EPA Improved Controls 

Over Billing Reimbursable 

Interagency Agreement 

Expenditures to Other Agencies

Report No. 16-P-0212 June 27, 2016

U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Financial Management
Report Contributors: Paul Curtis

Meg Hiatt

Edgar Dumeng

Robert Evans

Kevin Ross 

Phil Weihrouch

Abbreviations

CFC Cincinnati Finance Center

EPA U.S. Environmental Protection Agency

FEMA Federal Emergency Management Agency

OCFO Office of the Chief Financial Officer

OIG Office of Inspector General

Cover Image: Aerial view of an oil spill. The EPA, via interagency agreements, may receive 

reimbursements for oil removal costs resulting from their activities.

(EPA photo)

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 16-P-0212

June 27, 2016

Why We Did This Review

We performed this audit to 

determine whether the 

U.S. Environmental Protection 

Agency (EPA) has controls in 

place to identify, record and bill 

all applicable reimbursable 

costs; and is accurately 

computing and billing all 

applicable reimbursable costs

under reimbursable interagency 

agreements. 

Reimbursable interagency 

agreements are written 

agreements between federal 

agencies under which goods or 

services are provided on a 

reimbursable basis. The EPA’s 

Office of the Chief Financial 

Officer, Office of the Controller,

oversees the billing of 

reimbursable expenditures

under reimbursable interagency 

agreements.

This report addresses the 

following EPA goal or 

cross-agency strategy:

• Embracing EPA as a highperforming organization.

Send all inquiries to our public

affairs office at (202) 566-2391

or visit www.epa.gov/oig.

Listing of OIG reports.

EPA Improved Controls Over Billing Reimbursable

Interagency Agreement Expenditures to Other Agencies 

 What We Found

In prior Office of Inspector General (OIG) 

audits, we found that the EPA did not timely bill 

other federal agencies for reimbursable costs. 

Based on our current audit, we found that the 

EPA is billing costs under reimbursable 

interagency agreements timely and accurately.

While the EPA maintained a backlog of 

unreimbursed expenses, and had a large 

balance in federal unbilled receivables during 

fiscal year 2012, the EPA implemented actions 

to expedite billing older reimbursable costs and reduce federal unbilled

receivables. Actions included:

• Obtaining additional funds from the U.S. Coast Guard, which enabled the 

EPA to hire additional staff to reduce the existing backlog of unbilled oil 

spill removal expenses.

• Reviewing quarterly unliquidated obligation reports from the Federal 

Emergency Management Agency (FEMA) and notifying FEMA of pending 

billable costs to prevent deobligation of mission-assignment funds.

• Requiring a seven-digit organization code in the accounting string to 

ensure that all reimbursable expenses are tied to a reimbursable 

interagency agreement and, therefore, billable.

• Creating a default in Compass financials (the EPA’s accounting system) to 

reject any reimbursable expenses not tied to a reimbursable agreement.

• Performing an in-depth analysis of the federal unbilled receivable backlog 

to recover expenses previously unbillable. 

Improvements in the federal billing process resulted in a sizeable decrease in

federal unbilled receivables. The federal unbilled receivables decreased by 

approximately $18 million—from about $26 million in fiscal year 2012 to about 

$8 million in fiscal year 2015.

Since the EPA has already taken action to improve its reimbursable billing 

process and has reduced its unbilled receivables, no recommendations are 

being made. The agency agreed with our findings and had no comments to the 

discussion document. We will close the final report upon issuance.

U.S. Environmental Protection Agency

Office of Inspector General

At a Glance

Our prior and ongoing 

interest and concerns over 

recovering reimbursable 

expenses under reimbursable 

interagency agreements

resulted in the EPA making a 

concerted effort to reduce the 

overall unbilled reimbursable 

costs, and it achieved

$18 million in reductions.
June 27, 2016

MEMORANDUM

SUBJECT: EPA Improved Controls Over Billing Reimbursable Interagency Agreement 

Expenditures to Other Agencies

Report No. 16-P-0212

FROM: Arthur A. Elkins Jr.

TO: David Bloom, Deputy Chief Financial Officer

Office of the Chief Financial Officer

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

U.S. Environmental Protection Agency (EPA). The project number for this audit was OA-FY13-0104.

This report contains the OIG’s findings. This report represents the opinion of the OIG and does not 

necessarily represent the final EPA position. 

This report contains no recommendations and you are not required to respond to this report. However, if 

you submit a response, it will be posted on the OIG’s public website, along with our memorandum 

commenting on your response. Your response should be provided as an Adobe PDF file that complies 

with the accessibility requirements of Section 508 of the Rehabilitation Act of 1973, as amended. The 

final response should not contain data that you do not want to be released to the public; if your response 

contains such data, you should identify the data for redaction or removal along with corresponding 

justification. 

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

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, D.C. 20460

THE INSPECTOR GENERAL
EPA Improved Controls Over Billing Reimbursable 16-P-0212

Interagency Agreement Expenditures to Other Agencies

Table of Contents

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

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

Responsible Offices.................................................................................................. 1

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

Prior Audit Coverage ................................................................................................ 2

Agency Actions Prompted by OIG Work ................................................................. 3

Additional Noteworthy Achievements ..................................................................... 7

Agency Comments and OIG Evaluation .................................................................. 7

Status of Recommendations and Potential Monetary Benefits ............................. 8

Appendix

A Distribution ....................................................................................................... 9
16-P-0212 1

Purpose

The objectives of this audit were to determine whether the U.S. Environmental 

Protection Agency (EPA) has controls in place to identify, record and bill all 

applicable costs incurred under reimbursable interagency agreements; and is 

accurately computing and billing all applicable costs.

Background

The EPA uses reimbursable interagency agreements to provide goods or services 

to other federal agencies in support of their mission. The EPA obtains 

reimbursable authority, which is authorized by congressional statute and is 

apportioned to the EPA from the U.S. Office of Management and Budget. This 

authority permits the EPA to obligate other funding sources (both federal and 

non-federal) in addition to the EPA’s annual appropriation.

Once the EPA has incurred expenses under a reimbursable interagency 

agreement, it bills other agencies to recover the incurred costs. If the EPA fails to 

recover sufficient funds from the other agency, the EPA must use its own 

appropriated funds to cover the expenses, which could limit funds available for 

the EPA to perform its mission to protect human health and the environment.

Examples of EPA reimbursable interagency agreements include agreements with 

the U.S. Coast Guard to conduct oil spill removals, and with the Federal 

Emergency Management Agency (FEMA) to respond to natural disasters. 

Prior Office of Inspector General (OIG) audits found that the EPA did not timely 

bill other federal agencies for reimbursable costs, and the EPA had a backlog of 

unbilled reimbursable expenses. We determined that reimbursable costs were not 

billed for several years, or were billed after the other federal agency had 

deobligated the available funds. The EPA calculates an accrual each fiscal period 

to record the estimated amount of reimbursable expenses not yet billed, and to 

recognize earned revenue for financial reporting purposes. We determined that the 

EPA maintained a large balance in the federal unbilled receivables account. 

Responsible Offices

The Office of the Controller1 within the Office of the Chief Financial Officer 

(OCFO) operates finance centers, which have national financial responsibilities 

for certain functions and local financial responsibilities for assigned geographic 

areas. The Cincinnati Finance Center (CFC) has primary responsibility over the 

financial management of interagency agreements and accounts receivable. CFC is 

responsible for the oversight of financial requirements for reimbursable 

 1 On March 6, 2016, the former Office of Financial Services in OCFO was consolidated into the OCFO’s new 

Office of the Controller; the former Office of Financial Services had been responsible for the areas audited.
16-P-0212 2

interagency agreements and is primarily responsible for conducting quarterly 

reviews and all billings related to reimbursable interagency agreements.

Scope and Methodology

We conducted this audit starting in February 2013. However, the project was

suspended twice due to higher priority, congressionally mandated audits and 

internal resource constraints. The actual time periods we conducted the audit were

February 2013 to July 2013, March 2014 to May 2014, and December 2015 to 

May 2016. We conducted the audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

To answer the objectives, we:

• Reviewed the EPA policies pertaining to accounts receivable and laws and 

regulations that permit the EPA to recover costs.

• Interviewed CFC officials to document the billing process for 

reimbursable interagency agreements.

• Randomly sampled and tested the timeliness and accuracy of current 

billings under reimbursable interagency agreements from October 2011 

through December 2012.

• Analyzed the oil spill backlog and the unbilled receivable data information 

in Compass financials (the agency’s accounting system).

We did not review the internal controls over Compass financials from which we 

obtained financial data, but relied on the review conducted during the audit of the 

EPA’s financial statements. Our review was limited to the EPA’s process for 

identifying, computing, recording and billing reimbursable costs under federal 

reimbursable interagency agreements.

Prior Audit Coverage

We researched prior audits related to billing reimbursable expenses. The

following EPA OIG reports disclosed findings pertinent to our review:

• Audit of EPA’s Fiscal Years 2011 and 2010 Consolidated Financial 

Statements (12-1-0073), issued November 16, 2011. The report disclosed 

that the EPA did not timely bill other federal agencies for reimbursable 

costs incurred under reimbursable agreements before the other agency’s 
16-P-0212 3

funding became cancelled. This occurred because the EPA had difficulty 

reconciling costs incurred to costs billed under individual reimbursable 

agreements, which caused delays in replenishing funds spent on 

reimbursable agreements. The agency agreed to review unbilled federal 

reimbursable expenses, determine their collectability, and bill appropriate 

funds before the funding period was cancelled. The agency completed this 

recommendation for corresponding funds being cancelled in 2012. 

• Audit of EPA’s Fiscal Years 2010 and 2009 Consolidated Financial 

Statements (11-1-0015), issued November 15, 2010. The report disclosed 

that the EPA did not timely bill or collect receivables from federal 

agencies within the appropriation period available for reimbursement. 

The EPA billed several agencies after those agencies had deobligated the 

funds. One agency noted that the EPA took more than 2 years after the 

performance period ended to submit a bill. Another agency rejected a bill 

because the interagency agreement was closed and the billing charges 

were over 9 years old. We recommended the EPA establish procedures to 

timely bill federal agencies within their authorized appropriation period.

The agency concurred with our remaining findings and recommendation 

and completed the recommendation related to current appropriated funds 

on October 4, 2010.

• EPA’s Gulf Coast Oil Spill Response Shows Need for Improved 

Documentation and Funding Practices (11-P-0527), issued August 25, 

2011. This report found that the EPA needed additional management 

controls to track and recover its Gulf Coast oil spill response costs.

We recommended that the EPA implement controls to ensure that 

documentation supports authorized response activities, and that response 

bills and supporting cost documentation packages are clear and complete. 

We also recommended that the EPA seek new or additional emergency 

response funding authority for oil spills. The EPA completed the 

recommendations on June 11, 2012. 

Agency Actions Prompted by OIG Work

Prior Office of Inspector General (OIG) audits of the EPA’s financial statements and 

other audits, found that the EPA did not timely bill other federal agencies for 

reimbursable costs, and the EPA had a backlog of unbilled reimbursable expenses. 

Based on our current audit, we found the current billing process for reimbursable 

interagency agreements is now adequate, and the EPA is billing costs under 

reimbursable interagency agreements timely and accurately. A backlog of 

unreimbursed expenses existed in fiscal year 2012, and the EPA had maintained a 

$25.6 million balance in the federal unbilled receivables account. Our interest and 

concerns over recovering expenses under reimbursable interagency agreements

resulted in the EPA making a concerted effort to reduce the overall unbilled 
16-P-0212 4

receivables, and it achieved $18 million in reductions. The EPA implemented actions 

to expedite billing older reimbursable costs. These actions included:

• Receiving additional funds from the U.S. Coast Guard that enabled the 

EPA to hire additional staff to reduce the existing backlog of unbilled oil 

spill removal expenses.

• Reviewing quarterly unliquidated obligations reports from FEMA and 

notifying FEMA of pending billable costs to prevent deobligation of 

mission-assignment funds.

• Requiring a seven-digit organization code in the accounting string to ensure 

all reimbursable expenses are tied to a reimbursable interagency agreement

and, therefore, billable.

• Creating a default in Compass to reject any reimbursable expenses not tied 

to a reimbursable agreement.

• Performing an in-depth analysis of the federal unbilled receivables

backlog to recover expenses previously unbillable. 

Because the EPA has already taken action to improve its reimbursable billing 

process and reduced its unbilled receivables, no recommendations are being made.

U.S. Coast Guard Agreements 

The Oil Spill Liability Trust Fund is available to reimburse the EPA, via 

interagency agreements, for oil removal costs resulting from their activities.

The EPA was not timely billing or being reimbursed for costs incurred under 

interagency agreements with the Coast 

Guard for oil spill removal activities. 

Factors contributing to the delays 

included stringent Coast Guard billing 

requirements and a change in 

requirements for site-specific cost 

packages. 

A memorandum of understanding2

between the Coast Guard and EPA 

contained stringent requirements for 

documentation supporting bills. 

These requirements included

obtaining individual site-supporting 

documents from the regions 

 2 The memorandum of understanding describes the National Pollution Funds Center’s responsibility to fully support 

the EPA by providing timely funding and support to carry out oil removals. 

EPA and Coast Guard personnel making up a 

Shoreline Cleanup Assessment Team 

overseeing cleanup operations following an oil 

spill into Lake Michigan. (EPA photo)
16-P-0212 5

(i.e., contractor invoices, travel and payroll documents, etc.) before the EPA could 

submit bills to the Coast Guard for reimbursement. The Coast Guard also required 

additional efforts to prepare bills, such as marking “business information” from 

contractor invoices or travel and payroll documents. This additional effort 

increased the time CFC needed to prepare and submit bills and collect 

reimbursement from the Coast Guard, resulting in a backlog of unbilled 

receivables for oil removal costs.

The Coast Guard reimbursement requirements caused the EPA to change from a 

more timely bulk billing process (i.e., encompassing multiple site billings) to a 

less timely single-site billing process. The EPA’s existing cost package billing 

system (Superfund Cost Recovery Package Imaging and On-Line System) 

generated bulk billing packages, and was not set up to generate individual site 

billing packages required by the Coast Guard. As a result, CFC experienced 

delays in generating the data for the individual site billing packages.

Under the revised reimbursable agreement with the Coast Guard, the EPA now 

charges an increased indirect cost rate to cover its costs for billing the Coast 

Guard for oil spill removal activities. This additional funding allowed the EPA to 

hire two additional full-time equivalents to help process the individual site cost 

packages for the Coast Guard bills and update the Superfund Cost Recovery 

Package Imaging and On-Line System to support the individual site cost billing 

packages. This resulted in a reduction of the backlog of unbilled receivables for 

oil spill removal activities by more than $4.2 million between fiscal years 2013 

and 2016. The backlog was approximately $4.3 million during fiscal year 2013,

and was reduced to about $65,000 by fiscal year 2016.

FEMA Agreements

FEMA deobligated funds from mission assignments before the EPA could bill for

reimbursable expenses incurred on mission assignments. As a result, FEMA 

would no longer have the funding available to reimburse the EPA, and the 

unbilled receivables balance continued to increase. Based on negotiations with the 

EPA, FEMA implemented a new 

policy that requires FEMA to 

confirm with the EPA that funds 

are no longer needed before 

deobligating mission-assignment 

funds after the project period 

ended. FEMA now submits 

quarterly unliquidated obligation 

reports to the EPA showing 

outstanding unliquidated 

obligations in their records. The 

EPA compares the unliquidated 

obligation amount on the FEMA EPA workers after a refinery explosion in Puerto Rico, 

a FEMA and EPA joint effort. (Yuisa Rios/FEMA photo)
16-P-0212 6

report against its open obligations, and informs FEMA which obligations should 

remain open and which can be deobligated. This approach allows the EPA to 

identify and timely bill known reimbursable expenses, which subsequently helps 

reduce the unbilled receivables.

Compass Enhancements

Prior to Compass, programs recorded reimbursable expenses but were unable to 

bill those expenses because they were not tied to a reimbursable agreement. To 

correct the issue, OCFO developed default controls in Compass that now require a 

seven-digit organization code tied to a specific reimbursable interagency 

agreement. The Compass default control will reject expenses charged to a 

reimbursable fund code without a seven-digit organization code. The use of the 

line of accounting with the seven-digit organization code in Compass assures that 

all expenditures for that reimbursable agreement will be captured correctly in the 

accounting system. That means more accurate billings for CFC and, by 

association, fewer unbilled receivables.

Review of Reimbursable Expenses

CFC spent considerable time and effort cleaning up the federal unbilled 

receivables report. The CFC staff researched old (prior year) unbilled 

reimbursable expenses remaining on the report to lower unbilled receivables and 

expedited reimbursable billings. 

CFC identified and corrected errors in reimbursable expenses recorded in the 

accounting system, such as incorrect fund codes, program results and sites. These 

corrections enabled the EPA to recover those reimbursable expenses and reduce 

the unbilled receivables. 

Improvements in the federal billing process resulted in a sizeable decrease in the

federal unbilled receivables. The federal unbilled receivables decreased 

approximately $18 million—from about $26 million in fiscal year 2012 to about 

$8 million in fiscal year 2015, as shown in Table 1.
16-P-0212 7

Table 1: Federal unbilled receivables balances from fiscal years 2012 to 2015

Source: OIG analysis of unbilled receivable balances.

Additional Noteworthy Achievements

• OCFO conducted a Lean Review in 2014, during which various offices in 

OCFO worked together to complete a comprehensive study of the 

reimbursable agreement process.

• OCFO now requires a reservation of funds in the budget that identifies 

reimbursable authority. As a result, costs cannot be charged to a 

reimbursable fund without a reservation of funds. 

• OCFO developed a Reimbursable Agreements Status of Funds Report in 

Compass that provides the funding status of all current reimbursable 

agreements, and is used to identify differences in spending and account 

receivables.

• OCFO issued Resource Management Directive System 2550C-04-P2, which 

sets forth the EPA’s financial requirements for the award and management of 

reimbursable interagency agreements. These requirements ensure that the 

EPA properly collects, documents and manages reimbursable funds, and 

recovers the full cost of performing work on behalf of a federal partner.

Agency Comments and OIG Evaluation

The agency agreed with our findings and had no comments to the discussion 

document. We will close the final report upon issuance.

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

2012 2013 2014 2015

Amount

Fiscal Year

FY12 to FY15 Posted Unbilled Receivables

FY Posted Accrual
16-P-0212 8

Status of Recommendations and 

Potential Monetary Benefits

RECOMMENDATIONS

POTENTIAL MONETARY 

BENEFITS (in $000s)

Rec. 

No.

Page 

No. Subject Status1 Action Official

Planned 

Completion 

Date

Claimed 

Amount

Agreed-To 

Amount

No recommendations

Note: during our review, the EPA 

reduced federal unbilled receivables by 

$18 million.

$18,000 $18,000

1 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.
16-P-0212 9

Appendix A

Distribution

Office of the Administrator

Chief Financial Officer

Audit Follow-Up Coordinator

Agency Follow-Up Coordinator

General Counsel

Associate Administrator for Congressional and Intergovernmental Relations

Associate Administrator for Public Affairs

Associate Chief Financial Officer, Office of the Chief Financial Officer

Controller, Office of the Controller, Office of the Chief Financial Officer

Deputy Controller, Office of the Controller, Office of the Chief Financial Officer

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

Director, Office of Technology Solutions, Office of the Chief Financial Officer

Director, Financial Services Division, Office of the Chief Financial Officer

Director, Cincinnati Finance Center, Office of the Chief Financial Officer

Chief, Management Integrity and Accountability Branch, Office of the Chief Financial Officer

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

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