U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Corrective Action Plan 

Needed in Order to 

Fully Comply With the 

Improper Payments 

Elimination and Recovery Act 

Report No. 13-P-0175 March 11, 2013 

Scan this code to 

learn more about 

the EPA OIG. 
 

Report Contributors: Heriberto Ibarra

 Janet Kasper 

 Doug LaTessa 

 Nicole Pilate 

 Mary Anne Strasser 

Abbreviations 

AFR Agency Financial Report 

CFR Code of Federal Regulations 

CWSRF Clean Water State Revolving Fund 

DWSRF Drinking Water State Revolving Fund 

EPA U.S. Environmental Protection Agency 

FY Fiscal Year 

IGMS Integrated Grants Management System 

IPERA Improper Payments Elimination and Recovery Act of 2010 

NPTCD National Policy, Training and Compliance Division 

OCFO Office of the Chief Financial Officer 

OGC Office of General Counsel 

OGD Office of Grants and Debarment 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OW Office of Water 

PERs Program Evaluation Reports 

SRF State Revolving Fund 

Hotline 

To report fraud, waste, or abuse, contact us through one of the following methods: 

e-mail: OIG_Hotline@epa.gov write: EPA Inspector General Hotline 

phone: 

fax: 

1-888-546-8740 

202-566-2599 

1200 Pennsylvania Avenue, NW 

Mailcode 2431T 

online: http://www.epa.gov/oig/hotline.htm Washington, DC 20460 
 

 

U.S. Environmental Protection Agency 13-P-0175 

March 11, 2013 Office of Inspector General 

At a Glance
 

Why We Did This Review 

The Office of Management 

and Budget (OMB) issued 

governmentwide guidance for 

implementation of the 

Improper Payments 

Elimination and Recovery Act 

of 2010 (IPERA) on April 14, 

2011. The guidance 

described requirements for 

agencies’ improper payments 

reporting and inspectors 

general responsibilities to 

review agency reporting. Our 

objective was to determine 

whether the U.S. 

Environmental Protection 

Agency (EPA) was in 

compliance with IPERA. 

This report addresses 

the following EPA Goal or 

Cross-Cutting Strategy: 

 Strengthening EPA’s 

workforce and capabilities. 

For further information, contact 

our Office of Congressional and 

Public Affairs at (202) 566-2391. 

The full report is at: 

www.epa.gov/oig/reports/2013/ 

20130311-13-P-0175.pdf 

Corrective Action Plan Needed in Order to 

Fully Comply With the Improper Payments 

Elimination and Recovery Act 

What We Found 

EPA did not comply with the IPERA because the fiscal year (FY) 2012 Agency 

Financial Report (AFR) did not include all required elements of a corrective 

action plan. EPA did not include, among other things, planned and actual 

completion dates for corrective actions and improper payment reduction 

targets. 

EPA also misstated improper payments for state revolving funds (SRFs), 

grants, and contracts and commodities payment streams in the FY 2012 AFR. 

Specifically: 

 For the SRF programs, EPA significantly misstated improper payments 

because Office of Water staff do not rely on Program Evaluation Reports 

when reporting improper payments, and because regional office staff did 

not always correctly calculate the amount of the improper payment. 

 For the grants programs, $39,694 was not reported as improper payments 

due to weaknesses in the reporting process for improper payments. 

 EPA did not include discounts not taken for contracts and commodities 

because EPA disagrees that these should be reported as improper 

payments.

 Recommendations and Planned Agency Corrective Actions 

We recommend that the Chief Financial Officer submit a plan to Congress 

describing actions the Agency will take to become compliant with IPERA, 

develop specific guidance to define “applicable discounts” for IPERA reporting 

purposes, and include any payment that does not account for credit for an 

applicable discount as an improper payment in EPA’s FY 2013 AFR. We 

recommend that the Assistant Administrator, Office of Water, identify improper 

payments using the Program Evaluation Reports and transaction testing 

worksheets. Finally, we recommend that the Assistant Administrator, Office of 

Administration and Resources Management, determine why errors occurred, 

implement actions to ensure accurate reporting, and revise the interim 

guidance for IPERA. The Agency concurred with all of the recommendations 

and provided its intended corrective actions and estimated completion dates. 
 

 

 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

THE INSPECTOR GENERAL 

March 11, 2013 

MEMORANDUM 

SUBJECT:	 Corrective Action Plan Needed in Order to Fully Comply With the 

Improper Payments Elimination and Recovery Act 

 Report No. 13-P-0175 

FROM: Arthur A. Elkins Jr. 

TO:	 Barbara J. Bennett, Chief Financial Officer 

Craig E. Hooks, Assistant Administrator 

Office of Administration and Resources Management 

Nancy K. Stoner, Acting Assistant Administrator 

Office of Water 

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

U.S. Environmental Protection Agency (EPA). This report contains findings that describe the 

problems the OIG has identified and corrective actions the OIG recommends. 

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. We have no objections to the further release of this report to the public. This report will 

be available at http://www.epa.gov/oig. 

If you or your staff have any questions regarding this report, please contact Melissa Heist, 

assistant inspector general for the Office of Audit, at (202) 566-0899 or heist.melissa@epa.gov; 

or Janet Kasper, director for Contracts and Assistance Agreements Audits, at 312-886-3059 or 

kasper.janet@epa.gov. 
 

 

 

 

 

 

 

 

 

 

Corrective Action Plan Needed in Order to Fully Comply 13-P-0175 

With the Improper Payments Elimination and Recovery Act 

Table of Contents 

Chapters 

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

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

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

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

2 EPA Is Not in Compliance with IPERA ............................................................. 4 

IPERA Requires Corrective Action Plans .................................................... 4 

EPA Did Not Publish a Corrective Action Plan ............................................ 5 

Recommendation ........................................................................................ 5 

Agency Comments and OIG Evaluation ...................................................... 6 

3 EPA Significantly Misstated Improper Payments for SRFs ........................... 7
 

Definition of Improper Payment 7
 

Inaccuracies in Agency Financial Report 8 

EPA Staff Need to Rely on Program Evaluation Reports 9 

Reliability of SRF Information in the AFR Is Questionable 10 

 Recommendations 10 

Agency Comments and OIG Evaluation ...................................................... 10 

4 EPA Needs to Further Improve Grant Improper Payment Reporting 11
 

Interim Guidance for Grant Improper Payment Reporting ........................... 11 

Some Grant Improper Payments Not Reported 11 

Further Improvement Needed to Capture Grant Improper Payments 12 

 Recommendation 13 

Agency Comments and OIG Evaluation ...................................................... 13 

5 Improper Payments Reported Did Not Include Discounts Not Taken 14 

EPA Disagreed With Recommendation in Prior Report 14 

Reporting Discounts Not Taken as Improper Payments 14 

Office of General Counsel Opinion 16 

 Recommendations 17 

Agency Comments and OIG Evaluation ...................................................... 17 

Status of Recommendations and Potential Monetary Benefits.............................. 18
 

-continued-
 

 

Corrective Action Plan Needed in Order to Fully Comply 13-P-0175 

With the Improper Payments Elimination and Recovery Act 

Appendices 

A Agency Response to Draft Report 19 

B Distribution 22
 
 

 

 

 

 

 

Chapter 1 

Introduction 

Purpose 

The Office of Management and Budget (OMB) issued governmentwide 

guidance for implementation of the Improper Payments Elimination and 

Recovery Act of 2010 (IPERA) on April 14, 2011.1

 This guidance describes 

requirements for agencies’ improper payments reporting, and inspectors general 

responsibilities to review agency reporting. Our objective was to determine 

whether the U.S. Environmental Protection Agency (EPA) is in compliance with 

IPERA. 

Background 

IPERA requires that each agency periodically review and identify all programs 

and activities that may be susceptible to significant improper payments.2

 The act 

also significantly increased requirements for payment recapture efforts by 

expanding the types of payments that must be reviewed and by lowering the 

threshold of annual outlays that requires agencies to conduct payment recapture 

audit programs. Agencies are to report on improper payments: 

 Voluntarily returned by contractors. 

 Used to offset future payments. 

 Identified and returned to the agency through Office of Inspector General 

(OIG) efforts, such as audits, reviews, or tips from the public. 

 Identified and recovered through management post-payment reviews and 

close-outs.3 

Annually, inspectors general are required to determine whether agencies are in 

compliance with IPERA. Compliance means that the agency has: 

 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). 

1

 OMB Memorandum M-11-16, Issuance of Revised Parts I and II to Appendix C of OMB Circular A-123. 2

 OMB 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). 3

 OMB Memorandum M-11-04, Increasing Efforts to Recapture Improper Payments by Intensifying and Expanding
 

Payment Recapture Audits. 

13-P-0175 1 
 

 

 

 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. 

	 Reported information on efforts to recapture improper payments. 

An agency is not compliant if it does not meet one or more of these requirements. 

Inspectors general should evaluate (1) the accuracy and completeness of agency 

reporting, and (2) agency performance in reducing and recapturing improper 

payments. 

Scope and Methodology 

We conducted this audit from November 2012 to February 2013 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. 

To determine whether EPA is in compliance with IPERA, we reviewed EPA’s 

fiscal year (FY) 2012 AFR and accompanying materials. We reviewed prior OIG 

internal control review workpapers for each payment stream. We interviewed 

Agency staff at EPA headquarters from the Office of the Chief Financial Officer 

(OCFO), the Office of Grants and Debarment (OGD), and the Office of Water 

(OW). We also interviewed OCFO staff from the Research Triangle Park Finance 

Center. 

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

IPERA reporting across the three payment streams – state revolving fund (SRF), 

grants, and commodities and contracts.4

 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 EPA’s FY 2012 AFR. 

	 For the Clean Water SRF (CWSRF), we judgmentally selected the largest 

three reported improper payment amounts, which resulted in testing 

97.6 percent of the $12.8 million reported as CWSRF improper payments. 

We also selected the three largest amounts of Drinking Water SRF 

(DWSRF) improper payments reported, which resulted in our testing 

97.0 percent of the $1.1 million of improper payments. 

4

 EPA, with OMB’s approval, uses a different 12-month period for each payment stream reported; SRFs are based 

on state fiscal years, grants are based on the prior calendar year (2011), and contracts and commodities are based on 

the current FY (2012). 

13-P-0175 2 
 

 

 

	 We judgmentally selected at least one grant from each type of grant 

review (A-133, desk review, onsite review, or administrative enforcement) 

from the EPA’s reported grant improper payments for calendar year 2011. 

The sample accounts for $383,726 of unallowed costs identified as 

improper payments, or 63.0 percent of EPA’s reported total unallowed 

costs. 

	 We selected all contract improper payments greater than $2,000, resulting 

in a sample size of 14 payments totaling $947,937, representing 

99.4 percent of contract improper payments. 

	 For commodities, we selected the first improper payment for each month 

and continued to rotate through each month, selecting the second, third, 

etc., until our sample size equaled at least 50 percent of the gross amount 

of reported improper payments. The resulting sample size was 

24 improper payments totaling $187,899, or 52.0 percent of the total 

reported improper payments for commodities. 

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

we also looked for transactions that EPA did not report as improper payments. For 

example, we reviewed program evaluation reports (PERs) for states where EPA 

did not report improper payments, to verify that improper payments were not 

identified. We also reviewed grant accounts receivable for receivables that were 

the result of improper payments. 

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

 Integrated Grants Management System (IGMS). 

 Contract Payment System. 

 Small Purchase Information Tracking System. 

 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’s Report No. 12-P-0311, EPA Can Improve Its Improper Payments 

Reporting, issued March 1, 2012. We found all but one action had been taken. 

The corrective action not taken is discussed in chapter 5. 

13-P-0175 3 
 

 

 

Chapter 2

EPA Is Not in Compliance With IPERA 

EPA is not in compliance with IPERA because EPA did not publish a corrective 

action plan as required by the act. IPERA requires a plan to accompany an 

agency’s report on improper payments, if the improper payments exceed 

$10 million. EPA reported over $13.38 million in improper payments for the 

SRF program. EPA’s FY 2012 AFR did include a corrective action section that 

included some, but not all, of the required elements of a plan. According to 

OCFO staff, a more detailed corrective action plan was not published. EPA staff 

indicated that their understanding was that the plan was not required until the 

FY 2013 AFR. As a result, EPA is not in compliance with IPERA and risks 

delaying necessary corrective actions. 

IPERA Requires Corrective Action Plans 

IPERA Section 2(c) requires corrective action plans for any agency program 

with estimated improper payments that exceed $10 million, and also requires the 

plan to be submitted with the agency’s estimate of improper payments. IPERA 

requires the plan to include the following: 

	 A description of the causes of the improper payments, actions planned or 

taken to correct those causes, and the planned or actual completion date 

of the actions. 

	 A statement of whether the agency has what is needed with respect to 

internal controls, human capital, and information systems and other 

infrastructure in order to reduce improper payments. 

	 If the agency does not have sufficient resources to establish and maintain 

effective internal controls, a description of the resources the agency has 

requested in its budget submission to establish and maintain such internal 

controls. 

	 Program-specific improper payment reduction targets that have been 

approved by the OMB director. 

	 A description of the steps the agency has taken to ensure agency 

managers, programs, and, where appropriate, states and localities are held 

accountable with performance appraisal criteria for meeting applicable 

improper payment reduction targets and establishing and maintaining 

sufficient internal controls. 

13-P-0175 4 
 

 

 

IPERA Section 3(c) states that if the inspector general determines an agency is 

not in compliance with IPERA, the agency must submit a plan to Congress that 

describes the following: 

 Measurable milestones to be accomplished in order to achieve compliance 

for each program or activity. 

 The designation of a senior agency official who shall be accountable for 

the progress of the agency coming into compliance. 

	 The establishment of an accountability mechanism, such as a performance 

agreement, with appropriate incentives and consequences tied to the 

success of the senior agency official leading agency efforts to achieve 

compliance. 

EPA Did Not Publish a Corrective Action Plan 

EPA did not publish a corrective action plan. EPA reported $13.38 million in 

improper payments for the SRF program. FY 2012 was the first year that the 

SRF program exceeded the threshold for significant improper payments as 

established by IPERA and triggered the requirement for a corrective action plan. 

EPA’s FY 2012 AFR did contain a corrective action section, but Agency staff 

informed us this was a required section of the AFR and not synonymous with a 

corrective action plan. The corrective action section of the AFR did describe the 

causes of the improper payments and actions taken to correct the improper 

payments, which is one of the required elements of a corrective action plan. 

However, the AFR did not include the rest of the required elements. 

OCFO staff did not publish a plan because they concluded the plan was not due 

until FY 2013 in order to provide ample time for the Agency to develop the 

plan. The AFR stated that the Agency will work with OMB during FY 2013 to 

refine its methodology for sampling and estimating improper payments in the 

SRFs. 

EPA’s AFR did not include a corrective action plan as required by IPERA 

Section 2(c). In addition to being required by law, the corrective action plan 

could assist EPA in identifying the actions needed to reduce improper payments 

in FY 2013. 

Recommendation 

We recommend that the Chief Financial Officer: 

1.	 Within 90 days prepare a report for the Administrator to submit to 

Congress and include the elements described in IPERA Section 3(c) in the 

report. 

13-P-0175 5 
 

 

 

Agency Comments and OIG Evaluation 

EPA agreed with the recommendation and within 90 days of the determination of 

noncompliance, the OCFO will prepare a report for the Administrator to submit to 

Congress. The report will include elements described in IPERA Section 3(c). EPA 

added that it viewed the issue of noncompliance as a technical interpretation of 

IPERA. The OIG believes the Agency’s action, when implemented, should address 

the recommendation. 

13-P-0175 6 
 

 

Chapter 3

EPA Significantly Misstated 

Improper Payments for SRFs 

EPA significantly misstated the value of improper payments for the CWSRF and 

DWSRF. An improper payment is a payment that should not have been made or 

that was made in an incorrect amount. Based on our sample of six CWSRF PERs 

and seven DWSRF PERs, we found table 2 (Payment Recapture Audit Reporting) 

and table 6 (Overpayments Recaptured Outside of Payment Recapture Audits) of 

EPA’s FY 2012 AFR to be overstated by $3.98 million and $3.24 million, 

respectively. EPA misstated the value of the improper payments for several 

reasons, but primarily because OW staff did not rely on PERs prepared by 

regional offices when reporting improper payments, and because regional office 

staff did not always correctly calculate the amount of the improper payment. 

Because of the frequency and large dollar value of the errors, we have little 

confidence in the reliability of the information EPA reported for the SRF 

improper payments in the FY 2012 AFR. 

Definition of Improper Payment 

The definition of an improper payment is determined by both IPERA and OMB 

guidance. IPERA defines an improper payment as a payment that should not have 

been made or that was made in an incorrect amount (including overpayments and 

underpayments) under statutory, contractual, administrative, or other legally 

applicable requirements; and includes any payment to an ineligible recipient, any 

payment for an ineligible good or service, any duplicate payment, any payment 

for a good or service not received (except for such payments where authorized by 

law), and any payment that does not account for credit for applicable discounts. 

OMB guidance M-11-16 further defines 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. OMB guidance M-11-16 also states that when calculating an 

improper payment, only the amount paid improperly should be used. 

13-P-0175 7 
 

 

Inaccuracies in Agency Financial Report 

EPA did not accurately report improper payments for the SRFs. EPA reported 

improper payments of $13,382,373 in table 2 (Payment Recapture Audit 

Reporting) of the FY 2012 AFR. However, we found several errors resulting in an 

overstatement of $3.98 million. In comparing a sample of 13 SRF PERs to 

supporting schedules EPA provided, we found errors (both overstatements and 

understatements) as described in our table 1. 

Table 1: Adjustments to improper payments reported in table 2 of the FY 2012 AFR 

Description Amount 

Massachusetts (CWSRF) – Improper payments identified by the state 

that should have been included in table 6 instead of table 2. In addition, 

EPA reported the total cash draws rather than the overstatement. 

$(7,615,773)* 

Vermont (DWSRF) – EPA should not have included the amount as an 

improper payment because invoices supported the cash draw, as 

described in the PER. 

(150,346) 

Nebraska (DWSRF and CWSRF) – Improper payments identified in the 

PER that were not included in table 2. 

2,957,900 

Puerto Rico (CWSRF) – Improper payments identified in the PER that 

were not included in table 2. 

586,284 

Louisiana (DWSRF) – Checklists indicated that invoices were missing 

or did not support the cash draws, but these payments were not 

included in table 2. 

237,287 

AFR table 2 adjustments based on OIG sample ($3,984,648) 

Source: OIG analysis of a sample of documents provided by EPA. 

*Amounts in parentheses represent overstatements. 

In the FY 2012 AFR, improper payments identified outside of payment recapture 

audits were reported in table 6 (Overpayments Recaptured Outside of Payment 

Recapture Audits). EPA reported $5,413,070 of improper payments in table 6 of 

the FY 2012 AFR, which included improper payments that are self-reported and 

identified by audits other than payment recapture audits (see our table 2). 

Prior to EPA conducting the annual PER for Massachusetts, state officials 

informed EPA that the state had made procedural errors over a 3-to-4-month 

period when processing cash draws from both the CWSRF and DWSRF. These 

errors resulted in improper payments. EPA properly included the DWSRF 

improper payment in table 6 of the AFR, but used the total amount of the cash 

draws rather than the overpayment. For the CWSRF, EPA incorrectly included 

the improper payment in table 2 of the FY 2012 AFR, and also calculated the 

improper payment as the total cash draw rather than the overpayment. 

13-P-0175 8 
 

 

 

Table 2: Adjustments to improper payments reported in Table 6 of the FY 2012 AFR 

Description Amount 

Massachusetts (DWSRF) – Improper payments were overstated as 

EPA reported the entire cash draw as the improper payment, rather 

than the overpayment. 

$(4,267,333)* 

Massachusetts (CWSRF) – Improper payments were reported in 

table 2 rather than table 6, and EPA reported the entire cash draw as 

the improper payment rather than the overpayment. 

1,025,875 

AFR table 6 adjustments based on OIG sample ($3,241,458) 

Source: OIG analysis of a sample of documents provided by EPA. 

*Amounts in parentheses represent overstatements. 

EPA Staff Need to Rely on Program Evaluation Reports 

The errors in the FY 2012 AFR occurred for several reasons, but primarily 

because EPA OW staff did not rely on the PERs prepared by regional offices. 

EPA regional offices conduct annual reviews of each state’s SRFs. During these 

reviews, regional offices select a sample of cash draws to test for improper 

payments. The results of the annual reviews and tests for improper payments are 

summarized in the PERs. In addition, EPA regional staff complete a transaction 

testing worksheet to summarize the results of the transaction tests. OW staff relies 

on the transaction testing worksheet and not the PERs when reporting improper 

payments for inclusion in the AFR. However, the PERs may contain details and 

information not included in the worksheets. 

While we found problems with how EPA calculated the amount of the improper 

payment, EPA has taken action to address the issue. EPA regional staff did not 

always properly calculate the amount of the improper payment and may not 

understand what comprises an improper payment, as we found some worksheets 

to be incomplete. For Massachusetts, EPA regional staff calculated the improper 

payment as the total of the cash draws, rather than the overpayments associated 

with those cash draws. For Louisiana, the notes on one transaction testing 

worksheet indicated that the invoiced costs did not justify draw amounts, but there 

was no indication whether this was considered an improper payment. EPA’s 

Standard Operating Procedure for Transaction Testing does not provide a 

complete definition of an improper payment or provide complete details on how 

improper payments should be calculated. EPA updated the standard operating 

procedure to include IPERA and OMB’s definition of an improper payment, and 

instructions on how to calculate the improper payment based on the finding 

outlines we provided the Agency for review in December 2012. This revision, 

along with the training OW has planned, should clarify when a payment should be 

considered improper and how to calculate the value of the improper payment. 

EPA’s OCFO staff stated that they receive much of the improper payment data 

from OW in early October and do not have time to conduct a thorough analysis. 

However, SRF improper payments are based on the state’s preceding FY ending 

June 30, meaning OW has the data several months before it is submitted to 

13-P-0175 9 
 

 

 

OCFO. If OW provided the information earlier, OCFO would have more time to 

review the data for anomalies. 

Reliability of SRF Information in the AFR Is Questionable 

We reviewed 6 of 51 state CWSRF PERs (50 states plus Puerto Rico) and 

associated worksheets and found errors associated with either the value of the 

improper payments or the value of the disbursements tested in 5 of those PERs. 

We reviewed 7 of 51 DWSRF PERs and associated worksheets and found similar 

errors in 5 of those PERs. Because of the frequency and large dollar value of the 

errors, we have little confidence in the reliability of the information EPA reported 

for SRF improper payments in the FY 2012 AFR. 

Recommendations 

We recommend that the Assistant Administrator, Office of Water: 

2.	 Require staff to use the PERs, in addition to the transaction testing 

worksheets, to identify improper payments. 

3.	 Submit SRF improper payment totals to OCFO earlier in the reporting 

cycle to allow OCFO the opportunity to perform quality checks on the 

data. 

Agency Comments and OIG Evaluation 

EPA agreed with the recommendations. OW staff will use the PERs, in addition to 

the transaction testing worksheets, to identify improper payments reflected in the 

final AFR. OW will also provide OCFO with the improper payments information 

OCFO needs to report in the final AFR earlier in the reporting cycle. The OIG 

believes the Agency’s actions, when implemented, should address the 

recommendations. 

13-P-0175 10 
 

 

 Chapter 4 

EPA Needs to Further Improve 

Grant Improper Payment Reporting 

EPA did not include $39,694 in grant improper payments when collecting the 

information from its IGMS Compliance and Recipient Activity database 

(compliance database) for the FY 2012 AFR. The OGD’s interim guidance for 

IPERA says the grants management offices and the National Policy, Training and 

Compliance Division (NPTCD) share responsibilities for ensuring that the 

compliance database is accurate and complete to report improper payments. EPA 

did not always capture improper payments and recoveries in its compliance 

database. As a result, EPA understated grant improper payments and payment 

recoveries in the FY 2012 AFR. 

Interim Guidance for Grant Improper Payment Reporting 

In response to our report on the FY 2011 AFR, OGD issued interim guidance on 

April 23, 2012. The guidance states: 

	 Grants management offices are to ensure that the final improper payment 

amounts and grant closed dates are recorded in the compliance database 

once billing has been issued by the Las Vegas Finance Center and the 

grants office has received a copy of the bill. 

	 The NPTCD is responsible for checking the compliance database for 

accuracy and completeness to accurately report improper payments. The 

NPTCD also verifies that questioned and disallowed costs recorded in the 

compliance database are consistent with the actual compliance report and 

written decisions. 

Some Grant Improper Payments Not Reported 

Some improper payments discovered in a single audit and a programmatic review 

were not reported in EPA’s FY 2012 AFR. EPA reported $610,131 of actual grant 

improper payments and the recovery of $465,462. We found an additional 

$39,694 in grant improper payments that EPA should have reported as improper 

and recaptured (see table 3). According to IPERA, the head of the Agency shall 

report on all actions to detect and recover improper payments, including the 

amounts that are recovered, outstanding, and determined to be not collectible. 

However, EPA did not report $9,694 of grant improper payments detected during 

a single audit review and $30,000 detected during a programmatic review. EPA 

should have reported the improper payments since both reviews were closed and 

all the funds were recovered. 

13-P-0175 11 
 

 

 

Table 3: Adjustments to Grant Improper Payments and Recoveries in EPA’s FY 2012 AFR 

Grantee Type of review 

Improper 

payment 

reported in AFR 

Not reported 

Improper 

payment 

Payment 

recapture 

Snoqualmie Tribe, 

Washington Single audit $8,322 $9,694 $9,694 

Apache Tribe, 

Oklahoma 

Programmatic 

review 0 30,000 30,000 

Total improper payment and 

payment recapture adjustments $39,694 $39,694 

Source: OIG analysis of EPA data. 

Further Improvement Needed to Capture Grant Improper Payments 

While OGD has issued guidance on recording improper payments, further 

improvements should be made. EPA only reports grant unallowed costs recorded 

in its compliance database as improper payments. Accurate reporting of improper 

payments is dependent upon relevant information being recorded in the 

compliance database. 

	 For the Snoqualmie tribe single audit, NPTCD stated that Region 10 

recorded and reported final unallowed costs of $8,322 in the database and 

did not report $9,694 as unallowed. Therefore, NPTCD only reported 

$8,322 of improper payments. However, EPA’s Region 10 concluded in 

its audit close-out letter that $9,694 of questioned travel cost was 

unsupported and recovered. OGD later confirmed the region should have 

included $9,694 in the database as an unallowed cost. 

	 The results of the programmatic review for the Apache tribe of Oklahoma 

were not recorded in the database; therefore, the improper payment was 

not reported. EPA’s NPTCD staff stated that its compliance database is 

not structured to allow programmatic staff to record unallowable costs 

detected during programmatic monitoring reviews. NPTCD staff 

explained that when issues involving grant finances arise, these issues 

should be referred to the appropriate grant office and award official for 

action. However, in this case, the award official did not record an 

administrative enforcement action in the compliance database. 

We found that EPA did not report $39,694 of improper payments and recoveries. 

As a result, grant improper payments were understated by 7 percent and recovered 

payments were understated by 9 percent. If EPA does not implement corrective 

actions and modify its guidance, improper payments detected during reviews may 

not be captured for reporting purposes, which may result in reporting errors. 

13-P-0175 12 
 

 

 

Recommendation 

We recommend that the Assistant Administrator, Office of Administration and 

Resources Management: 

4. Determine why the errors noted occurred, implement actions to ensure 

accurate reporting in the Integrated Grants Management System 

Compliance and Recipient Activity database, and revise the OGD’s 

interim guidance for IPERA to reflect these changes. 

Agency Comments and OIG Evaluation 

EPA agreed with the recommendation. OGD agreed that some improper payments 

were not accurately recorded in the IGMS Compliance and Recipient Activity 

database and has determined why these errors occurred. OGD will revise IPERA 

guidance to implement corrective actions, as based on the errors that occurred. 

The OIG believes the Agency’s actions when implemented should address the 

recommendation. 

13-P-0175 13 
 

 

 

 

 

Chapter 5

Improper Payments Reported Did Not 

Include Discounts Not Taken
 

EPA did not accurately report discounts not taken in the FY 2012 AFR. The 

IPERA defines improper payments to include “any payment that does not account 

for credit for applicable discounts.” EPA reported in the AFR that, “In FY 2012, 

the Agency claimed 56 percent of all offered discounts, and the remaining 

$122,000 in missed discounts was determined not to be improper payments.” As 

stated in our report on the FY 2011 AFR, the OIG believes that based on the 

definition of improper payment in IPERA, applicable discounts not taken should 

be reported as improper payments. As a result, EPA underreported improper 

payments in the contracts and commodities payment streams. 

EPA Disagreed With Recommendation in Prior Report 

EPA did not report discounts not taken as improper payments in its FY 2011 

AFR. In our report on improper payments for FY 2011, we recommended that 

OCFO report discounts not taken as improper payments under IPERA starting 

with the FY 2012 AFR, unless it receives clarification from OMB stating 

otherwise. 5 EPA disagreed with the recommendation and stated that it believed 

there were valid reasons why certain discounts cannot be taken and should not be 

reported as improper payments. Agency officials stated that they may not be able 

to take a discount for a myriad of reasons, such as: 

 Insufficient time to review invoices. 

 Percentage rate offered not sufficient to generate a cost-effective discount. 

 Project officer approval not available. 

In responding to the final report, EPA continued to disagree with the OIG. EPA 

management sought guidance from OMB but did not receive any. In our final 

response to EPA we continued to disagree with the Agency’s position but we did 

not believe that the report warranted elevation to the Audit Resolution Board, due 

to the low-dollar value of items not reported for FY 2011. 

Reporting Discounts Not Taken as Improper Payments 

In the FY 2012 AFR, EPA stated that it would report discounts as improper 

payments, “...if the wrong percentage discount were taken or if a discount were 

taken beyond the specified discount period.” This definition severely limits when 

a discount not taken would be considered an improper payment. EPA provided 

5

 OIG report EPA Can Improve Its Improper Payments Reporting, Report No. 12-P-0311 (March 1, 2012) 

13-P-0175 14 
 

 

 

the following examples in the AFR to explain why it does not report discounts not 

taken as improper payments. 

There are certain situations beyond the Agency’s control that may 

prevent EPA from taking a discount. Since these situations are 

beyond the Agency’s control, EPA does not consider them to be 

improper payments. For example, the late receipt of an invoice 

from the vendor could prevent the Agency from claiming the 

discount within the specified discount period. Similarly, project 

officers are required to conduct their due diligence by thoroughly 

reviewing invoices and are sometimes unable to approve an 

invoice before the discount period expires. 

While late submission of invoices by the vendor may not be within the EPA’s 

control, project officer review is within the Agency’s control. While IPERA 

defines improper payment as “any payment that does not account for credit for 

applicable discounts,” it does not distinguish whether the reason for not taking the 

discount is within an agency’s control. As a result, the OIG continues to believe 

that applicable discounts not taken should be reported as improper payments. 

Discounts Not Taken Because of Transmission Problems 

Our current review found an example of a situation that supports the OIG’s 

position that discounts not taken should be reported as improper payments. We 

identified five payments totaling $1,370, where discounts were not taken and 

were not reported as improper payments because the Agency believed that it paid 

the right amount to the right vendor (see table 4). 

Table 4: Missed opportunities for discounts to be taken 

Barcode number 

Discount 

not taken Reason discount not taken 

B2093905989 $134 

The invoice was processed and certified, and should have been paid on 

time. However, when EPA implemented its new financial system, 

schedule issues occurred so that the discount could not be taken when 

the schedule reached the U.S. Department of the Treasury. 

B2093947859 615 

When the invoice was processed, it was within the 20 days offered; but 

when the invoice was actually paid by Treasury, the 20 days had expired 

and the discount was not taken. 

B2094340727 15 

This vendor offered a discount if the invoice was paid in 10 days. EPA 

took 9 days to process the invoice, but by the time Treasury paid the 

invoice the discount period had expired. 

B2094236396 566 

Invoice was processed and certified in time, but when Treasury 

processed the payment the discount period had expired. Based on the 

date of payment, it appears there were issues getting the schedule to 

Treasury. 

B2094045912 40 The discount had expired when the invoice was transmitted to Treasury. 

Total $1,370 

Source: OIG-generated table based on EPA data. 

13-P-0175 15 
 

 

 

 

The reason discounts were not taken was within EPA’s control. EPA was not able 

to take the discounts because of coding errors and delays in transmitting payment 

information to the Department of the Treasury. The transmission of data to 

Treasury is within EPA’s control, and when the transmission is not timely and 

discounts cannot be taken, they should be reported as improper payments. As 

stated in the 2010 presidential memorandum on improper payments, thorough 

identification of improper payments promotes accountability at federal agencies. 

OMB also encouraged agencies to identify the root causes of their improper 

payments and implement corrective actions that prevent future improper 

payments. EPA should be identifying and reporting discounts not taken as 

improper payments that result from errors within EPA’s control, in order to 

promote accountability and to serve as a basis for identifying issues that need to 

be corrected. 

Error in Reporting Discounts Not Taken 

EPA found during our audit that $4,149 of the $122,000 in discounts not taken 

were reported in error, as shown in table 5. For contracts, EPA included $77,693 

as part of the discounts not taken total. However, during the audit, EPA finance 

center staff determined that four invoices, totaling $4,149, should not have been 

included because EPA did take the appropriate discounts. When the programmers 

corrected financial management system coding problems and reports, the total 

discounts not taken were revised. The contracts report dated December 12, 2012, 

was adjusted to correct coding issues with the financial management system. 

Table 5: Contract invoices 

Barcode Number Amount 

B2093962722 $470 

B2093957391 1,203 

B2094316890 804 

B2095327086 1,672 

Total $4,149 

Source: OIG-generated table based on EPA data. 

Office of General Counsel Opinion 

OCFO sought an opinion from EPA’s Office of General Counsel (OGC) 

concerning whether IPERA required the reporting of “all” discounts not taken. 

OGC opined that the term “applicable discount” does not equate to “all 

discounts.” While the OGC opinion is helpful in demonstrating why EPA would 

not necessarily report all discounts not taken as improper payments, the opinion 

does not address whether the specific circumstances the Agency cited in 

responding to the OIG’s previous report would warrant not reporting those 

discounts not taken as improper payments. OGC suggests that “applicable 

discount” should be defined in light of OMB’s Prompt Payment Act regulation at 

5 CFR Part 1315, which provides in pertinent part that “[i]f an agency is offered a 

13-P-0175 16 
 

 

discount by a vendor, whether stipulated in the contract or offered on an invoice, 

an agency may take the discount if economically justified ... but only after 

acceptance has occurred.” 5 CFR Part 1315.7(a). Thus OGC suggests that only if 

a discount is offered and economically justified is it then “applicable”; and thus if 

not taken, then it should be reported as an improper payment. We do not 

necessarily endorse this interpretation, and believe it prudent for the Agency to 

consult with OMB on its views on interpreting this term. However, if the Agency 

wishes to adopt that interpretation, then it should reevaluate the position it took 

when responding to the OIG report on the 2011 AFR. 

Recommendations 

We recommend that the Chief Financial Officer: 

5. Develop specific guidance to define “applicable discounts” for IPERA 

reporting purposes. 

6. Include any payment that does not account for credit for an applicable 

discount as an improper payment in EPA’s FY 2013 AFR. 

Agency Comments and OIG Evaluation 

EPA agreed with the recommendations. OCFO’s Research Triangle Park Finance 

Center will update existing Improper Payment Standard Operating Procedures to 

include specific guidance to define “applicable discounts” for IPERA reporting 

purposes. Also, the OCFO will include improper payments as defined in the 

Improper Payment Standard Operating Procedures in the EPA’s FY 2013 AFR. 

The OIG believes the Agency’s actions, when implemented, should address the 

recommendations. 

13-P-0175 17 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Planned 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Completion 

Date 

Claimed 

Amount 

Agreed-To 

Amount 

1 5 Within 90 days prepare a report for the 

Administrator to submit to Congress and include 

the elements described in IPERA Section 3(c) in 

the report. 

O Chief Financial Officer 6/15/2013 

2 10 Require staff to use the PERs, in addition to the 

transaction testing worksheets, to identify improper 

payments. 

O Assistant Administrator, 

Office of Water 

11/15/2013 

3 10 Submit SRF improper payment totals to OCFO 

earlier in the reporting cycle to allow OCFO the 

opportunity to perform quality checks on the data. 

O Assistant Administrator, 

Office of Water 

9/1/2013 

4 13 Determine why the errors noted occurred, 

implement actions to ensure accurate reporting in 

the Integrated Grants Management System 

Compliance and Recipient Activity database, and 

revise the OGD’s interim guidance for IPERA to 

reflect these changes. 

O Assistant Administrator, 

Office of Administration and 

Resources Management 

6/30/2013 

5 17 Develop specific guidance to define “applicable 

discounts” for IPERA reporting purposes. 

O Chief Financial Officer 4/19/2013 

6 17 Include any payment that does not account for 

credit for an applicable discount as an improper 

payment in EPA’s FY 2013 AFR. 

O Chief Financial Officer 11/15/2013 

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.
 

13-P-0175 18 

1 
 

 

Appendix A 

Agency Response to Draft Report 

(Received February 22, 2013) 

MEMORANDUM 

SUBJECT:	 Response to Office of Inspector General Draft Report/Project No. OA-FY13-0055 

“Corrective Action Plan Needed in Order to Fully Comply with Improper 

Payments Elimination and Recovery Act,” dated February 7, 2013 

FROM: Barbara J. Bennett /s/ Original Signed By Maryann Froehlich for: 

Chief Financial Officer 

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. 

AGENCY’S OVERALL POSITION 

The agency concurs with all six recommendations and views the issue of non-compliance as a 

technical interpretation of IPERA. 

AGENCY’S RESPONSE TO REPORT RECOMMENDATIONS 

Agreements 

No. Recommendation High-Level Intended Corrective Action(s) Estimated 

Completion 

by FY 

1 The Chief Financial Officer, 

within 90 days of the 

determination of noncompliance, prepare a report 

for the Administrator to 

submit to Congress that 

includes the elements 

1.1 The Office of the Chief Financial Officer 

will prepare a report for the Administrator to 

submit to Congress that includes the 

elements described in IPERA Section 3(c) 

within 90 days of the determination of noncompliance. 

6/15/2013 

described in Improper 

Payment Elimination 

Recovery Act Section 3(c). 

2 The Assistant Administrator, 2.1 The EPA concurs with this 11/15/2013 

Office of Water, require staff recommendation. OW staff will use the (ongoing) 

13-P-0175 19 
 

 

 

to use the Program Evaluation 

Reports, in addition to the 

transaction testing worksheets, 

to identify improper 

payments. 

PERs, in addition to the transaction testing 

worksheets, to identify improper payments 

reflected in the final AFR. 

3 The AA of OW, submit State 

Revolving Fund improper 

payment totals to the Office of 

the Chief Financial Officer 

earlier in the reporting cycle to 

allow OCFO the opportunity 

to perform quality checks on 

the data. 

3.1 The EPA concurs with this 

recommendation. OW will provide OCFO 

with the improper payments information it 

needs to report in the final AFR earlier in the 

reporting cycle. 

9/1/2013 

(ongoing) 

4 The AA of Office of 

Administration and Resources 

Management, determine why 

the errors noted occurred, 

implement actions to ensure 

accurate reporting in the 

Integrated Grants 

Management System 

Compliance and Recipient 

Activity database, and revise 

the Office of Grants and 

Debarment’s Interim 

Guidance for IPERA to reflect 

these changes. 

4.1 OGD agrees that some improper 

payments were not accurately recorded in the 

IGMS Grantee Compliance and Recipient 

Activity database and has determined why 

these errors occurred. 

4.2 OGD will revise IPERA guidance to 

implement corrective actions, as based on 4.1 

above. 

2/7/2013 

(completed) 

6/30/2013 

5 The CFO develop specific 

guidance to define “applicable 

discounts” for IPERA 

reporting purposes. 

5.1 OCFO’s Research Triangle Park-Finance 

Center will update existing Improper 

Payment Standard Operating Procedures to 

include specific guidance to define 

“applicable discounts” for IPERA reporting 

purposes. 

4/19/2013 

6 The CFO include any payment 6.1 OCFO will include improper payments 11/15/2013 

that does not account for as defined in 5.1 above in the EPA’s FY 

credit for an applicable 

discount as an improper 

payment in EPA’s FY 2013 

Agency Financial Report. 

2013 AFR. 

13-P-0175 20 
 

 

 

CONTACT INFORMATION 

If you have any questions regarding this response, please contact Stefan Silzer, Director of the 

Office of Financial Management on (202) 564-5389 or Andrew LeBlanc of the Program Costing 

Staff on (202) 564-1761. 

Attachment 

cc: Craig Hooks 

Nancy Stoner 

Nanci Gelb 

Michael Shapiro 

Maryann Froehlich 

Joshua Baylson 

Stefan Silzer 

Jeanne Conklin 

Meshell Jones-Peeler 

Dale Miller 

John O’Connor 

Istanbul Yusuf 

Sandy Dickens 

Steven Erickson 

Andrew LeBlanc 

 Sheila Platt 

Howard E. Rubin 

 Sheila Frace 

Charles Job 

Howard Corcoran 

Bruce Binder 

Denise Polk 

Joseph Lucia 

 Sandy Womack-Butler 

 Marilyn Ramos

 Michael Mason 

Barbara Freggens 

Melissa Heist 

 Richard Eyermann 

 Janet Kasper 

Heriberto Ibarra 

Doug LaTessa 

Nicole Pilate 

Mary Anne Strasser 

13-P-0175 21 
 

 

Appendix B 

Distribution 

Office of the Administrator 

Chief Financial Officer 

Assistant Administrator, Office of Water 

Assistant Administrator, Office of 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 

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

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

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 

13-P-0175 22