Systems ... 10 

EPA Did Not Accurately Report Recovery of Overpayments ...................... 10 

 Recommendation ........................................................................................ 11 

Agency Comments and OIG Evaluation ...................................................... 11 

4 EPA Needs to Reconcile Grant Reporting Systems 

Prior to Issuing AFR .......................................................................................... 12 

Guidance for Grant Improper Payment Reporting ....................................... 12 

EPA Did Not Reconcile Its Databases Prior to Issuance of AFR ................ 13 

Improved Process Needed in Compiling Improper Payments ..................... 14 

Recommendation ........................................................................................ 14 

Agency Comments and OIG Evaluation ...................................................... 14
 

Status of Recommendations and Potential Monetary Benefits.............................. 15
 

Appendices 

A Agency Response to Draft Report 16 

B Distribution 19
 
 

 

 

Chapter 1

Introduction 

Purpose 

The objective of the audit was to evaluate the U.S. Environmental Protection 

Agency’s (EPA’s) compliance with the Improper Payments Elimination and 

Recovery Improvement Act of 2012 (IPERIA). However, we limited our 

assessment to the EPA’s compliance with the Improper Payments Elimination and 

Recovery Act of 2010 (IPERA). 

Background 

IPERA requires that each agency periodically review and identify all programs 

and activities that may be susceptible to significant improper payments.1 The act 

significantly increased requirements for payment recapture efforts by expanding 

the types of payments that must be reviewed and lowering the threshold of annual 

outlays that requires agencies to conduct payment recapture audit programs. 

Annually, Inspectors General should evaluate (1) the accuracy and 

completeness of agency reporting, and (2) agency performance in reducing and 

recapturing improper payments. Also, Inspectors General are required to 

determine whether agencies are in compliance with IPERA. Compliance means 

that the agency has met the following requirements: 

	 Published an Agency Financial Report (AFR) for the most recent fiscal 

year and posted it on the agency website. 

 Conducted a program-specific risk assessment (if required). 

 Published improper payment estimates for all programs and activities 

identified as susceptible to significant improper payments (if required). 

 Published programmatic corrective action plans (if required). 

 Published and met annual reduction targets for each program assessed to 

be at risk and measured for improper payments. 

	 Reported a gross improper payment rate of less than 10 percent for each 

program and activity for which an improper payment estimate was 

obtained and published in the AFR. 

1

 The Office of Management and Budget defines “significant” as gross annual improper payments in the program 

exceeding (1) both 2.5 percent of program outlays and $10 million of all program or activity payments made during 

the fiscal year reported, or (2) $100 million (regardless of the improper payment percentage of total program 

outlays). 

14-P-0171 1 
 

 

Responsible Offices 

The offices responsible for implementing the audit recommendations include: 

 The Office of Water’s Office of Ground Water and Drinking Water 

and Office of Wastewater Management. 

 The Office of Administration and Resources Management’s Office of 

Grants and Debarment. 

 The Office of the Chief Financial Officer’s (OCFO’s) Office of 

Financial Management and Las Vegas Finance Center. 

Noteworthy Achievements 

The EPA took substantial corrective actions during fiscal year (FY) 2013 to bring 

the agency back into compliance with IPERA. The EPA improved its testing of 

the State Revolving Fund (SRF) program by conducting statistical sampling of 

transactions, which resulted in a more accurate improper payment rate. 

Scope and Methodology 

We conducted this audit from December 2013 through February 2014 in 

accordance with generally accepted government auditing standards, issued by 

the Comptroller General of the United States. Those standards require that we 

plan and perform the audit to obtain sufficient, appropriate evidence to provide 

a reasonable basis for our findings and conclusions based on our audit objective. 

We believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objective. 

The objective of the audit was to evaluate the EPA’s compliance with the 

Improper Payments Elimination and Recovery Improvement Act of 2012 

(IPERIA). However, Office of Management and Budget’s (OMB) draft guidance 

on the implementation of IPERIA states that the requirements were not effective 

until FY 2014. Since EPA relied upon the guidance from OMB, it did not 

implement all the requirements of IPERIA in 2013. Therefore, we limited our 

assessment to EPA compliance with the Improper Payments Elimination and 

Recovery Act of 2010 (IPERA). We will evaluate the EPA’s implementation of 

IPERIA in 2014. 

To determine whether the EPA complied with IPERA, we reviewed the EPA’s 

FY 2013 AFR and accompanying materials. For each payment stream, we 

reviewed the internal control review workpapers from the Office of Inspector 

General (OIG) audit of the FY 2013 financial statements. We interviewed 

agency staff at the EPA headquarters from the OCFO, the Office of Grants and 

Debarment, and the Office of Water. We also interviewed OCFO staff from the 

Research Triangle Park and Las Vegas Finance Centers. 

14-P-0171 2 
 

 

 

 

We gained an understanding of the processes, procedures and controls used for 

IPERA reporting across the four payment streams—SRF, grants, commodities and 

contracts. We traced judgmental samples of reported improper payments from 

each payment stream back to source documentation to test the accuracy of 

improper payments reporting in the EPA’s FY 2013 AFR. 

	 For the SRF payment stream, we identified the universe of all draws with 

a negative value from October 1, 2011, to September 30, 2012, and 

judgmentally selected a sample of the six highest valued draws for review, 

worth a total of $32,723,118. This review was performed to look for 

transactions that the EPA did not report as improper payments. 

	 Also for the SRF payment stream, we traced judgmental samples of 

reported improper payments to source documentation to test the accuracy 

of improper payments reporting in the EPA’s FY 2013 AFR. For the 

Clean Water State Revolving Fund (CWSRF), we judgmentally selected 

the two states (Rhode Island and North Carolina) with the largest reported 

improper payment amounts, which resulted in testing 91.6 percent of the 

$1 million reported as CWSRF improper payments. We also judgmentally 

selected the two states (California and Texas) with the largest amounts of 

Drinking Water State Revolving Fund (DWSRF) improper payments 

reported, which resulted in our testing 95.2 percent of the $11.1 million of 

improper payments. 

	 We judgmentally selected six of 25 reported grant improper payments. 

We selected the largest improper payments amounts by category. The 

sample accounted for $193,406 of $365,463 of unallowed costs identified 

as improper payments, or 53 percent of the EPA’s reported grant improper 

payments for calendar year 2012. 

	 We selected all contract improper payments greater than $800 and verified 

that the sample group contained at least one sample from each of the 

detection sources. The resulting sample size was 14 payments totaling 

$404,090, representing 99.3 percent of contract improper payments. 

	 For commodities, we selected all improper payments greater than $1,000 

and verified that the sample group contained at least one sample from each 

detection source. The resulting sample size was 27 improper payments 

totaling $132,513, or 84.5 percent of the total reported improper payments 

for commodities. 

In addition to selecting a sample of transactions reported as improper payments, 

we also reviewed a judgmentally selected sample of program evaluation reports 

(PERs) and transaction testing worksheets provided by the EPA to confirm the 

accuracy and legitimacy of the improper payments. We also reviewed grant 

14-P-0171 3 
 

 

accounts receivable for receivables that were the result of improper payments 

and compared this information with the EPA’s FY 2013 AFR. 

We used information from several EPA data systems during our work, including 

the Integrated Grants Management System (compliance database), Contract 

Payment System, Small Purchase Information Tracking System, and Compass 

Data Warehouse. We verified the information in the systems to source 

documentation and concluded that the information provides a reasonable basis for 

our findings and conclusions. 

Prior Audit Coverage 

During the current audit, we followed up on agency corrective actions from the 

EPA OIG Report No. 13-P-0175, Corrective Action Plan Needed in Order to 

Fully Comply With the Improper Payments Elimination and Recovery Act, 

issued March 11, 2013. We found that all actions had been taken. 

Section 5 of IPERIA provides for the implementation of the do not pay initiative. 

In December 2012, The OIG completed its review of the EPA’s implementation 

of the do not pay requirements outlined in IPERIA. Our review did not identify 

any material weaknesses in EPA’s controls as they are being currently 

implemented. 

14-P-0171 4 
 

 

Chapter 2

Improved Controls Needed to Identify and 

Report SRF Improper Payments 

The EPA needs to improve controls for identifying and reporting improper 

payments for the SRF payment stream. An improper payment includes any 

payment that should not have been made or was made in an incorrect amount. 

We found that: 

 The improper payment data collection process contained several errors 

and inconsistencies. 

 Information reported in transaction testing worksheets did not always 

match improper payment information reported in the AFR. 

The EPA’s standard operating procedure (SOP) for SRF programs states that the 

EPA regional offices identify improper payments in the PER. The SOP also 

contains a transaction testing worksheet that regional offices are to complete 

when testing transactions. Regional offices were not following the EPA’s SOP 

nor completing all required fields of the transaction testing worksheet. Also, 

misunderstandings over what constituted an improper payment led to reporting 

errors. The errors and inconsistencies we identified raise concerns regarding the 

accuracy of the improper payments reported and the EPA’s controls to identify 

improper payments for the SRF payment streams. 

Guidance for Identifying and Reporting Improper Payments 

IPERA’s definition of an improper payment includes any payment that should not 

have been made or that was made in an incorrect amount under statutory, 

contractual, administrative or other legally applicable requirements. Incorrect 

amounts are overpayments or underpayments that are made to eligible recipients. 

OMB Memorandum M-11-16 further identifies an improper payment as any 

payment that was made to an ineligible recipient or for an ineligible good or 

service, or payments for goods or services not received. In addition, when an 

agency’s review is unable to discern whether a payment was proper as a result of 

insufficient or lack of documentation, this payment must also be considered an 

improper payment. 

The EPA’s SOP for SRF programs states that regions identify the improper 

payment in the PER. The PER should include the date, amount and grant number 

of all cash draws tested, the portion to be improper (and why), and the corrective 

action planned or taken. The SOP includes a transaction testing worksheet that 

regional offices should complete when testing transactions. 

14-P-0171 5 
 

 

Errors and Inconsistencies Noted in Process for Collecting Data 

We found several errors and inconsistencies in the EPA’s process for collecting 

data on improper payments in the SRF payment streams. For example, three of 

the four regional PERs reviewed where the EPA identified improper payments did 

not identify information required by the EPA’s SOP: 

	 The Texas DWSRF PER did not mention improper payments, although 

the EPA identified numerous improper payments via transaction testing. 

	 In North Carolina, the CWSRF PER stated that improper payments were 

identified, but did not report the value of improper payments nor identify 

the specific transactions that contained improper payments. 

	 In the Rhode Island CWSRF PER, neither the grant number nor the 

improper payment associated with each tested transaction was identified, 

although the total value of improper payments was identified. 

The EPA’s transaction testing worksheets—used by regional offices to document 

regional review of cash draws—were not being used, contained inconsistencies, and 

did not answer all questions. Regions also used different versions of the worksheets. 

Differences existed between what was identified in transaction testing worksheets 

and what the EPA reported as an improper payment in the AFR. For example: 

	 The CWSRF transaction testing worksheets for North Carolina did not 

identify an improper payment, although the EPA included a $217,000 

improper payment for North Carolina in its estimate of total improper 

payments for the CWSRF program. During our review, the EPA agreed 

this was not an improper payment. 

	 Improper payments reported in the EPA’s FY 2013 AFR for Texas 

differed from improper payments identified by Region 6 on transaction 

testing worksheets. The Office of Water identified additional improper 

payments after conducting a review of Region 6’s transaction testing for 

the DWSRF program. 

We identified over $30 million in improper payments by reviewing negative cash 

draws listed in Compass, as shown in OIG Table 1. These negative cash draws 

were refunds of a previous erroneous cash draw. The EPA did not report these 

amounts as improper payments. 

OIG Table 1: Improper payments discovered 

by reviewing negative cash draws
 

State Improper payment amount 

Florida $12,050,224 

Florida 12,050,224 

Florida 6,373,122 

Total $30,473,570 

Source: OIG analysis. 

14-P-0171 6 
 

 

 

 

 

We found two improper payment reporting errors: 

	 AFR Table 1 overstated improper payments due to the $217,000 error in 

North Carolina identified. This error represented 21 percent of total 

improper payments identified through statistical sampling for the CWSRF 

program, and therefore resulted in revisions to the error rate and improper 

payments reported in AFR Table 1. See OIG Table 2 for adjusted 

improper payment percentages. 

	 In ARF Table 1, the EPA reported the over- and underpayments for the 

DWSRF program based on the results of statistical sampling rather than 

the extrapolated overpayments and underpayments. 

OIG Table 2 below shows the values as reported in AFR Table 1 and the correct 

values. The numbers crossed out are the incorrectly reported numbers and the 

numbers below are the correct numbers. 

OIG Table 2: Revisions to AFR Table 1 

Program 

FY 2013 Improper 

Payment Percent 

FY 2013 Improper 

Payment Percent 

FY 2013 

overpayment 

FY 2013 

underpayment 

CWSRF .73% 

.68% 

$15.6 

$14.7 

$11.1 

$9.7 

$4.5 

$5.0 

DWSRF 4.06% 

No Change 

$55.2 

No Change 

$10.0 

$49.7 

$1.1 

$5.5 

Source: FY 2013 AFR and OIG analysis. 

In AFR Table 4, the EPA incorrectly reported the months outstanding for both 

CWSRF and DWSRF overpayments based on the cash draw date rather than 

when the overpayment was identified via transaction testing. OIG Table 3 below 

shows the corrected values for AFR Table 4. The numbers crossed out are the 

incorrectly reported numbers and the numbers below those crossed-out numbers 

are the correct numbers. 

OIG Table 3: Revisions to AFR Table 4 

Program 0-6 months 6 months – 1 year Over 1 year 

CWSRF $0 

$808,022 

$0 

$0 

$1,025,022 

$0 

DWSRF $0 $0 $4,898,804 

$65,955 $4,832,849 $0 

Source: FY 2013 AFR and OIG analysis. 

14-P-0171 7 
 

 

 

 

Regional Offices Need to Follow EPA Guidance 

Improper payments for the SRF programs were inaccurately reported for several 

reasons: 

	 EPA regions did not follow the EPA’s SOP regarding the reporting of 

improper payments in annual PERs, nor did they complete all required 

fields of the transaction testing worksheet. 

	 Differences of opinion between EPA regional and headquarters staff 

resulted in errors in the EPA’s reporting of improper payments. The Office 

of Water headquarters’ review of regional transaction testing worksheets 

resulted in identifying additional improper payments. 

	 Draws for a negative amount were not included in the transaction testing 

sample. The EPA selected transactions for sampling based on a statistical 

sample, and no negative draws were included in the sample. There was no 

requirement for regions to consider negative draws as an indicator of a 

previous overpayment. 

	 An oversight by EPA staff resulted in the errors made to the extrapolated 

overpayments and underpayments to AFR Table 1. For AFR Table 4, EPA 

staff calculated the months outstanding based on the cash draw date rather 

than the identification date of the overpayments. 

As a result of not following established controls in the process of identifying and 

reporting improper payments information, the SRF payment streams in the EPA’s 

AFR were misstated. 

Recommendations 

We recommend that the Assistant Administrator for Water: 

1.	 Coordinate with those regions where differences occurred between the 

identification of improper payments in the transaction testing worksheets 

and reporting in the AFR to address issues that created inconsistency for 

future reviews. 

2.	 Provide regional staff the current transaction testing worksheet and 

directions for completing the worksheet. 

3.	 Require regional staff to review a sample of large negative draws to 

identify improper payments. If those transactions are not selected via 

statistical sampling, ensure regional staff include the negative draws in the 

supplemental reviews. 

14-P-0171 8 
 

 

Agency Comments and OIG Evaluation 

The EPA agreed with the recommendations. In response to recommendation 1, 

the Office of Wastewater Management and the Office of Ground Water and 

Drinking Water will continue to work with the EPA regions to ensure improper 

payment reporting is accurate and well documented. In response to 

recommendation 2, the Office of Water provided the most current transaction 

testing worksheet to all regions on October 30, 2013. In response to 

recommendation 3, the Office of Ground Water and Drinking Water will 

investigate the five largest negative draws, which will be reported as improper 

payments if the negative draw is a correction of an improper payment. The Office 

of Ground Water and Drinking Water will also require regions to review at least 

the five largest draws, up to 10 percent of the universe of transactions in the 

future. The Office of Wastewater Management will require regions to review all 

negative draws and to report all improper payments for all state annual reviews 

remaining to be conducted this fiscal year. In future fiscal years, the Office of 

Wastewater Management will require regions to review all negative draws or, at a 

minimum, the largest five draws. The OIG believes the agency’s actions, and the 

implementation of future actions, should address the recommendations. 

14-P-0171 9 
 

 

 

Chapter 3

EPA Needs to Track Recovery of 

SRF Improper Payments 

The EPA did not accurately report SRF improper payment recovery in the 

FY 2013 AFR. The EPA identified one combined CWSRF and DWSRF 

outstanding amount in FY 2012 but did not identify how much of this amount was 

still to be recovered for each SRF program in the FY 2013 AFR. According to 

OCFO policy, all debts and accounts receivable must be recorded in the agency 

financial system upon receipt of the documents establishing the debt or accounts 

receivable. However, the SRF payment stream did not follow this policy and a 

formal mechanism to track the recovery of improper payments identified through 

transaction testing did not exist. During the audit, the EPA verified that $722,831 

of overpayments was repaid by states between March and July 2013. This amount 

should have been reported as recovered in the AFR. As a result, the EPA was not 

accurately reporting the recovery of improper payments. 

EPA Policy Requires Receivables to Be Recorded in Financial Systems 

OCFO Policy Number 2540-9-P1 states that all debt/accounts receivable must be 

recorded in the agency financial system upon receipt of the documents 

establishing the debt/accounts receivable. Upon accurate entry of the appropriate 

data, the financial system automatically generates the accounting transactions 

needed to initiate the debt/accounts receivable process. Subsidiary records must 

be maintained that include the basis for the debt/accounts receivable, all 

administrative actions regarding the debt/accounts receivable, and the final 

disposition. Changes in the status of debt/accounts receivable, including appeals 

and any decisions on appeals, must be recorded promptly in the financial system. 

EPA Did Not Accurately Report Recovery of Overpayments 

The EPA did not accurately record amounts recovered from improper payments in 

AFR Table 2. The EPA reported the following information (OIG Table 4) 

regarding recoveries of improper payments for the SRF payment streams. 

OIG Table 4: SRF-identified recoveries – FY 2012 

Amount identified Amount 

Program 

for recovery – 

current year 

recovered – 

current year 

CWSRF $1,025,022 $0 

DWSRF 10,032,644 5,133,840 

Source: FY 2013 AFR. 

14-P-0171 10 
 

 

 

The EPA reported no recoveries for the CWSRF program even though more than 

half of the funds had been recovered during FY 2013. When the EPA identifies an 

overpayment in the CWSRF program, it requests the recipient to adjust the 

amount of its next draw of federal funds by the amount of the overpayment. 

During the audit, the EPA verified that $722,831 of overpayments was repaid by 

states between March and July 2013. This amount should have been reported as 

recovered in the AFR. 

Improper payment recoveries for prior years were also not accurately recorded in 

AFR Table 2 for the SRF payment streams. In the column “Amounts Identified 

for Recovery (PYs),” the EPA indicated an “n/a” for both the CWSRF and 

DWSRF programs. The EPA reported the SRFs as one program in the FY 2012 

AFR as opposed to separate programs (CWSRF and DWSRF) in the FY 2013 

AFR. The FY 2012 AFR identified $3,525,136 as the combined amount 

outstanding. 

The EPA should have reported the amounts collected and the receivable amount 

in the FY 2013 AFR. However, the EPA did not have a formal mechanism to 

track the recovery of overpayments identified through transaction testing. 

While these are amounts owed to the EPA and meet the definition of accounts 

receivable, the EPA did not record grant offsets as accounts receivable. As a 

result, the EPA may not be ensuring that overpayments are offset by future cash 

draws. 

Recommendation 

We recommend that the Chief Financial Officer and the Assistant Administrator 

for Water: 

4. Establish a system for tracking the recovery of improper payments. 

Agency Comments and OIG Evaluation 

The EPA agreed with the recommendation. The Office of Water will revise the 

transaction testing SOPs to include a process for tracking the recovery of 

improper payments and maintain a tracking spreadsheet of all recoveries, 

including the origination of accounts receivable for excess funds not offset or 

returned to the EPA. The revised SOP will be distributed to the region in 

July 2014. The OIG believes the agency’s actions, when implemented, should 

address the recommendation. 

14-P-0171 11 
 

 

 

 

Chapter 4

EPA Needs to Reconcile Grant Reporting Systems 

Prior to Issuing AFR 

The EPA understated the grants payment stream improper payments in the 

FY 2013 AFR. EPA policy states originating offices are required to forward all 

action documents that establish a debt/accounts receivable to the appropriate 

finance center, which enters the information into the EPA’s financial system 

(Compass). Interim guidance also requires the grants management offices to 

ensure the compliance database is accurate and complete to report improper 

payments. A $488,275 variance between the Integrated Grants Management 

System (compliance database) and the Compass Database Warehouse (CDW) 

database was not reconciled prior to issuance of the AFR. Once we brought this 

variance to the EPA’s attention, it reconciled the databases and identified a 

$16,086 understatement of improper payments in the AFR. Without reconciling 

these databases, concern exists about the reliability and integrity of improper 

payment reporting for the grants payment stream. 

Guidance for Grant Improper Payment Reporting 

EPA OCFO Procedure 1, Billing and Collecting, states the originating office 

makes the initial determination that an amount is owed to the EPA (debt/accounts 

receivable), prepares the applicable initial billing document, and forwards all 

action documents that establish a debt/accounts receivable to the appropriate 

finance center within 5 business days of receipt.2 In addition, Office of Grants and 

Debarment’s interim guidance states: 

	 Grants management offices are to ensure recording of the final improper 

payment amounts and audit and review closed dates in the compliance 

database once the Las Vegas Finance Center issues a bill and the grants 

office has received a copy of the bill. 

	 The National Policy, Training and Compliance Division is responsible for 

checking the compliance database for accuracy and completeness to 

report improper payments. The division also verifies that questioned and 

disallowed costs recorded in the compliance database are consistent with 

the actual compliance report and written decisions. 

2

 Policy Number 2540-9-P1, Billing and Collecting (4/13/2011). 

14-P-0171 12 
 

 

 

EPA Did Not Reconcile Its Databases Prior to Issuance of AFR 

The EPA did not reconcile a discrepancy between the compliance and CDW 

databases prior to issuance of the agency’s FY 2013 AFR. The compliance 

database is the primary information source for reporting improper payments for 

the grants payment stream. We identified a $488,275 difference between improper 

payments reported in the AFR and the CDW database, as shown in OIG Table 5. 

OIG Table 5: Variance between EPA’s FY 2013 AFR report and CDW database 

Calendar year (CY) 2012 improper payments reported in FY 2013 AFR report 

Activity category Category total Total 

Grant enforcement actions – AFR Table 6 $127,461 

Grant OIG and single audits – AFR Table 6 173,866 

Grant adjustments – AFR Table 6 944,136 

Grants-other – AFR Table 6 236,168 

Improper payments (unallowable costs) – Figure A 64,136 

Total reported in AFR report $1,545,767 

CY 2012 improper payments identified by category in CDW database 

Activity category Category total Total 

Disallowed costs – other than A-133 and OIG audits 

(Compass Category 77) 

$5,406 

Grant refunds non-audit (Compass Category 32) 

Less: appeal/suspension 

911,173 

A-133 and OIG audits (Compass Category 12) 

Less: appeal/suspension 

134,692 

Grant refunds – closed (Compass Category 25) 6,221 

Total reported in CDW database 1,057,492 

Variance between AFR report and CDW $488,275 

Source: OIG analysis of EPA’s FY 2013 AFR and CDW database. 

Based on our draft analysis, the OCFO performed a reconciliation to determine 

the nature and cause for the variance. After reconciling the variance, the OCFO 

provided the following reconciling items: 

	 The OCFO decided to report a CY 2013 improper payment of $236,168 in 

CY 2012 although the improper payment fell outside the reporting period.3 

	 Timing differences from when actions occur and are recorded in the 

compliance and CDW databases, and when improper payments are 

identified and reported, accounted for $125,865 of the variance. 

	 Coding issues, such as not removing the “suspension code” identifier, 

resulted in $96,174 of the difference. 

3

 For the grants payment stream, the EPA reports improper payments identified in the previous calendar year. 

14-P-0171 13 
 

 

 

	 Offsets prior to issuance of a final determination letter were not recorded 

in CDW but were reported as improper payments in the AFR and were 

$35,077 of the variance. 

	 Grant management personal did not report $11,076 in disallowed costs to 

the OCFO for recording, tracking and collection. 

The reconciliation resulted in identifying a $16,086 understatement of grant 

payment stream improper payments in the EPA’s FY 2013 AFR. 

Improved Process Needed in Compiling Improper Payments 

The EPA did not compare the CY 2012 disallowed costs reported in the 

compliance database to the CY 2012 accounts receivable reported in CDW—the 

EPA’s financial reporting system—prior to issuing the FY 2103 AFR. The OCFO 

provided data to the Office of Administration and Resources Management’s 

Office of Grants and Debarment to review in determining improper payments for 

the grants payment stream, but that data was incomplete and as a result, not fully 

reconciled to the compliance database. As a result, the EPA understated improper 

payments by $16,086 for the grants payment stream in the FY 2013 AFR. 

Controls are strengthened by reconciling the compliance database and the CDW 

database and concern about the reliability and integrity of improper payment 

reporting will be reduced for the grants payment stream. 

Recommendation 

We recommend that the Assistant Administrator for Administration and 

Resources Management and the Chief Financial Officer: 

5.	 Incorporate the reconciliation of the compliance database disallowed costs 

and the CDW database accounts receivable into the process of identifying 

and reporting improper payments for the grants payment stream. 

Agency Comments and OIG Evaluation 

The EPA agreed with the recommendation. The Office of Administration and 

Resources Management and OCFO will ensure reconciliation of databases prior to 

submittal of future improper payment reports. The OIG believes the agency’s 

actions, when implemented, should address the recommendation. 

14-P-0171 14 
 

 

 

 

 

 

 

 

 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Claimed 

Amount 

Agreed-To 

Amount 

1 

2 

8 

8 

Coordinate with those regions where differences 

occurred between the identification of improper 

payments in the transaction testing worksheets and 

reporting in the AFR to address issues that created 

inconsistency for future reviews. 

Provide regional staff the current transaction 

testing worksheet and directions for completing the 

worksheet. 

O 

C 

Assistant Administrator 

for Water 

Assistant Administrator 

for Water 

09/30/2014 

10/30/2013 

3 

4 

8 

11 

Require regional staff to review a sample of large 

negative draws to identify improper payments. If 

those transactions are not selected via statistical 

sampling, ensure regional staff include the negative 

draws in the supplemental reviews. 

Establish a system for tracking the recovery of 

improper payments. 

O 

O 

Assistant Administrator 

for Water 

Chief Financial Officer 

and 

Assistant Administrator 

for Water 

09/30/2014 

 07/31/2014 

5 14 Incorporate the reconciliation of the compliance 

database disallowed costs and the CDW database 

accounts receivable into the process of identifying 

and reporting improper payments for the grants 

payment stream. 

O Assistant Administrator for 

Administration and 

Resources Management 

and 

Chief Financial Officer 

09/30/2014 

O = recommendation is open with agreed-to corrective actions pending 

C = recommendation is closed with all agreed-to actions completed 

U = recommendation is unresolved with resolution efforts in progress 

14-P-0171 15 

1 
 

 

 

Appendix A 

Agency Response to Draft Report 

(Received March 27, 2014) 

MEMORANDUM 

SUBJECT: Response to Office of Inspector General Draft Report/ 

Project No. OA – FY14-0072 

“EPA Needs to Continue to Improve Controls for Improper Payment 

Identification” 

FROM: Nancy K. Stoner /s/ Original Signed By Michael Shapiro for: 

Acting Assistant Administrator 

TO: Arthur A. Elkins, Jr. 

Inspector General 

Thank you for the opportunity to respond to the issues and recommendations in the subject audit 

report. Following is a summary of the U.S. Environmental Protection Agency’s overall position, 

along with its position on each of the report recommendations. For the report recommendations 

with which the agency agrees, we have provided high-level intended corrective actions and 

estimated completion dates. 

AGENCY’S OVERALL POSITION 

The Agency agrees with the Office of Inspector General’s overall position on strengthening the 

identification and reporting of improper payments and has taken appropriate steps to incorporate 

OIG recommendations. 

AGENCY’S RESPONSE TO REPORT RECOMMENDATIONS 

Agreements 

No. Recommendation High-Level Intended 

Corrective Action(s) 

Estimated Completion by 

FY 

1 Coordinate with those regions 

where differences occurred 

between the identification of 

improper payments in the 

transaction testing worksheets and 

reporting in the AFR to address 

issues that created inconsistency 

for future reviews. 

The Office of Wastewater 

Management (OWM) and the 

Office of Ground Water and 

Drinking Water (OGWDW) 

will continue to work with 

the Regions to ensure 

improper payment reporting 

is accurate and well 

documented. 

Results of the review of 

FY13 improper payments 

will be reported to OCFO 

in the SRF EOY reports. 

14-P-0171 16 
 

 

 

2 Provide regional staff the current 

transaction testing worksheet and 

directions for completing the 

worksheet 

OW has provided the most 

current transaction testing 

worksheet to all Regions 

Complete. Sent to 

Regions on 10/30/13 

3 Require regional staff to review a 

sample of large negative draws to 

identify improper payments. If 

those transactions are not selected 

via statistical sampling, ensure 

regional staffs include the negative 

draws in the supplemental reviews. 

OGWDW chose the 5 largest 

negative payments and 

requested Regions to 

investigate the reason for 

these negative draws. They 

will be reported as improper 

payments if the negative 

draw is a correction of an 

improper payment. 

The OGWDW will also 

require Regions to review 

negative draws in the future. 

The number will be 

determined based on the 

number of sample draws to 

be tested and the universe of 

DWSRF negative draws for 

that year. It will consist of at 

least the 5 largest draws, up 

to 10% of the universe of 

transactions. 

For the CWSRF State Annual 

Reviews remaining to be 

conducted this fiscal year, 

OWM will require Regions to 

review all negative draws and 

to report all improper 

payments. 

In future fiscal years, OWM 

will require Regions to 

review all negative draws or, 

at a minimum, the 5 largest 

draws. The determination on 

the number of negative draws 

the Regions will be required 

to review will be based on the 

total number of negative 

draws each fiscal year. 

Complete. OGWDW 

sent the transactions to be 

reviewed to the Regions 

on 3/6/14. 

Results of the review of 

FY13 negative draws will 

be reported to OCFO in 

the SRF EOY reports. 

14-P-0171 17 
 

 

 

4 Establish a system for tracking the 

recovery of improper payments. 

OW will revise the 

Transaction Testing standard 

operating procedures to 

include a process for tracking 

the recovery of improper 

payments and maintain a 

tracking spreadsheet of all 

recoveries, including the 

origination of an accounts 

receivable for excess funds 

not offset or returned to EPA. 

The revised standard 

operating procedure will 

be distributed to the 

Regions in July 2014. 

5 The AA of Office of 

Administration and Resources 

Management and the CFO, 

incorporate the reconciliation of 

the compliance database 

disallowed costs and the CDW 

database accounts receivable into 

the process of identifying and 

reporting improper payments for 

the grants payment stream. 

OARM and OCFO will 

ensure reconciliation of 

databases prior to submittal 

of future improper payment 

reports. 

A reconciliation of the 

databases will be 

conducted by September 

30, 2014 

CONTACT INFORMATION 

If you have any questions regarding this response, please contact Sheila Platt on (202) 564-0686 

with the CWSRF or Howard Rubin (202) 564-2051 with the DWSRF. 

Attachments 

cc: Mike Shapiro, Deputy Assistant Administrator of Water 

Andrew Sawyers, PhD, Director, Office of Wastewater Management 

Peter Grevatt, Director, Office of Groundwater and Drinking Water 

Howard Corcoran, Director, Office of Grants and Debarment 

Stefan Silzer, Acting Director, OFS OCFO 

Jeanne Conklin, Acting Director, OFM OCFO 

Marilyn Ramos, Office of Water 

Michael Mason, Office of Water 

14-P-0171 18 
 

 

 

Appendix B 

Distribution 

Office of the Administrator 

Chief Financial Officer 

Assistant Administrator for Water 

Assistant Administrator for Administration and Resources Management 

Agency Follow-Up Coordinator 

General Counsel 

Associate Administrator for Congressional and Intergovernmental Relations 

Associate Administrator for External Affairs and Environmental Education 

Deputy Chief Financial Officer 

Principal Deputy Assistant Administrator for Water 

Principal Deputy Assistant Administrator for Administration and Resources Management 

Director, Office of Financial Management, Office of the Chief Financial Officer 

Deputy Director, Office of Financial Management, Office of the Chief Financial Officer 

Director, Office of Policy and Resources Management, Office of Administration and 

Resources Management 

Deputy Director, Office of Policy and Resources Management, Office of Administration and 

Resources Management 

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

Audit Follow-Up Coordinator, Office of Water 

Audit Follow-Up Coordinator, Office of Administration and Resources Management 

14-P-0171 19