United States Office of the EPA-190-R-00-003

 Environmental Protection Chief Financial Officer March 2000

 Agency (2710A) http://www.epa.gov

FY 1999 AUDITED

 FINANCIAL STATEMENTS

Internet Address (URL) % http://www.epa.gov

Recycled/Recyclable % Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)

EPA’s FY 1999 Annual Financial Statements 2CIG K

TABLE OF CONTENTS

Message from the Administrator .......................................................................... iii

Management’s Discussion and Analysis ................................................................ 1

Message from the Chief Financial Officer ............................................................. 17

Chief Financial Officer’s Analysis ......................................................................... 19

Principal Financial Statements .............................................................................. 25

OIG’s Report on EPA’s FY 1999 Financial Statements ........................................ 71

Acronyms ............................................................................................................ 89

EPA’s FY 1999 Annual Financial Statements Page iii

MESSAGE FROM THE ADMINISTRATOR

I am pleased to present the U.S. Environmental Protection Agency’s Annual Financial

Statements for Fiscal Year 1999. These statements summarize EPA’s financial activities and

highlight the successes achieved by EPA’s programs during this time.

Over the past seven years of unprecedented economic expansion, this Administration,

working with the Congress, and our state and tribal partners, has distinguished itself through

unprecedented environmental progress. On a range of issues in 1999 EPA continued to build on

its record of achievements.

• The 1996 amendments to the Safe Drinking Water Act, a fine example of what we can

achieve when the Congress and the Agency work together, coupled with the President’s

Clean Water Action Plan, have contributed greatly to improving the quality of tap water

and cleaning up the Nation’s waters. More recently, under a new cooperative,

intergovernmental process, we recently completed a comprehensive, nationwide

assessment of watersheds to help achieve our Clean and Safe Water goal.

• We have placed special emphasis on protecting our Nation’s greatest resource - our

children - through actions like implementing the Food Quality Protection Act, that for the

first time puts emphasis on protecting the health of infants and children from pesticide

risks. For example, EPA announced the cancellation of certain uses and risk reduction

strategies for the highly toxic organophosphate pesticides methyl parathion and azinphos

methyl. Residues from these pesticides are often found on foods children commonly eat. 

This is the first time the Agency has set standards because of the specific effects a

pesticide has on children’s health.

• Accelerated cleanups of our Nation’s worst Superfund hazardous waste sites have helped

ensure that neighborhoods are free from toxic waste sites. EPA and its partners met the

FY 1999 goal of construction completion at 85 Superfund sites. Under this

administration, more than three times as many toxic waste site cleanups have been

completed than were completed in the previous 12 years of the Superfund program.

• Under our Brownfields Assessment Demonstration Pilot Program, we continued to forge

stronger partnerships with states, cities, and communities by providing funding and

technical support to 307 communities to help them redevelop abandoned or underutilized

industrial properties.
Page iv EPA’s FY 1999 Annual Financial Statements

• Our Nation’s air quality continues to improve through cleaner cars and fuels. The

President announced a final rule that will give Americans substantially cleaner-burning

vehicles and cleaner fuels. For the first time ever, SUVs, vans and light trucks will be held

to the same tough standard as cars. By the end of the decade, every single vehicle rolling

off the assembly line will be 77 to 98 percent cleaner than the vehicles we drive today. 

These reductions will be the equivalent of taking 164 million cars off the road, and will

prevent thousands of premature deaths and respiratory illnesses. But this action will not

limit a consumer’s choice in vehicles. 

• EPA’s Office of Environmental Information was created to be an innovative center of

excellence for the creation, management, and use of information as a strategic resource. 

Having quality environmental information will enable EPA to make informed decisions,

improve information management, reduce reporting burdens, improve public access, and

measure success in support of the Agency’s mission to protect the environment and human

health.

• Working cooperatively with industry, the public, and local leaders we continued to find

innovative, cost-effective, and common sense solutions to environmental and public health

challenges. Our Project XL (eXcellence and Leadership) initiative enables companies,

states, and localities to redesign current EPA rules if they can formulate alternative

systems that are both cheaper and cleaner for the environment.

When I began my service as Administrator, I stated that the Agency would fulfill its

mission while adhering to sound management principles designed to ensure prudent and effective

stewardship of the taxpayer funds entrusted to us. These financial statements are one major

indicator of our commitment to fiscal accountability. I look forward to continued management

improvements enabling EPA to link its resources with results, measure its successes, meet the

long-term goals and objectives established in its Strategic Plan, and address the critical

environmental challenges that will emerge during the new millennium.

Carol M. Browner

Administrator
EPA’s FY 1999 Annual Financial Statements 2CIG"3

MANAGEMENT’S DISCUSSION

AND ANALYSIS (MD&A)
2CIG"4 EPA’s FY 1999 Annual Financial Statements

U.S. ENVIRONMENTAL PROTECTION AGENCY

(EPA)

Note: This FY 1999 Organization Chart does not reflect the Office of Environmental

Information (OEI) which was established in FY 2000.
EPA’s FY 1999 Annual Financial Statements 2CIG"5

MANAGEMENT’S DISCUSSION AND ANALYSIS

Introduction

The Environmental Protection Agency (EPA) was established to lead the nation’s efforts to protect

human health and safeguard the environment. EPA continues to work in partnership with local,

state, tribal, federal and global communities to protect the air, water, land, and public health for all

generations. This section contains an overview of the initiatives taken to ensure that all citizens have

a clean environment and presents the key financial management highlights of the Agency. [For more

detailed information on environmental initiatives, see EPA’s FY 1999 Annual Performance Report

(APR), to be issued in March 2000.]

EPA’s Mission and Strategic Goals

The Agency’s mission statement encompasses all of the legislative mandates of its programs and

serves as a guidepost for all activities. Our strategic planning framework comprises ten strategic

long-term goals that support the Agency’s mission. We have articulated a set of objectives for each

strategic goal, as well as performance goals to identify the progress we aim to make each year

towards longer-term commitments.

Mission

“The mission of the U.S. Environmental Protection Agency is to protect human health and to

safeguard the natural environment – air, water, and land – upon which life depends.”

Strategic Goals

EPA has ten strategic goals to fulfill this mission. The Agency’s Strategic Goals are:

1. Clean Air

2. Clean and Safe Water

3. Safe Food

4. Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces, and

Ecosystems

5. Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency

 Response

6. Reduction of Global and Cross-Border Environmental Risks

7. Expansion of Americans’ Right to Know About Their Environment

8. Sound Science, Improved Understanding of Environmental Risk, and Greater Innovation to

 Address Environmental Problems

9. A Credible Deterrent to Pollution and Greater Compliance with the Law

 10. Effective Management.
2CIG"6 EPA’s FY 1999 Annual Financial Statements

Overview of FY 1999 Results

EPA is proud of its FY 1999 contributions to establishing a cleaner, healthier environment. The

results presented in this report demonstrate continued progress and reveal a mix of tools and

approaches used to protect public health and promote environmental protection. Throughout the

year, the Agency maintained close contact with its primary partners–states, tribes, and other federal

agencies–whose involvement contributed significantly to the annual accomplishments discussed in

this report and progress toward the longer-term environmental results. 

For FY 1999, EPA can report significant accomplishments that contributed to cleaner air and land

and safer food and water, meeting the majority of the 69 annual performance goals (APGs) to which

the Agency committed in its FY 1999 Annual Plan. The Agency is also on track to achieve several

APGs with targets that fall beyond FY 1999. Final results are not yet available for a number of

APGs due to differences in reporting schedules. Owing to a variety of factors, EPA did not achieve

some of the accomplishments it had planned for FY 1999. A table showing detailed results for

EPA’s 69 APGs is included in the Appendix of the FY 1999 APR.

Selected Accomplishments

Innovative Approaches to Environmental Problems

EPA is taking a fresh look at environmental problems and their solutions. We are devising more

efficient and effective regulatory programs, expanding cooperative partnerships, and building simpler

and more flexible processes for rule-making and permitting. We have some exciting results to

report.

A 25-Percent Reduction in Acid Rain. In the Northeast and Mid-Atlantic regions of the United

States, where ecosystems are most prone to acidification, acid deposition has declined by up to 25

percent through the efforts of the acid rain program, which implements a system of emissions trading

known as “cap and trade.” This successful, market-based program was established by the Clean Air

Act to control emissions of sulfur dioxide (SO2) from electric power plants that cause acid rain and

other environmental and public health problems. The “cap and trade” system is innovative in its use

of the market to achieve greater environmental results for a given cost than are possible through

traditional approaches. The program places a mandatory ceiling, or cap, on emissions nationwide

from electric utilities, and allocates emissions to these pollution sources in the form of allowances.

At the end of the year, sources must hold one allowance for each ton of SO2 they emitted. Extra

allowances may be banked (or carried over) for future use, or sold to other companies. This

flexibility gives utilities the opportunity to find cost efficiencies while ensuring that overall emission

reductions are achieved. Estimates by Edison Electric Institute in 1989 of estimated costs under

traditional approaches were $7.4 billion by 2010, versus EPA’s initial estimate of $4.6 billion under

“cap and trade.” Based on recent compliance cost information, a 1998 Resources for the Future

report estimated costs of SO2 emissions reductions to be less than $1 billion by 2010.
EPA’s FY 1999 Annual Financial Statements 2CIG"7

Early Progress in Food Safety. EPA is piloting a new approach to broaden public participation in

decision-making on older agricultural pesticides. We are confronted with a large number of

pesticides that were registered, or licensed for use, before tough standards for food safety were

enacted into law. EPA is required by statute to evaluate these pesticides to set safe limits for their

residues on foods, also called “food tolerances.” Our new approach to reassessment makes the

process more transparent to the agricultural community, whose members are most directly affected

by Agency findings. We are pleased to report that, as of September 30, 1999, EPA exceeded the

statutory requirement of evaluating 33 percent of the 9,721 existing pesticide food tolerances,

completing a net total of 3,430 reassessments (over 35%).

Regulations that Produce Better Environmental Results. One of EPA’s boldest innovations, Project

XL (“eXcellence and Leadership”) was created through the President’s Reinventing Environmental

Regulation Initiative. In FY 1999, EPA approved five more regulatory pilot projects through Project

XL, bringing the number of pilot experiments in the implementation stage to 15. An additional 36

XL proposals were either under development or in negotiation, bringing the total number of projects

to 51, meeting the Agency’s goal for FY 1999. To date, these pilots have revealed over 40

opportunities for improving environmental regulations, and eight innovations have already been

incorporated into EPA regulations, permitting, and stakeholder involvement approaches. Project XL

gives approved regulated sources the flexibility to develop alternative strategies to replace or modify

specific regulatory requirements, contingent upon the production of greater environmental benefits.

Innovative Partnerships for Environmental Results

EPA could not have achieved the results described in this document during FY 1999 without forging

innovative partnerships with many different governments, groups, and agencies. The Agency

operates with the active participation of state and local agencies, tribes, community leaders,

businesses, and private citizens to develop the most effective standards for public health and

environmental protection.

Targeting Clean Water Efforts, from Coast to Coast. EPA’s Strategic Plan includes a commitment

to expand our focus on watersheds in pursuit of our goal for Clean and Safe Water. FY 1999

brought to fruition a cooperative, intergovernmental process to assess the condition of the nation’s

watersheds. For the first time, all 50 states, the District of Columbia, five territories, and numerous

tribes each completed a comprehensive, nationwide assessment of watersheds within their

boundaries, with guidance from EPA, the U.S. Department of Agriculture, and other federal

agencies. The results incorporate water quality data, habitat conditions, endangered species listings,

and other environmental factors. Taken together, this information helps all agencies identify the

aquatic resources in greatest need of restoration and/or protection under the Clean Water Action

Plan. 

A Cleaner Environment, a Stronger Economy. During FY 1999, EPA’s government/industry

partnership programs contributed to the reduction of annual greenhouse gas emissions in total by 35

metric tons in carbon equivalent. The Agency’s climate change efforts are part of the President’s
2CIG"8 EPA’s FY 1999 Annual Financial Statements

five-year Climate Change Technology Initiative included in the 1999 Budget and are designed to

overcome barriers to investments in more efficient technologies by consumers, businesses, and

others. EPA promotes energy-efficient technologies through programs such as the Energy Star

Labeling Program and the Voluntary Aluminum Industry Partnership. Our support for innovation

enables industries to limit greenhouse gas emissions and at the same time improve local air quality,

save money for consumers and businesses, and enhance overall economic productivity. 

Making the Most of our Land. In FY 1999, EPA demonstrated its commitment to Brownfields

redevelopment by meeting its goal to provide funding and technical support to 80 communities,

bringing the total communities served to 307. The Brownfields Assessment and Development

Program supports the assessment, cleanup, and redevelopment of industrial and commercial

properties that have been abandoned or underutilized due to real or perceived environmental

contamination. Redevelopment efforts are designed to empower states, communities, and other

stakeholders to work together on Brownfields projects. EPA and its partners also met the Agency’s

goal to complete construction at 85 Superfund sites in FY 1999. Major administrative reforms in

the Superfund program have enabled us in the past seven years to complete construction at over three

times the number of sites achieved during the first twelve years of the program.

Managing and Improving Environmental Information

EPA is working to assemble and manage more precise information about the environment to present

a more complete picture to the public and to enhance Agency decision-making. During FY 1999,

EPA made notable advances in the quality of data being produced and the availability of

environmental information to all partners and stakeholders. When all of us–state and tribal

governments, non-governmental and private organizations, communities, and individual

citizens–have access to valid, consistent, and comprehensible data about environmental conditions,

we can work together more effectively to address environmental problems and reduce exposure to

harmful substances.

Establishing Common Data Standards. The State/EPA Information Management Workgroup,

founded to promote compatible data standards and systems designs, has negotiated a common vision

and operating principles for managing environmental information. Although EPA and state

agencies are committed to sharing environmental data, the variety of data standards currently in use

makes it difficult to integrate information or create accurate composites of environmental conditions.

The workgroup has established multi-party action teams to identify and promulgate joint

environmental data standards. In FY 1999, the teams completed standards for facility identification

and standard date, and work is currently underway on standards for latitude/longitude, industrial

classification, chemical identity, and biological classification.

Putting Information into the Hands of the Public. The Agency recognizes that making

environmental and public health information available to local residents is one of the most effective

ways to reduce local pollution and prevent it from happening in the future. EPA, the Environmental

Defense Fund, and the Chemical Manufacturers Association achieved considerable success in FY
EPA’s FY 1999 Annual Financial Statements 2CIG"9

1999 during the first phase of the Chemical Right-to-Know Initiative. The focus was on 2,800

chemicals produced and imported at volumes exceeding one million pounds per year which,

therefore, present significant chance of public and environmental exposure. The Right-to-Know

initiative aims to identify and make public basic screening-level information on these chemicals,

including some that may present particular concerns for children’s health. Over 200 companies

committed voluntarily to provide screening level toxicity information on over 1,150 of the chemicals

in question.

New Information about Human Health and the Environment. Research and development programs

at EPA seek out more innovative, effective ways to gather and distribute information about

environmental health risks. The endocrine disruptors research program is producing important

results by expanding our knowledge of how exposure to certain chemicals can affect human

endocrine systems. In FY 1999, the Agency initiated a study to examine children for the effects of

two endocrine-disrupting chemicals (EDCs). This study will help to characterize the key factors that

influence human exposures to these chemicals and other persistent pesticides, toxics, and metals.

It will also help produce a field exposure study protocol to support a follow-on larger-scale study to

begin in FY 2000. The data from these studies will teach us more about where, when, and how

children and other sensitive sub-populations are exposed to these kinds of environmental

contaminants.

Transforming Information Management for the Next Century. During FY 1999, EPA laid the

groundwork for a new office dedicated to information and information access issues. Formally

established in FY 2000, EPA’s Office of Environmental Information (OEI) will play a significant

role to advance the creation, management, and use of data as a strategic resource. OEI will work

closely with EPA’s external partners to meet their data needs, develop appropriate policies regarding

data protection and information security, create and oversee information standards and records

management policies, and enhance the security and reliability of EPA’s information infrastructure.

The office supports the Agency’s mission by integrating quality environmental information to

maximize its usefulness for decision-makers.

Year 2000 (Y2K) Activities

In FY 1999, EPA positioned the Agency’s information technology assets to successfully transition

to the upcoming calendar year change. All 50 EPA mission critical systems were assessed,

renovated, and certified through an independent certification program. In addition, the Agency’s

major computing platforms (mainframe, client/server, supercomputer) and wide area

telecommunications networks were 100 percent compliant. EPA also completed assessment and

renovation of its 1,475 non-mission critical systems, as well as renovations to 28 data exchanges,

which are a combination of mission critical and non-mission critical systems. Currently, the Agency

is monitoring the post Y2K transition testing process for mission critical and non-mission critical

systems. This will enable EPA to determine whether or not the moratorium on modifications to

information technology assets is needed through March 15, 2000.
2CIG": EPA’s FY 1999 Annual Financial Statements

EPA assessed all leased and owned buildings for Y2K compliance. The Agency received written

confirmation from the General Services Administration (GSA) on March 1, 1999, that all EPA space

was successfully evaluated and compliant. To address any adverse impact of the century change on

EPA facilities, the Agency prepared guidance for all facility managers and coordinated the

preparation of facility contingency plans specifically addressing building systems. The Agency

completed testing facility contingency procedures and identified corrective actions.

To address worst case scenarios of the Y2K transition and ensure continuity of the core business

processes, the Agency developed procedures to respond to threats and risks of the calendar year

change. Through careful business process analysis, the Agency’s Business Continuity and

Contingency Planning (BCCP) methodology includes state and local interfaces, where appropriate.

The Agency’s BCCP also includes cross-cutting programmatic threats that may affect the continuity

of business operations.

Within the Agency’s BCCP methodology, EPA formed business resumption teams (BRTs) for each

of the following nine core business processes:

& Protection of Air Quality

& Protection of Water Quality

& Safe Disposal of Waste Products

& Regulation of Pesticides and Toxic Substances 

& Emergency Response to Environmental Emergencies 

& Research and Development to Improve the Understanding of Environmental Risks

& A Credible Deterrent to Pollution and Greater Compliance with the Law

& Expansion of Americans’ Right-to-Know About Their Environment

& Financial/Administrative Management of Agency Operations

The overall goals of the BRTs are to: 1) identify threats/risks and business priorities for its own core

business process; 2) develop and embellish a set of contingency procedures; 3) review and rehearse

procedures; and 4) enhance and implement procedures. EPA’s BCCP Life Cycle includes milestones

for corrective actions for identified contingencies and procedures through a series of workshops,

rehearsals, and follow-up meetings.

The following table represents the historical and estimated future costs for Agency Y2K activities:

Fiscal Year 1996 1997 1998 1999 2000 Total

Cost (in Millions) $0.8 $5.3 $11.5 $22.3 $1.0 $40.9

Building on Lessons Learned

As a learning year, FY 1999 provided EPA many opportunities to identify and develop the

capabilities essential for results-based management. The Agency knows that future successes will
EPA’s FY 1999 Annual Financial Statements 2CIG";

depend in large measure on its ability to set quantifiable, attainable goals and targets; to forecast

external factors that may have an impact on program planning; to measure performance and results

more precisely; and to analyze more accurately the relationships among costs, activities, and results.

For a variety of reasons that affected the Agency’s ability to accomplish what it had planned, EPA

achieved less than full performance for several of its 69 FY 1999 APGs discussed in the Agency’s

FY 1999 APR. The Agency does not expect the shortfall in meeting these annual performance

targets, however, to compromise its progress toward the long-range goals to which they contribute.

For example, the Agency met the statutory and cumulative goal of reassessing existing tolerances

for pesticide food uses, but missed its annual target due to efforts to strengthen involvement of the

agricultural community in the reassessment process. In another case, the Agency added only four

states (out of the eight that were planned) to the One Stop Reporting program in FY 1999. However,

EPA did develop a technology transfer activity to support states efforts to increase their level of

information integration. While they may not have resulted in the performance planned for FY 1999,

these and other such efforts build a strong foundation for longer-term progress towards the Agency’s

goals.

In some cases, external factors affected the Agency s ability to achieve planned APGs. For example,

due to difficulties reaching agreements with developing nations, EPA delivered 16 international

training modules instead of the 30 originally planned. Similarly, the Agency’s decision to relinquish

interest in the Wilson Building so that the District of Columbia Government could return to its

historic home delayed the consolidation of EPA Headquarters offices at the Federal Triangle.

Looking Ahead

In addition to the missed APGs, other program issues will need careful attention by the Agency and

our partners if we are to maintain progress towards the achievement of long-term performance

results. The Agency is working to address these challenges as we continue to strive for

environmental outcomes.

Air Court Case: Implications for Future of EPA’s Regulations. In May 1999, in a split decision (2

to 1), a panel of judges on the U.S. Court of Appeals for the D.C. Circuit held that the Clean Air Act,

as applied in setting the new public health air quality standards for ozone and particulate matter,

represents an unconstitutional delegation of legislative authority. The Court’s decision calls into

question these important new health air standards for ozone and particulate matter, which would

protect the health of 125 million Americans, including 35 million children. Ozone and particulate

matter are harmful pollutants that together contribute to acute health effects ranging from premature

death to asthma and other respiratory problems. The Court’s decision stands in the way of EPA’s

public health protection efforts and carries with it long-term implications not only for these new air

quality standards, but also for many other federal regulations containing broad grants of authority

to executive branch agencies. In January 2000, the Administrator filed a cetiorari petition seeking

Supreme Court review of key aspects of the Court’s opinion.
2CIG"32 EPA’s FY 1999 Annual Financial Statements

Nonpoint Source Pollution. Nonpoint source (NPS) pollution is the nation’s largest contributor to

water quality problems. There are literally millions of diffuse sources of polluted runoff from

agricultural lands, residential areas, city streets, and forests, and from pollutants settling out of the

air. A key challenge for the future is to foster a national commitment to preventing nonpoint source

pollution, assuring adequate investments by federal, state, tribal and local governments to fund

projects to address these problems. 

Performance Information: Need for Improved Data Quality and Availability. EPA gathers much

of its data on the environment from sources outside the Agency, whose reporting cycles and data

standards vary widely. For this reason, EPA has concerns about data quality, availability, and

measurability. In a few instances, data relevant to FY 1999 performance are either lacking or of poor

quality. We need accurate baseline data to measure performance effectively. EPA goal

teams–bringing together representatives from all Agency offices whose work contributes to progress

on our strategic goals–are working to determine what data are needed to set the baselines so that we

can assess results over the long term. We are also working to develop performance measures that

focus more on the outcomes of our work than on our programmatic outputs.

Need for Improved and More Accessible Information. EPA, in cooperation with the states and tribes,

must advance efforts to reinvent environmental information by adopting formal data standards,

providing universal access to electronic reporting, and re-engineering the Agency’s national data

systems. EPA must use efforts such as joint EPA/state/tribal information activities, Environmental

Monitoring for Public Access and Community Tracking (EMPACT), Environmental Justice grants,

and drinking water Consumer Confidence Reports (CCRs) to help provide communities and

individuals with the information and tools they need to address environmental problems. EPA is

striving to provide information in simpler, clearer terms and make it more accessible to states and

local governments, the regulated community, and the public.

Future Trends

A number of current trends, which are likely to continue into the future, will have implications for

the success of EPA’s programs. The increasing likelihood of climate-change-driven weather

extremes, such as more frequent hot, dry summers, may make it increasingly difficult to reach

attainment with air quality standards, despite the full implementation of emission control plans.

Similarly, droughts and floods, such as those that occurred in 1999, can significantly impact the

success of the Agency’s water and waste programs. As evidenced by the nation’s recent experience,

flood waters can disrupt hazardous waste sites and spread animal and other wastes. Drought

conditions can preclude reliance on dilution to improve water quality. The Agency and its partners

have established some pollution control strategies predicated upon fairly typical temperature and

precipitation regimes; however, these control strategies may be less likely to succeed, as we are

exposed to increasing climate and weather extremes.

Population growth, and the attendant development of suburban and urban areas, pose further

implications for environmental protection programs. Sprawl places increased demands on
EPA’s FY 1999 Annual Financial Statements 2CIG"33

 







 































































1996 1997 1998 1999 0

1

2

3

4

5

6

7

8

9

Billions

 Superfund

STAG  All Other

Appropriations by Fiscal Year



 





 Grants

46.8%

Contracts & IAGs

27.7%

All Other

25.6%  Grants

 Contracts & IAGs

All Other

FY 1999 EPA Expenditures 

transportation, and can result in more people relying heavily on private vehicles. The need to drive

more, coupled with the trend towards larger vehicles such as sports utility vehicles, can contribute

to increased emissions of conventional pollutants and greenhouse gases such as carbon dioxide. In

addition to air quality concerns, population growth places increased pressure on the nation’s

infrastructure for providing clean and safe water. This concern is especially apparent as the U.S.

population grows in southern and southwestern states with fewer water resources and often less

highly-developed water and wastewater treatment infrastructures.

The current trend of general economic growth and increased consumer demands will also bear upon

the success of EPA’s programs across all media. If domestic manufacturing and production rise to

meet the demands of wealthier, more prosperous consumers, waste streams and air and greenhouse

gas emissions are likely to increase.

Financial Analysis Highlights

Financial Trends

Appropriation Levels for FY 1996-1999. For Fiscal Year 1999, Congress appropriated a total of $7.9

billion to the Agency. A comparison of total Agency appropriations for Fiscal Years 1996 through

1999 is provided in the following chart:

The chart is categorized by Superfund, State and Tribal

Assistance Grants (STAG), and All Other. The

Superfund appropriation category is net of transfers to

the Science and Technology (S&T) and Office of

Inspector General (OIG) appropriations. The All Other

category includes appropriations for OIG, Oil, Leaking

Underground Storage Tank (LUST), Buildings and

Facility, Environmental Program and Management

(EPM), and S&T.

FY 1999 Expenses. In Fiscal Year 1999, EPA expended

$7.7 billion using current and prior year appropriation

authority. Of this amount, as depicted, 74.9 percent was

expended for contracts, inter-agency agreements, and grants.

Superfund Financial Trends. The U.S. Congress passed the

Comprehensive Environmental Response, Compensation,

and Liability Act of 1980 (CERCLA) (P.L. 96-510), which

formally established the Superfund program and the

Hazardous Substance Response Trust Fund, now known as

the Hazardous Substance Superfund (Trust Fund). Although CERCLA has not been reauthorized
2CIG"34 EPA’s FY 1999 Annual Financial Statements



 



 











Taxes

2.4%

Cost Recoveries

36.0%

Fines & Penalties

General Fund Transfer 0.4%

36.5%

Investment Income

24.7%

Superfund Trust Fund Revenue Sources

FY 1999



































































1994 1995 1996 1997 1998 1999

0

500

1000

1500

2000

2500

Millions

Cumulative Superfund Trust Fund Cost 

Recoveries

FY 1994 thru FY 1999

since 1995, the Superfund program continues to operate each year by way of annual Congressional

appropriations.

The Trust Fund, which is administered by the Bureau of Public Debt, U.S. Department of the

Treasury (Treasury), is the primary financing source for the Superfund program. For FY 1999,

Treasury reports that the Trust Fund received $889.5 million in receipts from the revenue sources

shown in the following chart:

The Superfund program’s authority to tax expired on

December 31, 1995. Consequently, tax revenues have

diminished and the remaining revenue sources for the Trust

Fund are: cost recoveries; interest, fines, and penalties;

interest from Trust Fund investments; and general revenues.

Due to diminishing revenues, EPA has increased its efforts

to conserve existing Trust Fund balances and replenish the

Trust Fund with all eligible revenues. Specifically, EPA

has done the following to accomplish these goals:

d Reemphasized its “enforcement first” philosophy to compel Potentially Responsible Parties

(PRPs) to clean up their sites. By having PRPs perform clean-ups, EPA can reduce related

response and legal enforcement costs which result in cost savings to both the taxpayer and

the Trust Fund.

d Accelerated efforts to pursue cost recovery (see

chart). During FY 1999, EPA recovered

$319.7 million -- the largest cost recovery

amount for a one year period to date.

d Placed increased emphasis on debt collection

activities to pursue unpaid debts owed EPA.

d Diversified the Trust Fund’s investment

portfolio, with direction from Treasury, to

return a higher rate of interest to the Fund.

Office of the Chief Financial Officer’s (OCFO’s) Accomplishments

Financial Performance Measures. OCFO tracks nine Core Financial Management Performance

Measures for monitoring the key functions in EPA’s 14 finance offices. The measures cover the

timeliness of processing of payments (commercial, grant, travel, payroll), recording of contract

obligations and accounts receivable, and reconciling cash as well as the use of electronic payments

for travel and payroll. The Agency improved its performance compared to FY 1998 and exceeded

the performance goals for all the measures during FY 1999.
EPA’s FY 1999 Annual Financial Statements 2CIG"35

Benchmarking. EPA, as a CFO Council member agency, participated in a Benchmarking project

sponsored by The Hackett Group, an organization that conducts benchmarking studies for the private

sector. EPA’s business processes were compared to other government agencies and to private sector

companies in areas such as transaction processing, control and risk management, decision support

and finance function management. EPA compared very favorably against both government and

private sector averages in the number of finance FTEs per billion dollars of appropriations (equated

to revenues for private sector comparison) and the FTE staff time allocated to processing financial

transactions (lowest among both government and private sector).

One area of concern that the study revealed was the overall cost of EPA’s financial systems. OCFO

is evaluating replacement systems and other measures to bring these costs in line with government

and private sector averages.

Integration of Planning, Budgeting, and Accounting. EPA prepared its FY 1999 Annual Plan and

Budget by linking resources to the Goals and Objectives in the Agency’s Strategic Plan in

accordance with the requirements of the Government Performance and Results Act (GPRA) and

other related management reform initiatives. The General Accounting Office (GAO) commended

EPA for being the first Agency to succeed at full integration of budget requests and annual

performance plans. During the year, substantial enhancements were made to the Agency’s Budget

Automation System (BAS) to allow the resource community greater flexibility in formulating their

budgets. The GPRA structure is used to account for the costs of our programs and meets the

requirements of the Statement of Federal Financial Accounting Standards No. 4, Managerial Cost

Accounting Concepts and Standards for the Federal Government, that requires Agencies to account

for the “full costs” of their outputs.

Working Capital Fund. In 1999, the Working Capital Fund (Fund) completed its third year of

providing administrative support services to Agency offices on a fee-for-service basis and ended its

protected status as a mandatory source for services provided to internal Agency customers. The

Fund is expected to demonstrate additional savings through increased efficiencies driven by market

forces.

In 1999, the Fund operated two successful business activities, providing customers postage services

and an array of telecommunications and data processing services. As expected, the Fund has

promoted effective resource utilization Agency-wide by more clearly identifying to Agency

managers, who must now account for the cost of administrative services in their budget planning,

both the resources their organizations consume and the cost of those resources. EPA has

experienced a 20 percent reduction in its postage costs, a savings of approximately $1 million

annually, simply through reduced internal demand. Similarly, EPA experienced significant savings

in its telecommunications and data processing operations. For FY 1996, the year before the Fund

commenced operations, these activities consumed approximately $114 million of the Agency’s

appropriated budget. Actual costs for these operations dropped to approximately $102 million in

FY 1997 (first year of Fund’s operations). Costs were $114.1 million and $127.8 million in Fiscal

Years 1998 and 1999, respectively. Fund administrators are currently examining a business case
2CIG"36 EPA’s FY 1999 Annual Financial Statements















































































79.7

74.8

64.8

36.4 35.4

23.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

In Thousands

1994 

 1995

 1996



1997

1998

 1999

Bankcard Program

Six Year Comparison of Total Number of Purchases

analysis for including certain payroll services within the Fund, and additional expansions are

contemplated within the next several years.

FY 1999 Biennial Review of EPA User Fee Systems. The Chief Financial Officers Act of 1990 (CFO

Act), Section 902(a)(8), directs EPA’s Chief Financial Officer to: “review on a biennial basis, the

fees, royalties, rents and other charges imposed for services and things of value it provides, and make

recommendations on revising those charges to reflect costs incurred by it in providing those services

and things of value.”

The Agency’s FY 1999 review was conducted in accordance with the CFO Act and provisions set

forth in Office of Management and Budget Circular A-25, “User Charges.” During this review

process, the Agency assessed its existing fee systems, made necessary revisions and identified

potential new fee systems. EPA has six existing fee systems: Motor Vehicle and Engine

Compliance Fee, National Radon Proficiency Program Fee, Maintenance Fee, Tolerance Fee,

Premanufacture Notice Fee, and Lead Accreditation and Certification Fee. The Agency is also

proposing several new fees: Outside User Fee, Tolerance Fee, Registration “Fee for Service,”

Registration Review, and Registration Fee.

The preliminary results of the review reveal that the Agency is taking reasonable and appropriate

actions to ensure that fees reflect costs where it would not adversely affect the service provided and

where EPA has the statutory authority to do so. A formal report is being prepared and is expected

to be completed by March 2000.

Re-engineered and Streamlined Payment Processes. In 1999, the Agency successfully re-engineered

and/or streamlined several payment processes to ease the burden on external and internal customers,

reduce the reliance on paper documents, and

help the Agency take advantage of rebates

and discounts for prompt payment. The

benefits from these efficiencies flow back to

EPA’s program offices and are used to

further the Agency’s mission.

For small purchase payments, the Agency

worked closely with its new credit card

issuer to streamline invoicing and recording

of accounting data. The Agency also

developed new intranet-based reporting

tools to facilitate cost allocation and

expanded the use of automated tools to

reduce duplicate data entry. The bank card

effort alone allowed EPA to earn about $365 thousand in rebates in 1999.
EPA’s FY 1999 Annual Financial Statements 2CIG"37

For travel and transportation payments, EPA implemented a new credit card to offer over 16,000

Agency employees a way to better manage their accounts and to provide the Agency with rebates and

new administrative tools.

For contractor payments, the Agency moved aggressively to use electronic imaging of contracts to

make information more accessible while reducing the use of paper. EPA introduced a new release

of the Electronic Approval System (EASY) and expanded the use of the system to 94 project

officers, up from 20 in 1998. EASY provides project officers a streamlined on-line invoice approval

process. This re-engineering enabled EPA to pay 99.9 percent of invoices on time and earn over

$344 thousand in discounts in 1999.

Payment Related Initiatives Under Way. Three initiatives are under way to re-engineer and automate

payment processes. First, by the end of September 2000, all EPA grant payment offices will have

implemented Treasury’s Automated Standard Application for Payments (ASAP) which standardizes

federal payment request procedures for grant recipients. Second, a dedicated team thoroughly

analyzed alternatives for replacing the aging EPA Integrated Payroll and Personnel System (EPAYS)

and recommended a product that will interface easily with other agency software, automate a number

of tasks, and provide high quality information to employees. Third, in 1999, the Agency obtained

a new intranet-based release of Travel Manager Plus (TM+) software that allows travel documents

to be prepared, processed, and approved on-line. TM+ will interface with the Agency’s Integrated

Financial Management System (IFMS) to allow the automatic obligation and disbursement of funds

from fully approved documents.

EPA’s FY 1999 Annual Financial Statements 2CIG"39

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

I am pleased to present the FY 1999 financial statements of the Environmental Protection

Agency (EPA). Identifying strengths and weaknesses is a key component in the continuous

improvement of financial management at EPA. This document reflects the progress the Agency

has made and signals our commitment to addressing the challenges we still face. 

EPA’s financial statements have a slightly different look this year with the inclusion of 

Management’s Discussion and Analysis (MD&A) in place of the Overview found in the FY 1998

Audited Financial Statements. The MD&A highlights EPA’s financial and programmatic

accomplishments in FY 1999, as well as current and future challenges.

In FY 1999, EPA furthered its commitment to strong program performance and financial

management through activities such as the following:

& Laid the ground work for a new Office of Environmental Information that will help

Agency programs use information as a strategic resource.

& Successfully converted the Agency’s financial management systems to comply with Year

2000 (Y2K) requirements.

& Integrated planning, budgeting, and accounting by linking resources with the ten strategic

goals and related objectives in the Agency’s Strategic Plan.

& Achieved the majority of the 69 annual performance goals included in the Agency’s FY

1999 Annual Plan, and remained on track to achieve several goals with targets falling

beyond the FY 1999 time frame.

& Improved performance relative to FY 1998, and exceeded FY 1999 performance targets,

for timely payment processing (commercial, grant, travel, and payroll), recording of

contract obligations and accounts receivable, and using electronic payments for travel and

payroll.

& Implemented a new bank card program for travel and small purchases, increasing EPA’s

use of electronic mechanisms for financial transactions.

These actions are just a few of the many activities that comprise the Agency’s overall

strategy for strengthening financial management and programmatic functions at EPA. We will

continue to identify other ways to improve financial management functions and ensure that

dollars spent will be used as efficiently as possible to carry out our mission.
2CIG"3: EPA’s FY 1999 Annual Financial Statements

The preparation of the financial statements has been a collaborative effort among OCFO,

the OIG, and the Agency’s program offices. I want to acknowledge the hard work and

commitment of all the employees throughout the Agency who contributed to this effort.

Michael W. S. Ryan

Acting Chief Financial Officer
EPA’s FY 1999 Annual Financial Statements 2CIG"3;

CFO

ANALYSIS

EPA’s FY 1999 Annual Financial Statements 2CIG"43

Chief Financial Officer’s Analysis of the

FY 1999 Audited Financial Statements

The Chief Financial Officers Act of 1990 (CFO Act), as amended by the Government

Management Reform Act of 1994 (GMRA), requires EPA to prepare agency-wide financial

statements. The Agency has categorized its appropriations for presentation in the FY 1999

financial statements as follows:

& Hazardous Substance Superfund Trust Fund (Superfund), and

& All Other Appropriations (All Others).

Summary of Auditors Report and Opinions

The Agency prepared the following FY 1999 Financial Statements: Statement of Financial

Position (Balance Sheet), Statement of Changes in Net Position, Statement of Net Cost, Statement

of Budgetary Resources, Statement of Financing, and Statement of Custodial Activity. The Office

of Inspector General (OIG) did not identify any material inconsistencies between the information

presented in EPA’s Management’s Discussion and Analysis (MD&A) and in the principal financial

statements. However, the OIG did identify exceptions in rendering its opinion that the Agency’s

financial statements are fairly presented. 

In its February 10, 2000, draft audit report, the OIG raised for the first time an opinion level

question regarding support for an amount identified in a footnote to the Statement of Changes in Net

Position that related to the Superfund equity line titled “Other.” OCFO provided the OIG with an

explanation and backup documentation for this amount on February 24, 2000. OIG in its final report

has indicated that the support was not provided in time for them to apply audit procedures.

In addition, on February 28, 2000, the OIG raised another issue affecting the Statement of

Financing. The OIG stated that the Agency was unable to provide support for the composition of

the “Other” line item in the Statement of Financing for All Other Appropriations Funds. In fact, the

line item consisted mostly of prior period and other adjustments that could have been audited. The

OIG did not request an explanation nor supporting documentation for this amount.

Report on Internal Controls

In evaluating the Agency’s internal controls the OIG stated that the Agency made some

improvements in its financial statement preparation process but they also stated that the financial

statements provided to them were incomplete and contained significant errors. The OIG proposed

the financial statement preparation process as a material weakness.
2CIG"44 EPA’s FY 1999 Annual Financial Statements

We disagree with the categorization of the OCFO financial statement preparation process as

a material weakness. The Agency took aggressive action to meet the milestone dates for the FY

1999 statements and to ensure quality data. We cooperated fully on a time line jointly developed

by the CFO and the OIG. While we agreed to some of the presentation enhancements proposed by

the OIG, in some instances, the issues raised by the auditors were not errors in the underlying

accounting data in the system. In other instances the auditors’ findings of error related to differences

in professional judgement on the application of accounting standards and presentation on the

financial statements. While we agree that the financial statement process can be significantly

improved, we do not believe the process constitutes a material weakness that places the agency at

risk in preparing reliable financial statements.

Compliance with Laws and Regulations

Compliance with the Federal Financial Management Improvement Act (FFMIA)

The OIG identified the following as instances of substantial noncompliance with FFMIA

requirements:

& The OIG stated that our revised security plans for EPA’s core financial systems continued

to be substantially noncompliant with federal financial management system requirements.

The OIG stated that they believed the security plans did not adequately address the system’s

operational security controls and still lack significant detail to document critical operational

controls.

& The OIG stated that EPA’s methodology for accumulating and reporting costs by the

Agency’s ten strategic goals could not be relied upon to fairly state the Agency’s cost to

achieve each goal. Therefore, they believed EPA managers did not have adequate cost

accounting data to manage their programs.

& The OIG stated that the Agency was able to report “trading partner” information on only a

portion of its intragovernmental transactions.

Regarding the security plan, OCFO is developing a Remediation Plan to address the security

issues raised and will incorporate them in FY 2000 security plan actions. 

 On cost accounting, we agree that improvements can be made. However, we believe the

Agency’s current policy and practices substantially comply with federal Managerial Cost Accounting

Standards (SFFAS 4). Further, the OIG’s primary issue relates to year-end audited financial

statement presentation. This concern does not necessarily reflect upon the reliability of the

Agency’s underlying accounting data. OCFO provides Agency managers a variety of management

reports and ad-hoc reporting tools which enables officials to manage their programs on an on-going

basis. OCFO will continue to work with the OIG, however, to improve EPA’s cost accounting

capabilities. 
EPA’s FY 1999 Annual Financial Statements 2CIG"45

 OCFO also acknowledges that the Agency’s FY 1999 Financial Statement reporting did not

fully meet the most recent OMB and Treasury requirements for “trading partner” information. Those

requirements were not issued until late FY 1999 and FY 2000. We have taken steps since then to

ensure that Agency interagovernmental transaction data will be correctly identified for the FY 2000

statements and that we will meet the overall reporting requirements for FY 2000.

Other Noncompliance Issues

The OIG did not identify any instances of noncompliance with laws and regulations that

would result in material misstatements to the audited financial statements. However, the OIG did

report two issues under the category of compliance with laws and regulations that, while not

material, they still considered to be significant. OCFO has worked with the Agency’s Office of

General Counsel in resolving both issues.

The first concerned finding reported in past years about the Agency’s practices for recording

disbursements against grants funded with more than one appropriation. The Agency has since issued

a revised policy “Accounting for Resources under the Government Performance and Results Act

(GPRA),” which changes the way that grant disbursements, as well as other Agency transactions,

are charged.

The second issue concerned Agency compliance with Office of Management and Budget

(OMB) Circular A-25, “User Charges.” OCFO recently completed a Biennial Review of the

Agency’s user fee systems. The review was performed in accordance with the CFO Act and

provisions set forth in OMB Circular A-25. We expect to issue the final report on the 1999 Biennial

Review of the Agency’s user fee systems by March 15, 2000.

Impediments to Correcting Problems

Gathering information on grant accruals has been a major challenge for the Agency in the

preparation of its financial statements. For the preparation of the FY 2000 statements, we plan to

work with the OIG in streamlining this process.

Progress in Correcting Previously Identified Problems

The financial statement preparation process was identified as a material weakness last year.

As we noted above, under our “Report on Internal Controls,” we addressed the problems identified

in the development of the FY 1998 financial statements in the preparation of EPA’s FY 1999

financial statements and are committed to further improvements in FY 2000.
2CIG"46 EPA’s FY 1999 Annual Financial Statements

In last year’s audit report, the OIG recommended two improvements in the accounts

receivable area. In response, we clarified our policies and provided training and guidance to resolve

these issues.
EPA’s FY 1999 Annual Financial Statements 2CIG"47

PRINCIPAL

FINANCIAL

STATEMENTS

EPA’s FY 1999 Annual Financial Statements 2CIG"49

CONTENTS

Financial Statements

Consolidating Balance Sheet

Consolidating Statement of Net Cost

Consolidating Statement of Changes in Net Position

Combined Statement of Budgetary Resources

Combined Statement of Financing

Statement of Custodial Activity

Notes to Financial Statements

Note 1. Summary of Significant Accounting Policies

Note 2. Fund Balances with Treasury

Note 3. Cash

Note 4. Investments

Note 5. Accounts Receivable

Note 6. Loans Receivable, Net - Non-Federal

Note 7. Inventory and Related Property

Note 8. General Plant Property and Equipment - Net

Note 9. Debt

Note 10. Other Liabilities

Note 11. Leases

Note 12. Pensions and Other Actuarial Benefits

Note 13. Unexpended Appropriations

Note 14. Amounts Held by Treasury 

Note 15. Commitments and Contingencies

Note 16. Grant Accrual

Note 17. Environmental Cleanup Costs

Note 18. Superfund State Credits

Note 19. Superfund Preauthorized Mixed Funding Agreements

Note 20. Income and Expenses from Other Appropriations

Note 21. Custodial Non-Exchange Revenues

Note 22. Statement of Budgetary Resources

Note 23. Adjustments

Note 24. Unobligated Balances Available

Note 25. Obligated Balance, Net - End of Period

Note 26. Difference in Outlays between Statement of Budgetary Resources and SF-133

Note 27. Statement of Financing

Note 28. Other Financing Sources
2CIG"4: EPA’s FY 1999 Annual Financial Statements

Supplemental Information Requested by OMB

Required Supplemental Information

Deferred Maintenance (Unaudited)

Intra-governmental Assets (Unaudited)

Intra-governmental Liabilities (Unaudited)

Supplemental Statement of Budgetary Resources (Unaudited)

Working Capital Fund Supplemental Balance Sheet (Unaudited)

Working Capital Fund Supplemental Statement of Net Cost (Unaudited)

Working Capital Fund Supplemental Statement of Changes in Net Position (Unaudited)

Required Supplemental Stewardship Information

Annual Stewardship Information (Unaudited)
EPA’s FY 1999 Annual Financial Statements 2CIG"4;

Environmental Protection Agency

Consolidating Balance Sheet

As of September 30, 1999 

(Dollars in Thousands)

Superfund 

Trust Fund

All

Others

Combined

Totals

Intra-agency

Eliminations

Consolidated 

Totals

ASSETS

 Intragovernmental:

Fund Balance with Treasury (Note 2) $ 20,069 $ 10,794,978 $ 10,815,047 $ ___ $ 10,815,047

 Investments (Note 4) 4,417,886 1,398,005 5,815,891 ___ 5,815,891

Accounts Receivable, Net (Note 5) 48,982 55,194 104,176 (2,513) 101,663

 Other 3,037 7,801 10,838 (2,638) 8,200

 Total Intragovernmental 4,489,974 12,255,978 16,745,952 (5,151) 16,740,801

 Accounts Receivable, Net (Note 5) 643,255 88,565 731,820 ___ 731,820

 Loans Receivables, Net - Non Federal (Note 6) ___ 101,312 101,312 ___ 101,312

 Cash (Note 3) ___ 55 55 ___ 55

Inventory and Related Property, Net (Note 7) ___ 237 237 ___ 237

Marketable Securities Equity (Note 4) 5,146 ___ 5,146 ___ 5,146

General Property, Plant and Equipment, Net (Note 8) 13,407 385,968 399,375 ___ 399,375

Other 835 2,668 3,503 ___ 3,503

Total Assets $ 5,152,617 $ 12,834,783 $ 17,987,400 $ (5,151) $ 17,982,249

LIABILITIES

 Intragovernmental:

Accounts Payable $ 89,594 $ 2,737 $ 92,331 $ ___ $ 92,331

Debt (Note 9) ___ 37,922 37,922 ___ 37,922

Environmental and Disposal Costs (Note 17) ___ 14,321 14,321 ___ 14,321

Other (Note 10) 96,746 174,372 271,118 (5,151) 265,967

 Total Intragovernmental 186,340 229,352 415,692 (5,151) 410,541

Accounts Payable 47,945 75,241 123,186 ___ 123,186

Pensions and Other Actuarial Liabilities (Note 12) 5,826 23,987 29,813 ___ 29,813

Other (Note 10) 611,256 752,651 1,363,907 ___ 1,363,907

 Total Liabilities 851,367 1,081,231 1,932,598 (5,151) 1,927,447

Commitments and Contingencies (Note 15)

NET POSITION 

 Unexpended Appropriations (Note 13) 2,656,831 10,076,964 12,733,795 ___ 12,733,795

 Cumulative Results of Operations 1,644,419 1,676,588 3,321,007 ___ 3,321,007

Total Net Position 4,301,250 11,753,552 16,054,802 ___ 16,054,802

Total Liabilities and Net Position $ $5,152,617 $ 12,834,783 $ 17,987,400 $ (5,151) $ 17,982,249

The accompanying notes are an integral part of these statements.
2CIG"52 EPA’s FY 1999 Annual Financial Statements

Environmental Protection Agency

Consolidating Statement of Net Cost 

For the Year Ended September 30, 1999

(Dollars in Thousands)

Superfund

Trust Fund

All 

Others

Combined

Totals

Intra-agency

 Eliminations

Consolidated

Totals

COSTS:

Intragovernmental $ 454,791 $ 607,490 $ 1,062,281 $ (344,375) $ 717,906

 With the Public 1,254,104 5,764,882 7,018,986 ___ 7,018,986

Expenses from Other Appropriations (Note 20) 35,664 (35,664) ___ ___ ___

 Total Costs 1,744,559 6,336,708 8,081,267 (344,375) 7,736,892

Less:

Earned Revenues 707,674 212,904 920,578 (19,375) 901,203

 Total Revenue 707,674 212,904 920,578 (19,375) 901,203

NET COST OF OPERATIONS $ 1,036,885 $ 6,123,804 $ 7,160,689 $ (325,000) $ 6,835,689

The accompanying notes are an integral part of these statements.
EPA’s FY 1999 Annual Financial Statements 2CIG"53

Environmental Protection Agency

Consolidating Statement of Changes in Net Position

For the Year Ended September 30, 1999 

(Dollars in Thousands)

 Superfund

 Trust Fund

 All

 Others

Combined

Totals

Intra-agency

 Eliminations

Consolidated

 Totals

Net Cost of Operations $ 1,036,885 $ 6,123,804 $ 7,160,689 $ (325,000) $ 6,835,689

Financing Sources (Other Than Exchange Revenues):

Appropriations Used 1,549,960 6,150,746 7,700,706 ___ 7,700,706

Taxes (and Other Non-Exchange Revenues) 25,169 225,275 250,444 ___ 250,444

Trust Fund Appropriations Received (Note 14) 325,000 ___ 325,000 (325,000) ___

Imputed Financing 31,437 165,232 196,669 ___ 196,669

Income from Other Appropriations (Note 20) 35,664 (35,664) ___ ___ ___

Transfers-In/Out ___ 206 206 ___ 206

Other Financing Sources (Note 28) (1,524,112) (75,179) (1,599,291) ___ (1,599,291)

Net Results of Operations (593,767) 306,812 (286,955) ___ (286,955)

Prior Period Adjustments (20,122) 12,481 (7,641) ___ (7,641)

Net Changes in Cumulative Results of Operations (613,889) 319,293 (294,596) ___ (294,596)

Increase (Decrease) in Unexpended Appropriations (149,129) 249,165 100,036 ___ 100,036

Change in Net Position (763,018) 568,458 (194,560) ___ (194,560)

Net Position - Beginning of Period 5,064,268 11,185,094 16,249,362 ___ 16,249,362

Net Position - End of Period $ 4,301,250 $ 11,753,552 $ 16,054,802 $ ___ $ 16,054,802

The accompanying notes are an integral part of these statements.
2CIG"54 EPA’s FY 1999 Annual Financial Statements

Environmental Protection Agency

Combined Statement of Budgetary Resources

For the Year Ended September 30, 1999 

(Dollars in Thousands)

 Superfund

 Trust Fund

 All

 Others

Combined

Totals

Budgetary Resources:

Budget Authority $ 1,410,708 $ 6,447,893 $ 7,858,601

Unobligated Balances - Beginning of Period 701,468 1,717,941 2,419,409

Spending Authority from Offsetting Collections 139,421 276,342 415,763

Adjustments (Note 23) (59,368) (81,848) (141,216)

Total Budgetary Resources $ 2,192,229 $ 8,360,328 $ 10,552,557

Status of Budgetary Resources:

Obligations Incurred $ 1,709,357 $ 6,685,653 $ 8,395,010

Unobligated Balances - Available (Note 24) 482,872 1,567,142 2,050,014

Unobligated Balances - Not Available ___ 107,533 107,533

Total, Status of Budgetary Resources $ 2,192,229 $ 8,360,328 $ 10,552,557

Outlays:

Obligations Incurred $ 1,709,357 $ 6,685,653 $ 8,395,010

Less: Spending Authority from Offsetting Collections

and Adjustments 326,851 427,091 753,942

Obligated Balance, Net - Beginning of Period 2,550,841 8,750,289 11,301,130

Less: Obligated Balance, Net - End of Period (Note 25) 2,433,861 9,153,233 11,587,094

Total Outlays $ 1,499,486 $ 5,855,618 $ 7,355,104

The accompanying notes are an integral part of these statements.
EPA’s FY 1999 Annual Financial Statements 2CIG"55

Environmental Protection Agency

Combined Statement of Financing

For the Year Ended September 30, 1999

(Dollars in Thousands)

 Superfund

 Trust Fund

 All

 Others

Combined

Totals

Obligations and Nonbudgetary Resources

Obligations Incurred $ 1,709,357 $ 6,685,653 $ 8,395,010

Less: Spending Authority for Offsetting 

 Collections and Adjustments (139,421) (276,342) (415,763)

Recoveries (205,200) ___ (205,200)

Financing Imputed for Cost Subsidies 31,437 165,232 196,669

Income from Other Appropriations (Note 20) 35,664 (35,664) ___

Transfers-In/Out ___ 206 206

Exchange Revenue Not in the Budget (612,898) (73,735) (686,633)

Nonexchange Revenue Not in the Budget (4,150) ___ (4,150)

Other 241 40,351 40,592

Total Obligations as Adjusted and

 Nonbudgetary Resources 815,030 6,505,701 7,320,731

Resources that Do Not Fund Net Cost of Operations

Change in Amount of Goods, Services, and

 And Benefits Ordered but Not Yet Received or

 Provided 156,635 (280,131) (123,496)

Change in Unfilled Customers Orders 49,033 19,440 68,473

Costs Capitalized on the Balance Sheet (9,510) (162,028) (171,538)

Financing Sources that Fund Costs of Prior Periods ___ 9,628 9,628

Trust Fund Outlays Not Affecting Net Cost 74 ___ 74

Total Resources that Do Not Fund Net

 Costs of Operations 196,232 (413,091) (216,859)

Costs that Do Not Require Resources

Depreciation and Amortization 2,595 13,481 16,076

Bad Debt Expense from Non-Credit 

 Reform Receivables 18,316 894 19,210

Loss on Disposition of Assets 477 884 1,361

 Total Costs That Do Not Require Resources 21,388 15,259 36,647

 

Financing Sources Yet to be Provided (Note 27) 4,235 15,935 20,170

Net Costs of Operations $ 1,036,885 $ 6,123,804 $ 7,160,689

The accompanying notes are an integral part of these statements.
2CIG"56 EPA’s FY 1999 Annual Financial Statements

Environmental Protection Agency

Statement of Custodial Activity

For the Year Ended September 30, 1999

(Dollars in Thousands)

All Others

Revenue Activity:

Sources of Collections:

Fines and Penalties $ 126,996

Total Cash Collections 126,996

Accrual Adjustment 4,679

Total Custodial Revenue 131,675

Disposition of Collections:

Transferred to Others (by Recipient) 116,151

Increase (Decrease) in Amounts To Be Transferred 15,524

Total Disposition of Revenue 131,675

Net Custodial Revenue Activity $ ----

The accompanying notes are an integral part of these statements.
EPA’s FY 1999 Annual Financial Statements 2CIG"57

Environmental Protection Agency

Notes to Financial Statements

(Dollars in Thousands)

Note 1. Summary of Significant Accounting Policies

A. Basis of Presentation

These consolidating financial statements have been prepared to report the financial position and results of

operations of the Environmental Protection Agency (Agency) for the Hazardous Substance Superfund

(Superfund) Trust Fund and All Other Funds, as required by the Chief Financial Officers Act of 1990 and

the Government Management Reform Act of 1994. The reports have been prepared from the books and

records of the Agency in accordance with "Form and Content for Agency Financial Statements," specified

by the Office of Management and Budget (OMB) in Bulletin 97-01, and the Agency's accounting policies

which are summarized in this note. These statements are therefore different from the financial reports also

prepared by the Agency pursuant to OMB directives that are used to monitor and control the Agency's use

of budgetary resources.

B. Reporting Entities

The Environmental Protection Agency was created in 1970 by executive reorganization from various

components of other Federal agencies in order to better marshal and coordinate Federal pollution control

efforts. The Agency is generally organized around the media and substances it regulates -- air, water, land,

hazardous waste, pesticides and toxic substances. For FY 1999 the reporting entities are grouped as

Hazardous Substance Superfund and All Other Funds.

Hazardous Substance Superfund

In 1980, the Hazardous Substance Superfund, commonly referred to as the Superfund Trust Fund, was

established by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980

(CERCLA) to provide resources needed to respond to and clean up hazardous substance emergencies and

abandoned, uncontrolled hazardous waste sites. The Superfund Trust Fund financing is shared by Federal

and state governments as well as industry. The Agency allocates funds from its appropriation to other

Federal agencies to carry out the Act. Risks to public health and the environment at uncontrolled hazardous

waste sites qualifying for the Agency's National Priorities List (NPL) are reduced and addressed through a

process involving site assessment and analysis, and the design and implementation of cleanup remedies.

Throughout this process, cleanup activities may be supported by shorter term removal actions to reduce

immediate risks. Removal actions may include removing contaminated material from the site, providing an

alternative water supply to people living nearby, and installing security measures. NPL cleanups and

removals are conducted and financed by the Agency, private parties, or other Federal agencies. Through

1999, construction of cleanup remedies were completed at a total of 670 NPL sites (includes Federal and

non-Federal sites). Superfund includes the Treasury collections and investment activity. The Superfund

Trust Fund is accounted for under Treasury symbol number 8145.
2CIG"58 EPA’s FY 1999 Annual Financial Statements

All Other Funds

All Other Funds include Trust Fund appropriations, General Fund appropriations, Revolving Funds, Special

Funds, the Agency Budgetary Clearing accounts, Deposit Funds, General Fund Receipt accounts, the

Environmental Services Special Fund Receipt Account, the Miscellaneous Contributed Funds Trust Fund,

and General Fund appropriations transferred from other Federal agencies as authorized by the Economy Act

of 1932. Trust Fund appropriations are to the Leaking Underground Storage Tank (LUST) Trust Fund and

the Oil Spill Response Trust Fund. General Fund appropriations are to State and Tribal Assistance Grants

(STAG), Science and Technology (S&T), Environmental Programs and Management (EPM), Office of

Inspector General (IG), Buildings and Facilities (B&F), and Payment to the Hazardous Substance Superfund.

General Fund appropriations that no longer receive current appropriations but have unexpended authority

are the Asbestos Loan Program, Program and Research Operations (PRO), and Energy, Research and

Development. Revolving Funds include the FIFRA Revolving Fund and Tolerance Revolving Fund which

receive no direct appropriations; however, they do collect fees from public industry as a source of

reimbursement for the services provided. In addition to FIFRA and Tolerance, a Working Capital Fund

(WCF) was established and designated as a franchise fund to provide computer operations support and

postage service for the Agency. A Special Fund was established to collect the Exxon Valdez settlement as

a result of the Exxon Valdez oil spill. All Other Funds are as follows:

The LUST Trust Fund was authorized by the Superfund Amendments and Reauthorization Act of 1986

(SARA) as amended by the Omnibus Budget Reconciliation Act of 1990. The LUST appropriation provides

funding to respond to releases from leaking underground petroleum tanks. The Agency oversees cleanup and

enforcement programs which are implemented by the states. Funds are allocated to the states through

cooperative agreements to clean up those sites posing the greatest threat to human health and environment.

Funds are used for grants to non-state entities including Indian tribes under section 8001 of the Resource

Conservation and Recovery Act. The program is financed by a 0.1 cent a gallon tax on motor fuels which

will expire in 2005, and is accounted for under Treasury symbol number 8153.

The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act (OPA) of 1990. The Oil Spill

Response Trust Fund was established in FY 1993 and monies were appropriated to the Oil Spill Response

Trust Fund. The Agency is responsible for directing, monitoring and providing technical assistance for major

inland oil spill response activities. This involves setting oil prevention and response standards, initiating

enforcement actions for compliance with OPA and Spill Prevention Control and Countermeasure

requirements, and directing response actions when appropriate. The Agency carries out research to improve

response actions to oil spills including research on the use of remediation techniques such as dispersants and

bioremediation. Funding of oil spill cleanup actions is provided through the Department of Transportation

under the Oil Spill Liability Trust Fund and reimbursable funding from other Federal agencies. The Oil

Spill Response Trust Fund is accounted for under Treasury symbol number 8221.

The State and Tribal Assistance Grants (STAG) appropriation provides funds for environmental programs

and infrastructure assistance including capitalization grants for State revolving funds and performance

partnership grants. Environmental programs and infrastructure supported are Clean and Safe Water;

Capitalization grants for the Drinking Water State Revolving Funds; Clean Air; Direct grants for Water and

Wastewater Infrastructure needs, Partnership grants to meet Health Standards, Protect Watersheds, Decrease

Wetland Loss, and Address Agricultural and Urban Runoff and Storm Water; Better Waste Management;

Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces and Ecosystems; and
EPA’s FY 1999 Annual Financial Statements 2CIG"59

Reduction of Global and Cross Border Environmental Risks. STAG is accounted for under Treasury

symbol 0103.

The Science and Technology (S&T) appropriation finances salaries; travel; science; technology; research

and development activities including laboratory and center supplies; certain operating expenses; grants;

contracts; intergovernmental agreements; and purchases of scientific equipment. These activities provide

the scientific basis for the Agency's regulatory actions. In FY 1999, Superfund research costs were

appropriated in Superfund and transferred to S&T to allow for proper accounting of the costs. Scientific and

technological activities for environmental issues include Clean Air; Clean and Safe Water; Americans Right

to Know About Their Environment; Better Waste Management; Preventing Pollution and Reducing Risk in

Communities, Homes, Workplaces, and Ecosystems; and Safe Food. The Science and Technology

appropriation is accounted for under Treasury symbol 0107.

The Environmental Programs and Management (EPM) includes funds for salaries, travel, contracts, grants,

and cooperative agreements for pollution abatement, control, and compliance activities and administrative

activities of the operating programs. Areas supported from this appropriation include Clean Air; Clean and

Safe Water; Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces, and Ecosystems;

Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency Response; Reduction

of Global and Cross Border Environmental Risks; Americans’ Right to Know About Their Environment;

Sound Science, Improved Understanding of Environmental Risk, and Greater Innovation to Address

Environmental Problems; a Credible Deterrent to Pollution and Greater Compliance with the Law; and

Effective Management. The Environmental Programs and Management appropriation is accounted for under

Treasury symbol 0108.

The Office of Inspector General appropriation provides funds for audit and investigative functions to identify

and recommend corrective actions on management and administrative deficiencies that create the conditions

for existing or potential instances of fraud, waste and mismanagement. Additional funds for audit and

investigative activities associated with the Superfund Trust Fund and the Leaking Underground Storage Tank

Trust Fund are appropriated under those Trust Fund accounts and are transferred to the Office of Inspector

General account. The audit function provides contract audit, internal and performance audit, and financial

and grant audit services. The Office of Inspector General appropriation is accounted for under Treasury

symbol 0112 and includes expenses incurred and reimbursed from the appropriated trust funds being

accounted for under Treasury symbols 8145 and 8153.

The Buildings and Facilities appropriation provides for the construction, repair, improvement, extension,

alteration, and purchase of fixed equipment or facilities that are owned or used by the Environmental

Protection Agency. The Buildings and Facilities appropriation is accounted for under Treasury symbol 0110.

The Payment to the Hazardous Substance Superfund appropriation authorizes appropriations from the

General Fund of the Treasury to finance activities conducted through Hazardous Substance Superfund.

Payment to the Hazardous Substance Superfund is accounted for under Treasury symbol 0250.

The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act of 1986 to

finance control of asbestos building materials in schools. Funds have not been appropriated for this Program

since FY 1993. For FY 1993 and FY1992, the program was funded by a subsidy appropriated from the

General Fund for the actual cost of financing the loans, and by borrowing from Treasury for the unsubsidized

portion of the loan. The Program fund disbursed the subsidy to the Financing fund as loans were made, and
2CIG"5: EPA’s FY 1999 Annual Financial Statements

disbursed administrative expenses to the providers. The Financing fund received the subsidy payment,

borrowed from Treasury and disbursed loans and collects the asbestos loans. The Asbestos Loan Program

is accounted for under Treasury symbol 0118 for the subsidy and administrative support, under Treasury

symbol 4322 for loan disbursements, loans receivable and loan collections on post FY 1991 loans, and under

Treasury symbol 2917 for pre FY 1992 loans receivable and loan collections.

The Program and Research Operations appropriation provides salaries and travel associated with

administering the operating programs within the Environmental Protection Agency. It incorporated

personnel, compensation and benefit costs and travel, exclusive of the Hazardous Substance Response Trust

Fund, the Leaking Underground Storage Tank Trust Fund, the Office of Inspector General and the Oil Spill

Response Trust Fund. In fiscal year 1996, Congress restructured the Agency's accounts. The Program and

Research Operations appropriation was eliminated. Activity remaining from prior fiscal year appropriations

is accounted for under Treasury symbols 0200 and 0201.

The FIFRA Revolving Fund was authorized by the Federal Insecticide, Fungicide and Rodenticide Act

Amendments of 1998, as amended by the Food Quality Protection Act of 1996. Fees are paid by industry

to offset costs of accelerated reregistration, expedited processing of pesticides, and establishing tolerances

for pesticide chemicals in or on food and animal feed. The FIFRA Revolving Fund is accounted for under

Treasury symbol number 4310.

The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees are paid by

industry for Federal services of pesticide chemicals in or on food and animal feed. Effective January 2,

1997, fees collected are now being collected and deposited in the Reregistration and Expedited Processing

Revolving Fund (4310). The fees collected prior to this date are accounted for under Treasury symbol

number 4311.

The Working Capital Fund (WCF) includes two activities: computer support services and postage. WCF

derives revenue from these activities based upon fee for services. WCF’s customers currently consist solely

of Agency program offices. Accordingly, revenue generated by WCF and expenses recorded by the program

offices for use of such services, along with the related advances/liabilities, are eliminated on consolidation.

The WCF is accounted for under Treasury symbol 4565.

The Exxon Valdez Settlement Fund has funds available to carry out authorized environmental restoration

activities. Funding is derived from the collection of reimbursements under the Exxon Valdez settlement as

a result of the oil spill. The Exxon Valdez Settlement fund is accounted for under Treasury symbol number

5297.

Appropriations transferred to the Agency from other Federal agencies include funds from the Appalachian

Regional Commission and the Department of Commerce which provide economic assistance to state and

local developmental activities, the Agency for International Development which provides assistance on

environmental matters at international levels, and from the General Services Administration which provides

funds for rental of buildings, and operations, repairs, and maintenance of rental space. The transfers

appropriations are accounted for under Treasury symbols 0200, 1010, 1021, 2050, and 4542.

Clearing Accounts include the Budgetary suspense account, Deposit in Transit differences, Unavailable

Check Cancellations and Overpayments, and Undistributed and Letter of Credit differences. Clearing

accounts are accounted for under Treasury symbols 3875, 3878, 3879, and 3880.
EPA’s FY 1999 Annual Financial Statements 2CIG"5;

Deposit funds include Fees for Ocean Dumping, Nonconformance Penalties, Suspense and payroll deposits

for Savings Bonds, and State and City Income Taxes Withheld. Deposit funds are accounted for under

Treasury symbols 6050, 6264, 6265, 6275, and 6875.

General Fund Receipt Accounts include Hazardous Waste Permits; Miscellaneous Fines, Penalties and

Forfeitures; General Fund Interest; Interest from Credit Reform Financing Accounts; Fees and Other Charges

for Administrative and Professional Services; and Miscellaneous Recoveries and Refunds. General Fund

Receipt accounts are accounted for under Treasury symbols 0895, 1099, 1435, 1499, 2410, 3200, and 3220.

The Environmental Services Receipt account was established for the deposit of fee receipts associated with

environmental programs, including radon measurement proficiency ratings and training, motor vehicle engine

certifications, and water pollution permits. Receipts in this special fund will be appropriated to the S&T

appropriation and to the EPM appropriation to meet the expenses of the programs that generate the receipts.

Environmental Services are unavailable receipts accounted for under Treasury symbol 5295.

The Miscellaneous Contributed Funds Trust Fund includes gifts for pollution control programs that are

usually designated for a specific use by the donor and deposits from pesticide registrants to cover the costs

of petition hearings when such hearings result in unfavorable decisions to the petitioner. Miscellaneous

Contributed Funds Trust Fund is accounted for under Treasury symbol 8741.

The accompanying financial statements include the accounts of all funds described in this note. The expense

allocation methodology is a financial statement estimate that presents EPA’s programs at full cost.

Superfund may charge some costs directly to the fund and charge the remainder of the costs to the All Other

Funds in the Agency-wide appropriations. These amounts are presented as Expenses from Other

Appropriations on the Statement of Net Cost and as Income from Other Appropriations on the Statement of

Changes in Net Position and the Statement of Financing.

The Superfund Trust Fund is allocated general support services costs (such as rent, communications, utilities,

mail operations, etc.) that were initially charged to the Agency's S&T and EPM appropriations. During the

year, these costs are allocated from the S&T and EPM appropriations to the Superfund Trust Fund based on

a ratio of direct labor hours, using budgeted or actual full-time equivalent personnel charged to these

appropriations, to the total of all direct labor hours. Agency general support services cost charges to the

Superfund Trust Fund may not exceed the ceilings established in the Superfund Trust Fund appropriation.

The related general support services costs charged to the Superfund Trust Funds was $48.3 million for FY

1999.

C. Budgets and Budgetary Accounting

Superfund

Congress adopts an annual appropriation amount to be available until expended for the Superfund Trust

Fund. A transfer account for the Superfund Trust Fund has been established for purposes of carrying out the

program activities. As the Agency disburses obligated amounts from the transfer account, the Agency draws

down monies from the Superfund Trust Fund at Treasury to cover the amounts being disbursed.
2CIG"62 EPA’s FY 1999 Annual Financial Statements

All Other Funds

Congress adopts an annual appropriation amount for the LUST Trust Fund and for the Oil Spill Response

Trust Fund to remain available until expended. A transfer account for the LUST Trust Fund has been

established for purposes of carrying out the program activities. As the Agency disburses obligated amounts

from the transfer account, the Agency draws down monies from the LUST Trust Fund at Treasury to cover

the amounts being disbursed. The Agency draws down all the appropriated monies from the Treasury's Oil

Spill Liability trust fund to the Oil Spill Response Trust Fund when Congress adopts the appropriation

amount. Congress adopts an annual appropriation for STAG, Buildings and Facilities, and for Payments to

the Hazardous Substance Superfund to be available until expended; adopts annual appropriation for S&T,

EPM and for the Office of the Inspector General to be available for two fiscal years. When the

appropriations for the General Funds are enacted, Treasury issues a warrant to the respective appropriations.

As the Agency disburses obligated amounts, the balance of funds available to the appropriation is reduced

at Treasury.

The Asbestos Loan Program is a commercial activity financed by a combination from two sources: one for

the long term cost of the loan and another for the remaining non-subsidized portion of the loan. Congress

annually adopts a one year appropriation, available for obligation in the fiscal year for which it is

appropriated, to cover the estimated long term cost of the Asbestos loans. The long term costs are defined

as the net present value of the estimated cash flows associated with the loans. The portion of each loan

disbursement that does not represent long term cost is financed under a permanent indefinite borrowing

authority established with the Treasury. The annual appropriation bill limits the amount of obligations that

can be made for direct loans. A permanent indefinite appropriation is available to finance the costs of

subsidy re-estimates that occur after the year in which the loan is disbursed. No appropriation was adopted

by Congress for FY 1999; therefore, there was no new financing available to the Asbestos Loan Program for

FY 1999.

Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from industry to

offset costs incurred by the Agency in carrying out these programs. Each year the Agency submits an

apportionment request to OMB based on the anticipated collections of industry fees.

Funding of the WCF is provided by fees collected from other Agency appropriations collected to offset costs

incurred for providing the Agency administrative support for computer support and postage.

Funds transferred from other Federal agencies is funded by a non expenditure transfer of funds from the other

Federal agencies. As the Agency disburses the obligated amounts, the balance of funding available to the

transfer appropriation is reduced at Treasury.

Clearing accounts, Deposit accounts, and Receipt accounts receive no budget. The amounts are recorded

to the Clearing and Deposit accounts pending further disposition. Amounts recorded to the Receipt accounts

capture amounts receivable to or collected for the General Fund of the U.S. Treasury.
EPA’s FY 1999 Annual Financial Statements 2CIG"63

D. Basis of Accounting

Superfund and All Other Funds

Transactions are recorded on an accrual accounting basis and on a budgetary basis (where budgets are

issued). Under the accrual method, revenues are recognized when earned and expenses are recognized when

a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates

compliance with legal constraints and controls over the use of Federal funds. All interfund balances and

transactions have been eliminated.

E. Revenues and Other Financing Sources

Superfund

The Superfund receives most funding needed to support the program through appropriations that may be used

within statutory limits, for operating and capital expenditures (primarily equipment). Additional financing

for the Superfund Trust Fund is obtained through reimbursements from other Federal agencies, from States

for State Cost Share, and from potentially responsible parties (PRPs) for future costs. Revenues collected

through cost recovery are deposited with the Trust fund at Treasury.

All Other Funds

The majority of All Other Funds appropriations receive funding needed to support programs through

appropriations, which may be used, within statutory limits, for operating and capital expenditures. Under

Credit Reform provisions, the Asbestos Loan Program received funding to support the subsidy cost of loans

through appropriations which may be used with statutory limits. The Asbestos Direct Loan Financing fund,

an off-budget fund, receives additional funding to support the loan disbursements through collections from

the Program fund for the subsidized portion of the loan and through borrowing from Treasury for the nonsubsidized portion. The last year Congress provided appropriations for this fund was 1993, accordingly no

new funding has been available for this program. The FIFRA and the Tolerance Revolving Funds receive

funding, which is now deposited with the FIFRA Revolving Fund, through fees collected for services

provided. The FIFRA Revolving Fund also receives interest on invested funds. The WCF receives revenue

through fees collected for services provided to Agency program offices. Such revenue is eliminated with

related Agency program expenses on Consolidation. The Exxon Valdez Settlement Fund received funding

through reimbursements.

Appropriations are recognized as Other Financing Sources when earned, i.e., when goods and services have

been rendered without regard to payment of cash. Other revenues are recognized when earned, i.e., when

services have been rendered.

F. Funds with the Treasury

Superfund and All Other Funds

The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are

handled by Treasury. The funds maintained with Treasury are Appropriated Funds, Revolving Funds and
2CIG"64 EPA’s FY 1999 Annual Financial Statements

Trust Funds. These funds have balances available to pay current liabilities and finance authorized purchase

commitments.

G. Investments in U.S. Government Securities

All Other Funds

Investments in U.S. Government securities are maintained by Treasury and are reported at amortized cost

net of unamortized discounts. Discounts are amortized over the term of the investments and reported as

interest income. The FIFRA Revolving Fund, which is included in All Other Funds, holds the investments

to maturity, unless they are needed to finance operations of the fund. No provision is made for unrealized

gains or losses on these securities because, in the majority of cases, they are held to maturity.

H. Marketable Equity Securities

Superfund

During FY 1993 and FY 1996, the Agency received marketable equity securities, valued at a total $5.1

million, which are still held, from a company in settlement of Superfund cost recovery actions. The Agency

records marketable securities at cost as of the date of receipt. Marketable securities are held by Treasury,

and reported at their cost value in the financial statements until sold.

I. Accounts Receivable and Interest Receivable

Superfund

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as amended by

the Superfund Amendments and Reauthorization Act (SARA) provides for the recovery of costs from

potentially responsible parties (PRPs). However, cost recovery expenditures are expensed when incurred

since there is no assurance that these funds will be recovered.

It is the Agency's policy to record accounts receivable from PRPs for Superfund site response costs when

a consent decree, judgment, administrative order, or settlement is entered. These agreements are generally

negotiated after site response costs have been incurred. It is the Agency's position that until a consent decree

or other form of settlement is obtained, the amount recoverable should not be recorded.

The Agency also records accounts receivable from states for a percentage of Superfund site remedial action

costs incurred by the Agency within those states. As agreed to under Superfund State Contracts (SSCs), cost

sharing arrangements under SSCs may vary according to whether a site was privately or publicly operated

at the time of hazardous substance disposal and whether the Agency response action was removal or

remedial. SSC agreements are usually for 10% or 50% of site remedial action costs. States may pay the full

amount of their share in advance, or incrementally throughout the remedial action process. Allowances for

uncollectible state cost share receivables have not been recorded, because the Agency has not had collection

problems with these agreements.
EPA’s FY 1999 Annual Financial Statements 2CIG"65

All Other Funds

The majority of receivables for All Other Funds represent interest receivable for Asbestos and FIFRA and

both accounts receivable and interest receivable to the General Fund of the Treasury.

J. Loans Receivable

All Other Funds

Loans are accounted for as receivables after funds have been disbursed. The amount of Asbestos Loan

Program loans obligated but not disbursed are disclosed in Note 6. Loans receivable resulting from

obligations on or before September 30, 1991 are reduced by the allowance for uncollectible loans. Loans

receivable resulting from loans obligated on or after October 1, 1991 are reduced by an allowance equal to

the present value of the subsidy costs associated with these loans. The subsidy cost is calculated based on

the interest rate differential between the loans and Treasury borrowing, the estimated delinquencies and

defaults net of recoveries offset by fees collected and other estimated cash flows associated with these loans.

K. Appropriated Amounts Held by Treasury

Superfund and All Other Funds

For the Superfund and LUST Trust Funds, and for amounts appropriated to the Office of Inspector General

from the Superfund and LUST Trust Funds, cash available to the Agency that is not needed immediately for

current disbursements remains in the respective Trust Funds managed by Treasury. At the end of FY 1999

approximately $2.9 billion remained in the Treasury managed Superfund Trust Fund and approximately

$82.6 million remained in the LUST Trust Fund to meet the Agency's disbursement needs.

L. Advances and Prepayments

Superfund and All Other Funds

Advances and prepayments represent funds advanced or prepaid to other entities both internal and external

to the Agency for which a budgetary expenditure has not yet occurred.

M. Property, Plant, and Equipment

Superfund and All Other Funds

The Fixed Assets Subsystem (FAS) implemented in FY 1997 maintains EPA-held personal and real property

records. The FAS automatically generates depreciation entries monthly based upon the acquisition date.

Purchases of EPA-held and contractor-held personal equipment are capitalized if the equipment is valued

at $25 thousand or more and has an estimated useful life of at least two years. Prior to implementing FAS,

depreciation was taken on a modified straight-line basis over a period of six years depreciating 10% the first

and sixth year, and 20% in years two through five. All EPA-held personal equipment purchased before the

implementation of FAS was assumed to have an estimated useful life of five years. New acquisitions of

EPA-held personal equipment are depreciated using the straight-line method over the specific assets’ useful

lives, ranging from two to 15 years.
2CIG"66 EPA’s FY 1999 Annual Financial Statements

Real property consists of land, buildings, and capital and leasehold improvements. Real property, other than

land, is capitalized when the value is $75 thousand or more. Land is capitalized regardless of cost.

Buildings are valued at an estimated original cost basis, and land is valued at fair market value. Depreciation

for real property is calculated using the straight-line method over the specific assets’ useful lives, ranging

from 10 to 102 years. Leasehold improvements are amortized over the lesser of their useful lives or the

unexpired lease terms. In addition to property and improvements not meeting the capitalization criteria,

expenditures for minor alterations, and repairs and maintenance are expensed as incurred.

N. Liabilities

Superfund and All Other Funds

Liabilities represent the amount of monies or other resources that are likely to be paid by the Agency as the

result of a transaction or event that has already occurred. However, no liability can be paid by the Agency

without an appropriation or other collection of revenue for services provided. Liabilities for which an

appropriation has not been enacted are classified as unfunded liabilities and there is no certainty that the

appropriations will be enacted. Liabilities of the Agency, arising from other than contracts, can be abrogated

by the Government acting in its sovereign capacity.

O. Borrowing Payable to the Treasury

All Other Funds

Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans described

in part B and C of this note. Periodic principal payments are made to Treasury based on the collections of

loans receivable.

P. Interest Payable to Treasury

All Other Funds

The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt to Treasury.

At the end of FY 1999, there was no outstanding interest payable to Treasury since payment was made

through September 30.

Q. Accrued Unfunded Annual Leave

Superfund and All Other Funds

Annual, sick and other leave is expensed as taken during the fiscal year. Sick and other leave earned but not

taken is not accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is

accrued as an unfunded liability. Accrued unfunded annual leave is included in the Statement of Financial

Position as a component of “Other Liabilities-Governmental”. As of September 30, 1999, the unfunded

annual leave liability for the Superfund Trust Fund was $18.4 million and for All Other Funds was $86.4

million.
EPA’s FY 1999 Annual Financial Statements 2CIG"67

R. Retirement Plan

Superfund and All Other Funds

The majority of the Agency's employees participate in the Civil Service Retirement System (CSRS), to which

the Agency contributes 8.51% and employees contribute 7.25% of base pay.

On January 1, 1987, the Federal Employees Retirement System (FERS) went into effect pursuant to Public

Law 99-335. Most employees hired after December 31, 1983, are automatically covered by FERS and Social

Security. Employees hired prior to January 1, 1984 were allowed to either join FERS and Social Security

or remain in CSRS. A primary feature of FERS is that it offers a savings plan to the Agency employees

which automatically contributes 1 percent of pay and matches any employee contribution up to an additional

4 percent of pay. For most employees hired after December 31, 1983, the Agency also contributes the

employer's matching share for Social Security.

With the issuance of "Accounting for Liabilities of the Federal Government" (SFFAS-5) , which was

effective for the FY 1997 financial statements, accounting and reporting standards were established for

liabilities relating to the Federal employee benefit programs (Retirement, Health Benefits and Life

Insurance). SFFAS-5 requires that employing agencies recognize the cost of pensions and other retirement

benefits during their employees’ active years of service. SFFAS-5 requires that the Office of Personnel

Management, as administrator of the Civil Service Retirement and Federal Employees Retirement Systems,

the Federal Employees Health Benefits Program, and the Federal Employees Group Life Insurance Program,

provide EPA with the ‘Cost Factors’ to compute EPA’s liability for each program.

Note 2. Fund Balances with Treasury

Fund Balances with Treasury as of September 30, 1999, consists of the following (in thousands):

Entity Assets Non-Entity Assets Total

Trust Funds:

 Superfund $ 20,069 $ $ 20,069

 Lust 30 30

 Oil Spill (9,320) (9,320)

Revolving Funds:

 FIFRA 7,319 7,319

 Tolerance 22 22

 Working Capital Fund 37,066 37,066

Appropriated Funds 10,694,125 10,694,125

Other Fund Types 63,480 2,256 65,736

 Total $ 10,812,791 $ 2,256 $ 10,815,047
2CIG"68 EPA’s FY 1999 Annual Financial Statements

Entity fund balances includes balances which are available to pay current liabilities and to finance authorized

purchase commitments. Also, entity assets, Other Fund Types consist of the Environmental Services Receipt

account. The Environmental Services Receipt account is a special fund receipt account. Upon Congress

appropriating the funds, EPA will use the receipts in the Science and Technology appropriation and the

Environmental Programs and Management appropriation.

The non-entity Other Fund Type consist of deposits. The deposit accounts are awaiting documentation for

the determination of proper accounting disposition.

Note 3. Cash 

In All Others, as of September 30, 1999, Cash consisted of imprest funds totaling $55 thousand.

Note 4. Investments

As of September 30, 1999, investments consisted of the following:

----------Amounts for Balance Sheet Reporting----------

Cost

Unamortized

(Premium)

Discount

Investments,

Net Market Value

Superfund

Intragovernmental

Securities:

 Non-Marketable $ 4,593,183 $ 175,297 $ 4,417,886 $ 4,417,886

Other Securities:

 Marketable $ 5,146 $ ---- $ 5,146 $ 11,525

All Others

Intragovernmental

Securities:

 Non-Marketable $ 1,461,697 $ 63,692 $ 1,398,005 $ 1,398,005

CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from

responsible parties (RP). Some RP's file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy

settlements, EPA is an unsecured creditor and is entitled to receive a percentage of the assets remaining after

secured creditors have been satisfied. Some RPs satisfy their debts by issuing marketable securities in the

reorganized company. The Agency does not intend to exercise ownership rights related to these securities,

and instead will convert these securities to cash as soon as practicable.

The other securities represent assets received during a bankruptcy proceeding.
EPA’s FY 1999 Annual Financial Statements 2CIG"69

Note 5. Accounts Receivable

The Accounts Receivable for September 30, 1999, consist of the following:

1999

Superfund All Others

Intragovernmental Assets:

Accounts & Interest Receivable $ 48,982 $ 55,194

 Total $ 48,982 $ 55,194

Governmental Assets:

Unbilled Accounts Receivable $ 75,721 $ ___

Accounts & Interest Receivable 927,758 149,250

Less: Allowance for Doubtful Accounts (360,224) (60,685)

 Total $ 643,255 $ 88,565

Accounts receivable due from other Federal agencies are considered fully collectible. 

The Allowance for Doubtful Accounts is determined on a specific identification basis as a result of a case-bycase review of receivables at the regional level, and a reserve on a percentage basis for those not specifically

identified.

Note 6. Loans Receivable, Net - Non-Federal

Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 are net of an allowance for

estimated uncollectible loans, if an allowance was considered necessary. Loans disbursed from obligations

made after FY 1991 are governed by the Federal Credit Reform Act. The Act mandates that the present value

of the subsidy costs (i.e., interest rate differentials, interest subsidies, anticipated delinquencies, and defaults)

associated with direct loans be recognized as an expense in the year the loan is made. The net present value

of loans is the amount of the gross loan receivable less the present value of the subsidy.

An analysis of loans receivable and the nature and amounts of the subsidy and administrative expenses

associated entirely with Asbestos Loan Program loans as of September 30, 1999, is provided in the following

sections.
2CIG"6: EPA’s FY 1999 Annual Financial Statements

1999

Loans

Receivable,

Gross Allowance*

Value of

 Assets Related 

to Direct Loans

Direct Loans Obligated Prior to FY 1992 $ 67,441 $ $ 67,441

Direct Loans Obligated After FY 1991 51,960 (18,089) 33,871

 Total $ 119,401 $ (18,089) $ 101,312

* Allowance for Pre-Credit Reform loans (Prior to FY 1992 ) is the Allowance for Estimated

Uncollectible Loan and the Allowance for Post Credit Reform loans (After FY 1991) is the

Allowance for Subsidy Cost (present value).

Subsidy Expenses for Post Credit Reform Loans:

Interest

Differential

Expected

Defaults

Fee

Offsets Total

Current Year’s Direct Loan $ 109 $ ---- $ ---- $ 109

Direct Loan Subsidy Expense $ 2,507

Note 7. Inventory and Related Property

The Inventory and Related Property at September 30, 1999, consisted of the following:

1999

Superfund All Others

Operating Materials and Supplies Held for

 Use in Normal Operations $ $ 237

 Total $ $ 237

Note 8. General Plant Property and Equipment

Superfund property, plant and equipment, consists of personal property items held by contractors and the

Agency. EPA also has property funded by various other Agency appropriations. The property funded by

these appropriations are presented in the aggregate under “All Others” and consists of real, EPA-Held and

Contractor-Held personal, and capitalized-leased property.

Purchases of EPA-Held and Contractor-Held personal property are capitalized if the equipment is valued at

$25 thousand or more and has an estimated useful life of at least two years. The Agency depreciates EPAHeld personal property using a straight-line method over the asset’s useful life ranging from two to 15 years.
EPA’s FY 1999 Annual Financial Statements 2CIG"6;

Contractor-Held personal property is depreciated over five years using a modified straight-line method. Real

property, other than land, is capitalized when the value is $75 thousand or more and is depreciated using the

straight-line method over the specific asset’s useful life ranging from 10 to 102 years. Leasehold

improvements are amortized over the lesser of their useful lives or the unexpired lease term.

As of September 30, 1999, Plant, Property and Equipment consisted of the following:

Superfund All Others

Acquisition

Value

Accumulated

Depreciation

Net Book

Value

Acquisition

Value

Accumulated

Depreciation

Net Book

Value

EPA-Held

Equipment $ 22,983 $ (15,734) $ 7,249 $ 129,555 $ (85,676) $ 43,879

ContractorHeld

Equipment 8,271 (2,113) 6,158 86,504 (75,090) 11,414

Land and

Buildings 370,102 (70,643) 299,459

Capital Leases 40,992 (9,776) 31,216

Total $ 31,254 $ (17,847) $ 13,407 $ 627,153 $ (241,185) $ 385,968

Note 9. Debt

The Debt consisted of the following as of September 30, 1999:

All Others

Beginning

Balance

Net

Borrowing

Ending

Balance

Other Debt:

Debt to Treasury $ 37,922 $ ---- $ 37,922

Classification of Debt:

 Intra-governmental Debt $ 37,922

 Total $ 37,922

Note 10. Other Liabilities

The Other Liabilities Covered by Budgetary Resources and Not Covered by Budgetary Resources for

September 30, 1999, are as follows:
2CIG"72 EPA’s FY 1999 Annual Financial Statements

Other Liabilities Covered by Budgetary Resources:

Non-Current Current Total

Intra-governmental - Superfund

 Accrued Liabilities $ ___ $ 91,389 $ 91,389

 FECA Accrued Liability 731 485 1,216

 Other 1,256 2,885 4,141

Total Intra-governmental $ 1,987 $ 94,759 $ 96,746

Intra-governmental - All Other

 Accrued Liabilities $ ___ $ 55,214 $ 55,214

 FECA Accrued Liability 1,048 4,496 5,544

 WCF Advances ___ 2,637 2,637

 Other 64 (104) (40)

Total Intra-governmental $ 1,112 $ 62,243 $ 63,355

Superfund

 Cash Out - Non Federal $ 90 $ 457,706 $ 457,796

 Accrued Liabilities ___ 97,477 97,477

 Accrued Funded Payroll and Benefits ___ 15,243 15,243

 Other 3 21,647 21,650

 Total $ 93 $ 592,073 $ 592,166

All Other

 Accrued Funded Payroll & Benefits $ ___ $ 65,974 $ 65,974

Accrued Liabilities ___ 553,443 553,443

 Other Liabilities 335 8,291 8,626

 Total $ 335 $ 627,708 $ 628,043
EPA’s FY 1999 Annual Financial Statements 2CIG"73

Other Liabilities Not Covered by Budgetary Resources:

Non-Current Current Total

Intra-governmental - All Other

 Custodial Liability $ ---- $ 111,017 $ 111,017

Total Intra-governmental $ ---- $ 111,017 $ 111,017

Superfund

 Accrued Unfunded Annual Leave $ ---- $ 18,415 $ 18,415

 Contingent Liabilities - Unfunded ---- 675 675

 Total $ ---- $ 19,090 $ 19,090

All Others

 Accrued Unfunded Annual Leave $ ---- $ 86,430 $ 86,430

 Capital Lease Liability 38,178 ---- 38,178

 Total $ 38,178 $ 86,430 $ 124,608

Note 11. Leases

The Capital Leases as of September 30, 1999, consist of the following:

Capital Leases:

Summary of Assets Under Capital Lease: All Others

Land, Buildings and Personal Property $ 40,992

Accumulated Amortization $ 9,776

EPA has three capital leases for land and buildings housing scientific laboratories and/or computer facilities.

All of these leases include a base rental charge and escalator clauses based upon either rising operating costs

and/or real estate taxes. The base operating costs are adjusted annually according to escalators in the

Consumer Price Indices published by the Bureau of Labor Statistics (U.S. Department of Labor). These

leases terminate in fiscal years 2010, 2013 and 2025. The charges are expended out of the Environmental

Programs and Management appropriation. EPA has one capital lease for a xerox copier that expires in FY

2002. The total future minimum lease payments of the capital leases are listed below.
2CIG"74 EPA’s FY 1999 Annual Financial Statements

Future Payments Due: All Others

Fiscal Year

2000 $ 6,314

2001 6,314

2002 6,303

2003 6,295

2004 6,295

After 5 Years 102,489

Total Future Minimum Lease Payments 134,010

Less: Imputed Interest (95,832)

Net Capital Lease Liability $ 38,178

Liabilities not Covered by 

Budgetary Resources $ 38,178

Operating Leases:

The General Services Administration (GSA) provides leased real property (land and buildings) as office

space for EPA employees. GSA charges a Standard Level Users Charge that approximates the commercial

rental rates for similar properties.

EPA has five direct operating leases for land and buildings housing scientific laboratories and/or computer

facilities. Most of these leases include a base rental charge and escalator clauses based upon either rising

operating costs and/or real estate taxes. The base operating costs are adjusted annually according to

escalators in the Consumer Price Indices published by the Bureau of Labor Statistics (U.S. Department of

Labor). Three leases terminate in fiscal year 2000. In fiscal 1997 and 1998, EPA entered into two leases,

which terminate in fiscal 2017 and 2003 respectively. The charges are expended out of the EPM

appropriation. The total minimum future costs of the operating leases are listed below.

Fiscal Year Superfund All Others

Total Land 

& Buildings

2000 $ ---- $ 6,109 $ 6,109

2001 ---- 36 36

2002 ---- 34 34

2003 ---- 34 34

2004 ---- 24 24

Beyond 2004 ---- 310 310

Total Future Minimum

Lease Payments $ ---- $ 6,547 $ 6,547
EPA’s FY 1999 Annual Financial Statements 2CIG"75

Note 12. Pensions and Other Actuarial Benefits

FECA provides income and medical cost protection to covered Federal civilian employees injured on the job;

employees who have incurred a work-related occupational disease; and beneficiaries of employees whose

death is attributable to a job-related injury or occupational disease. Annually, EPA is allocated the portion

of the long term FECA actuarial liability attributable to the entity. The liability is calculated to estimate the

expected liability for death, disability, medical and miscellaneous costs for approved compensation cases.

The liability amounts and the calculation methodologies are provided by DOL.

The FECA Actuarial Liability at September 30, 1999, consisted of the following:

Superfund All Other

FECA Actuarial Liability $ 5,826 $ 23,987

The FY 1999 present value of these estimates was calculated using a discount rate of 5.5 percent in years 1

and 2, 5.55 percent in year 3 and 5.6 percent in year 4 and thereafter. The estimated future costs are recorded

as an unfunded liability.

Note 13. Unexpended Appropriations

As of September 30, 1999, the Unexpended Appropriations consisted of the following:

Unexpended Appropriations: Superfund All Others Total

 Unobligated

 Available $ 473,194 $ 1,277,839 $ 1,751,033

 Unavailable ___ 88,054 88,054

 Undelivered Orders 2,183,637 8,711,071 10,894,708

 Total $ 2,656,831 $ 10,076,964 $ 12,733,795

Note 14. Amounts Held by Treasury

Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship by the U.S.

Department of Treasury in the “Hazardous Substance Superfund Trust Fund” (Superfund) and the “Leaking

Underground Storage Tank Trust Fund” (LUST).

Superfund (Audited)

Superfund is supported primarily by an environmental tax on corporations, cost recoveries of funds spent

to clean up hazardous waste sites, and fines and penalties. Prior to December 31, 1995, the fund was also

supported by other taxes on crude and petroleum and on the sale or use of certain chemicals. The authority

to assess those taxes and the environmental tax on corporations also expired on December 31, 1995, and has

not been renewed by Congress. It is not known if or when such taxes will be reassessed in the future.
2CIG"76 EPA’s FY 1999 Annual Financial Statements

The following reflects the Superfund Trust Fund as maintained by the U.S. Department of Treasury as of

September 30, 1999. The amounts contained in these statements have been provided by the Treasury and

are unaudited. Outlays represent appropriations received by EPA’s Superfund Trust Fund, such funds are

eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.

EPA Treasury Combined 

Undistributed Balances

 Available for Investment $ ---- $ 1,262 $ 1,262

 Unavailable for Investment ---- ---- ----

Total Undisbursed Balance ---- 1,262 1,262

Investments, Net of Discounts 2,894,095 1,523,791 4,417,886

 Total Assets $ 2,894,095 $ 1,525,053 $ 4,419,148

Liabilities & Equity

Debt $ ---- $ ---- $ ----

Equity 2,894,095 1,525,053 4,419,148

 Total Liability and Equity $ 2,894,095 $ 1,525,053 $ 4,419,148

Receipts

 Crude and Petroleum $ ---- $ (2,060) $ (2,060)

 Certain Chemicals ---- 12,830 12,830

 Corporate Environmental ---- 10,249 10,249

 Cost Recoveries ---- 319,746 319,746

 Fines & Penalties ---- 3,648 3,648

Total Revenue ---- 344,413 344,413

Appropriations Received ---- 325,000 325,000

Interest Income ---- 220,086 220,086

 Total Receipts ---- 889,499 889,499

Outlays

 Transfers to EPA (1,545,851) 1,545,851 ----

 Total Outlays (1,545,851) 1,545,851 ----

Net Income $ 1,545,851 $ (656,352) $ 889,499

LUST (Audited)

LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. The following

represents LUST Trust Fund as maintained by the U.S. Department of Treasury. The amounts contained in
EPA’s FY 1999 Annual Financial Statements 2CIG"77

these statements have been provided by Treasury and are unaudited. Outlays represent appropriations

received by EPA’s LUST Trust Fund, such funds are eliminated on consolidation with the LUST Trust Fund

maintained by Treasury.

EPA Treasury Combined

Undisbursed Balances 

 Available for Investment $ ---- $ 10 $ 10

 Unavailable for Investment ---- ---- ----

Total Undisbursed Balance ---- 10 10

Investments, Net of Discounts 82,594 1,312,103 1,394,697

 Total Assets $ 82,594 $ 1,312,113 $ 1,394,707

Liabilities & Equity

 Debt $ ---- $ ---- $ ----

 Equity 82,594 1,312,113 1,394,707

 Total Liability and Equity $ 82,594 $ 1,312,113 1,394,707

Receipts

 Highway TF Tax $ ---- $ 199,333 $ 199,333

 Airport TF Tax ---- 18,270 18,270

 Inland TF Tax ---- 1,024 1,024

 Gross Revenue ---- 218,627 218,627

 Less: Reimbursement to G/F ---- (3,091) (3,091)

Net Revenue ---- 215,536 215,536

Interest Income ---- 57,789 57,789

 Net Receipts ___---- 273,325 273,325

Outlays

 Transfers to EPA $ (60,783) $ 60,783 $ ----

 Total Outlays (60,783) 60,783 ----

Net Income $ 60,783 $ 212,542 $ 273,325

Note 15. Commitments and Contingencies

EPA is a party in various administrative proceedings, legal actions, and claims brought by or against it.

These include:
2CIG"78 EPA’s FY 1999 Annual Financial Statements

- Various personnel actions, suits, or claims brought against the Agency by employees and others.

- Various contract and assistance program claims brought against the Agency by vendors, grantees and

others.

- The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the

collection of fines and penalties from responsible parties.

- Claims against recipients for improperly spent assistance funds which may be settled by a reduction of

future EPA funding to the grantee or the provision of additional grantee matching funds.

Superfund

Under CERCLA .106 (a), EPA issues administrative orders that require parties to clean up contaminated

sites. CERCLA .106(b) allows a party that has complied with such an order to petition EPA for

reimbursement from the Fund of its reasonable costs of responding to the order, plus interest. To be eligible

for reimbursement, the party must demonstrate either that it was not a liable party under CERCLA . 107 (a)

for the response action ordered, or that the Agency’s selection of the response action was arbitrary and

capricious or otherwise not in accordance with law.

There are currently nine CERCLA . 106(b) administrative claims and four pending lawsuits. If the claimants

are successful, the total losses on the administrative and judicial claims could amount to approximately $32.4

million and $13.7 million, respectively. The Environmental Appeals Board has not yet issued final decisions

on the administrative claims; therefore a definite estimate of the amount of the contingent loss cannot be

made. The claimants’ chance of success in eight of these outstanding claims is characterized as reasonably

possible. The outcome of the remaining claim is considered probable and the expected liability is $50

thousand. The claimants’chance of success in three of the four pending lawsuits is also reasonably possible.

The outcome of the remaining lawsuit is considered remote. 

There are a number of outstanding CERCLA . 106(a) cleanup orders where the recipients of the orders have

not yet completed the ordered response actions. Each such recipient could potentially file a claim with EPA

for reimbursements under CERCLA . 106(b) of its costs of responding to the order once it has completed

the ordered actions.

EPA is responsible to indemnify response action contractors (CERCLA . 119) for legal costs that will

eventually exceed or have exceeded the deductible specified in the current indemnification agreements. Such

payments by the United States would be recoverable government response costs. EPA has only one claim

which is considered remote.

EPA contractors have submitted response action contractor claims. No claims were material.

All Other

There were no material litigation, asserted or unasserted claims or assessments involving all other

appropriated funds of the Agency.
EPA’s FY 1999 Annual Financial Statements 2CIG"79

Judgement Fund

In cases which are paid by the U.S. Treasury Judgement Fund, the Agency must recognize the full cost of

a claim regardless of who is actually paying the claim. The Agency is involved in various other actions that

in the aggregate do not exceed $3.4 million.

In addition, EPA is party to certain pending litigation upon which EPA believes it has a reasonable legal

position. No estimate has been provided for a loss.

In the opinion of EPA’s management and General Counsel, the ultimate resolution of any legal actions still

pending will not materially affect EPA’s operations or financial position.

Note 16. Grant Accrual 

Grant accruals represent Grantee expenses that were not reported to EPA for reimbursement as of September

30, 1999.

EPA selected a statistical sample of grant recipients from our grantee universe to use as our basis to calculate

our accrual. EPA sent confirmation letters to the sample grantees, asking them to provide the amount of

unbilled grant expense at September 30, 1999. We then aggregated up the unbilled grant expense rates.

Finally, we used these two weighted-average rates to compute the overall unbilled grant expense accruals.

1999

Superfund Trust Fund $ 13,981

All Others $ 430,299

Note 17. Environmental Cleanup Costs

EPA has three sites that require clean up stemming from its activities. Two of these sites will be paid from

the Treasury Judgement Fund amounting to $105 thousand. EPA estimates that clean up on the other site

will be approximately $1 thousand. EPA also holds title to a site in Edison, New Jersey, which was formerly

an Army Depot. While EPA did not cause the contamination, the Agency could potentially be liable for a

portion of the clean up costs. However, it is expected that the Department of Defense and the General

Services Administration will bear all or most of the cost of remediation.

Accrued Clean-up Cost

EPA has sixteen sites that will require future clean up associated with permanent closure. The estimated cost

will be approximately $14.3 million. Since the clean up costs associated with permanent closure are not

primarily recovered though user fees, EPA has elected to recognize the estimated total cleanup cost as a

liability upon implementation and record changes in estimate in subsequent years. The FY 1999 estimate

decreased by approximately $.2 million for unfunded clean-up costs over FY 1998. There was an increase

of $20 thousand for funded clean-up costs for FY 1999. EPA could also be potentially liable for cleanup

costs at a GSA-leased sites; however, the amounts are not known.
2CIG"7: EPA’s FY 1999 Annual Financial Statements

Of the nearly $14.3 million in estimated clean up costs, approximately $11.3 million represents the estimated

expense to close the current RTP research facility. These costs will be incurred within the next three years.

The remaining amount represents the future decontamination and decommissioning costs of EPA’s research

facilities.

Note 18. Superfund State Credits

Authorizing statutory language for Superfund and related Federal regulations require States to enter into

Superfund State Contracts (SSCs) when EPA assumes the lead for a remedial action in their State. The SSC

defines the State’s role in the remedial action and obtains the State’s assurance that they will share in the cost

of the remedial action. Under Superfund’s authorizing statutory language, States will provide EPA with a

ten percent cost share for remedial action costs incurred at privately owned or operated sites, and at least fifty

percent of all response activities (i.e., removal, remedial planning, remedial action, and enforcement) at

publicly operated sites. In some cases, States may use EPA approved credits to reduce all or part of their cost

share requirement that would otherwise be paid by the States. Credit is limited to State site-specific expenses

EPA has determined to be reasonable, documented, direct out-of-pocket expenditures of non-Federal funds

for remedial action. Once EPA has reviewed and approved a State’s claim for credit, the State must first

apply the credit at the site where it was earned. The State may apply any excess/remaining credit to another

site when approved by EPA. As of September 30, 1999, total outstanding State credits has been estimated

at $7.3 million.

Note 19. Superfund Preauthorized Mixed Funding Agreements

Under Superfund Preauthorized Mixed Funding Agreements, settling Potentially Responsible Parties (PRPs)

agree to perform response actions at their sites with the understanding that EPA will reimburse the PRPs a

percentage of their total response action costs. EPA's authority to enter into mixed funding agreements is

provided under Section 111(a)(2) of the Comprehensive Environmental Response, Compensation, and

Liability Act (CERCLA) of 1980. Under Section 122(b)(1) of CERCLA, as amended by the Superfund

Amendments and Reauthorization Act (SARA) of 1986, a PRP may assert a claim against the Superfund

Trust Fund for a portion of the costs they incurred while conducting a preauthorized response action as

agreed to under a mixed funding agreement. As of September 30, 1999, EPA had 13 outstanding

preauthorized mixed funding agreements with obligations totaling $50 million. A liability is not recognized

for these amounts until the PRP's work has been performed and has been approved by EPA for payment.

EPA will not disburse any funds under these agreements, however, until the PRP's application, claim, and

claims adjustment processes have been reviewed and approved by EPA.

Note 20. Income and Expenses from other Appropriations

The Statement of Net Cost reports program costs that include the full costs of the program outputs and

consist of the direct costs and all other costs that can be directly traced, assigned on a cause and effect basis,

or reasonably allocated to program outputs.

During Fiscal Year 1999, EPA had three appropriations which funded a variety of programmatic and nonprogrammatic activities across the Agency, subject to statutory requirements. The Environmental Programs

and Management (EPM) appropriation was created to fund personnel compensation and benefits, travel,

procurement, and contract activities. Two prior year appropriations, Program and Research Operations
EPA’s FY 1999 Annual Financial Statements 2CIG"7;

(PRO) and Abatement Control and Compliance (AC&C) generated expenses. PRO funded travel, personnel

compensation and benefits. AC&C funded procurement and contract activities.

All of the expenses from EPM, PRO and AC&C were distributed among EPA’s two Reporting Entities:

Superfund and All Others. This distribution is calculated using a combination of specific identification of

expenses to Reporting Entities, and a weighted average that distributes expenses proportionately to total

programmatic expenses.

As illustrated below, this estimate does not impact the net effect of the Statement of Net Costs.

1999

Income From 

Other Appropriations

Expenses From

Other Appropriations Net Effect

Superfund $ 35,664 $ (35,664) $ ___

All Others (35,664) 35,664 ___

 Total $ ___ $ ___ $ ___

Note 21. Custodial Non-Exchange Revenues

EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.

Collectability by EPA of the fines and penalties is based on the responsible parties’ willingness and ability

to pay.

1999

Fines, Penalties & Misc Revenue (EPA) $ 128,176

Accounts Receivable for Fines, Penalties 

& Miscellaneous Receipts 1999

 Accounts Receivable $ 66,750

 Less: Allowance for Doubtful Accounts 36,265

 Total $ 30,485

Note 22. Statement of Budgetary Resources

A reconciliation of budgetary resources, obligations incurred, and outlays, as presented in the audited

Statement of Budgetary Resources, to amounts included in the Budget of the United States Government for

the year ended September 30, 1999, is as follows:
2CIG"82 EPA’s FY 1999 Annual Financial Statements

Budgetary

Resources

Obligations

Incurred Outlays

Superfund

Statement of Budgetary Resources $ 2,192,229 $ 1,709,357 $ 1,499,486

Allocated to Other Agencies 97,741 80,789 77,029

 Adjustments to Unliquidated Obligations,

Unfilled Customer Orders and Other (31,240) (26,489) ----

Budget of the United States Government $ 2,258,730 $ 1,763,657 $ 1,576,515

All Other

Statement of Budgetary Resources $ 8,360,328 $ 6,685,653 $ 5,855,618

 Adjustments to Unliquidated Obligations,

Unfilled Customer Orders and Other 77,806 9,411 (1,260)

Budget of the United States Government $ 8,438,134 $ 6,695,064 $ 5,854,358

Note 23. Adjustments

During FY 1999, there is a reduction in the Superfund Trust Fund authority available of $262.9 million

between the beginning available and ending available authority. This amount represents amounts that were

overstated in the beginning FY 1999 authority available resulting from anticipated reimbursable funding that

was not decreased prior to the close of FY 1998. This amount is reflected as part of the $59.3 million

Adjustments on the Statement of Budgetary Resources. The remaining amount of the Adjustments is for

Recoveries of prior year obligations of $205.2 million and the Canceled Authority of $1.6 million.

Note 24. Unobligated Balances Available

The Superfund Trust Fund has an unobligated balance of $483 million in unexpired authority. All Others

has an unobligated balance of $1,675 million which includes $1,567 million in unexpired authority and $108

million in expired authority. The unexpired authority is available to be apportioned by the Office of

Management and Budget for new obligations at the beginning of FY 2000. Unobligated balances of expired

authority is not available for new obligations. However, the expired authority is available for upward

adjustments of obligations incurred as of the end of the fiscal year.

Note 25. Obligated Balance, Net - End of Period

Undelivered Orders at the end of the period are $2.4 million for the Superfund Trust Fund and $9.2 million

for All Others.
EPA’s FY 1999 Annual Financial Statements 2CIG"83

Note 26. Difference in Outlays Between Statement of Budgetary Resources and SF-133

Outlays between the Statement of Budgetary Resources and the SF-133 differ by an unidentified $1 million

for All Others.

Note 27. Statement of Financing

Increases in Unfunded Liabilities relate to unfunded annual leave, environmental liabilities, contingent

liabilities and the Federal Employees Compensation Act (FECA) special benefit fund. For Superfund and

All Others, the amounts totaled $4.2 million and $15.9 million, respectively and is reflected in Financing

Sources Yet to Be Provided.

Note 28. Other Financing Sources

Consists primarily of Appropriations to EPA from the Superfund and LUST Trust Funds held at Treasury

(Treasury Trust Funds). Such appropriations are reported as non expenditure transfers on the financial

statements of the respective Treasury Trust Funds. Upon consolidation with Trust funds held by EPA, the

Treasury Trust Fund Appropriation non expenditure transfers are reported as Other Financing Sources to

offset Appropriations Used and Trust Fund revenues.

1999

Trust Funds Superfund LUST

Treasury Trust Fund Transfers $ (1,545,851) $ (60,783)

Custodial Liability Reclassification 22,718 ___

Other (979) (14,396)

 Total $ (1,524,112) $ (75,179)
2CIG"84 EPA’s FY 1999 Annual Financial Statements

Environmental Protection Agency

Required Supplemental Information 

As of September 30, 1999

(Dollars in Thousands)

(Unaudited)

Deferred Maintenance

The EPA classifies property, plant, and equipment as follows: 1) EPA-Held Equipment, 2) Contractor-Held

Equipment, 3) Land and Buildings, and, 4) Capital Leases. The condition assessment survey method of

measuring deferred maintenance is utilized. The Agency adopts requirements or standards for acceptable

operating condition in conformance with industry practices. 

One deferred maintenance project was identified in the Land and Buildings category, with an estimated total

cost of $325,000. This project included repairing and resurfacing weathered and cracked parking lots and

driveways. No deferred maintenance was reported for the other three categories.

Intra-governmental Assets

Intra-governmental assets represent transactions between all federal departments and agencies.

Accounts Receivable

Agency Superfund All Others

Dept. of the Army $ 34 $ ___

Dept. of Interior ___ 143

Dept. of Energy ___ 24

Dept. of the Air Force ___ 5

Unassigned 48,948 55,022

Total $ 48,982 $ 55,194

Intra-governmental Liabilities

Intra-governmental liabilities represent transactions between all federal departments and agencies.

Accounts Payable Other Liabilities Debt

Agency Superfund All Other Superfund All Other All Other

Dept. of Agriculture $ ___ $ (3) $ ___ $ (759) $ ___

Library of Congress ___ ___ ___ 66 ___

US Postal Service 11 ___ ___ ___ ___
EPA’s FY 1999 Annual Financial Statements 2CIG"85

Intra-governmental Liabilities - continued 

Accounts Payable Other Liabilities Debt

Agency Superfund All Other Superfund All Other All Other

Government Printing

Office ___ ___ ___ 82 ___

Dept. of the Army ___ 1 34 26 ___

Government

Accounting Office ___ ___ ___ (1) ___

OPM 1 2 ___ 98 ___

Executive Office of the

President ___ ___ ___ 46 ___

Dept. of the Treasury ___ (12) ___ (8) 37,922

Dept. of Commerce ___ ___ ___ (994) ___

Dept. of Justice ___ ___ 498 (203) ___

Dept. of the Interior ___ ___ ___ (5,043) ___

Secretary of Defense ___ ___ 425 ___ ___

Dept. of Air Force ___ ___ ___ 5 ___

Dept. of Labor ___ ___ 1,216 4,649 ___

Tennessee Valley

Authority ___ ___ ___ 1 ___

Small Business

Administration ___ ___ ___ (185) ___

Dept. of Health and

Human Services ___ ___ ___ 6,073 ___

NASA ___ ___ ___ 67 ___

Housing and Urban

Development ___ ___ ___ 100 ___

Dept. of Energy ___ ___ ___ (1,282) ___

National Labor Relations

Board ___ ___ ___ (2) ___

Dept. of Transportation ___ ___ ___ (1,049) ___

Agency for International

Development ___ ___ ___ 431 ___

Government Services

Administration ___ ___ ___ (10,248) ___

National Science

Foundation ___ ___ ___ 38 ___
2CIG"86 EPA’s FY 1999 Annual Financial Statements

Intra-governmental Liabilities - continued 

Accounts Payable Other Liabilities Debt

Agency Superfund All Other Superfund All Other All Other

Dept. of State ---- ---- ---- (11) ----

Unassigned 89,582 2,749 94,573 182,475 ----

 Total $ 89,594 $ 2,737 $ 96,746 $ 174,372 $ 37,922
EPA’s FY 1999 Annual Financial Statements 2CIG"87

Environmental Protection Agency

Required Supplemental Information

Supplemental Statement of Budgetary Resources 

As of September 30, 1999

(Dollars in Thousands)

Unaudited

STAG

Environmental

Programs &

Management

Science &

Technology FIFRA

LUST

Trust Fund

Miscellaneous

All

Others

Consolidated

All

Others

Budgetary Resources:

Budget Authority $ 3,408,050 $ 1,853,150 $ 660,672 $ --- $ 72,500 $ 453,521 $ 6,447,893

Unobligated Balances - Beginning of

the Period 1,159,696 202,100 143,627 15,342 2,733 194,443 1,717,941

Spending Authority from Offsetting

Collections 6,595 48,159 50,802 18,400 1 152,385 276,342

Adjustments 120,791 (11,035) (908) 35 (434) (190,297) (81,848)

Total Budgetary Resources $ 4,695,132 $ 2,092,374 $ 854,193 $ 33,777 $ 74,800 $ 610,052 $ 8,360,328

Status of Budgetary Resources:

Obligations Incurred $ 3,430,652 $ 1,858,653 $ 692,256 $ 22,225 $ 71,230 $ 610,637 $ 6,685,653

Unobligated Balances - Available 1,264,480 146,973 139,411 11,552 3,570 1,156 1,567,142

Unobligated Balances-Not Available ___ 86,748 22,526 --- ---- (1,741) 107,533

Total Status of Budgetary Resources $ 4,695,132 $ 2,092,374 $ 854,193 $ 33,777 $ 74,800 $ 610,052 $ 8,360,328

Outlays:

Obligations Incurred $ 3,430,652 $ 1,858,653 $ 692,256 $ 22,225 $ 71,230 $ 610,637 $ 6,685,653

Less: Spending Authority from

Offsetting Collections and Adjustments 127,386 64,263 55,514 18,435 1,898 159,595 427,091

Obligated Balance, Net - Beginning 

of Period 7,012,337 873,197 481,875 (627) 74,552 308,955 8,750,289

Less: Obligated Balance, Net - End

of the Period 7,570,173 794,380 511,824 (926) 79,306 198,476 9,153,233

Total Outlays $ 2,745,430 $ 1,873,207 $ 606,793 $ 4,089 $ 64,578 $ 561,521 $ 5,855,618
2CIG"88 EPA’s FY 1999 Annual Financial Statements

Environmental Protection Agency

Required Supplemental Information

Working Capital Fund 

Supplemental Balance Sheet

As of September 30, 1999

(Dollars in Thousands)

ASSETS Unaudited

 Intragovernmental 

 Fund Balance With Treasury $ 37,066

 Advances and Prepayments 443

Total Intragovernmental 37,509

Advances and Prepayments 5

 Operating Materials and Supplies, Net 13

 General Property Plant and Equipment 17,184

 Other 15,559

Total Assets $ 70,270

LIABILITIES

 Intragovernmental

Accounts Payable $ 1,500

 Other 23,293

Total Intragovernmental 24,793

 

 Accounts Payable 13,165

 Other 1,171

 Total Liabilities 39,129

NET POSITION

 Cumulative Results of Operations 31,141

 Total Net Position 31,141

Total Liabilities and Net Position $ 70,270
EPA’s FY 1999 Annual Financial Statements 2CIG"89

Environmental Protection Agency

Required Supplemental Information

Working Capital Fund 

Supplemental Statement of Net Cost

For the Year Ended September 30, 1999

(Dollars in Thousands)

Unaudited

 COSTS:

 Intragovernmental $ 15,177

 With the Public 112,629

 Total 127,806

Less: Earned Revenues 119,972

Net Cost of Operations $ 7,834
2CIG"8: EPA’s FY 1999 Annual Financial Statements

Environmental Protection Agency

Required Supplemental Information

Working Capital Fund 

Supplemental Statement of Changes in Net Position

For the Year Ended September 30, 1999

(Dollars in Thousands)

Unaudited

Net Cost of Operations $ 7,834

Financing Sources (Other Than Exchange Revenues)

Imputed Financing 5,937

Transfers-In 4,160

Transfers-Out (4,160)

Other (952)

Net Results of Operations (2,849)

Prior Period Adjustments (5,535)

Net Changes in Cumulative Results of Operations 2,686

Net Position-Beginning of Period 28,455

Net Position-End of Period $ 31,141
EPA’s FY 1999 Annual Financial Statements 2CIG"8;

Environmental Protection Agency

Required Supplemental Stewardship Information

For the Year Ended September 30, 1999

(Dollars in Thousands)

INVESTMENT IN THE NATION’S RESEARCH

AND DEVELOPMENT:

Public and private sector institutions have long been

significant contributors to our nation’s environment

and human health research agenda. EPA’s Office of

Research and Development, however, is unique

among scientific institutions in this country in

combining research, analysis, and the integration of

scientific information across the full spectrum of

health and ecological issues and across both risk

assessment and risk management. Science enables

us to identify the most important sources of risk to

human health and the environment, and by so doing,

informs our priority-setting, ensures credibility for

our policies, and guides our deployment of

resources. It gives us the understanding and

technologies we need to detect, abate, and avoid

environmental problems. Science provides the

crucial underpinning for EPA decisions and

challenges us to apply the best available science and

technical analysis to our environmental problems

and to practice more integrated, more efficient, and

more effective approaches to reducing

environmental risks.

Among the Agency’s highest research priorities is a

program to expand the understanding of near- and

long-term effects of the environment on children.

Another priority is the Particulate Matter (PM)

research program, which focuses on review,

implementation, and eventual attainment of the

National Ambient Air Quality Standards (NAAQS).

For FY 1999, the full cost of the Agency’s Research

and Development activities totaled $603 million. A

breakout of the expenses is below (Dollars in

thousands):

FY 99 Programmatic Expenses: $543,777 

Allocated Expenses: $ 58,728

FY 98 Programmatic Expenses: $507,828

Allocated Expenses: $ 53,322

INVESTMENT IN THE NATION’S

INFRASTRUCTURE:

The Agency makes significant investments in the

Nations’s drinking water and clean water

infrastructure. The investments are the result of

three programs: The Construction Grant Program

which is being phased out, and two State Revolving

Fund (SRF) programs.

Construction Grants Program: During the 1970s

and 1980s, the Construction Grants Program was a

source of Federal funds, providing more than $60

billion of direct grants for the construction of

public wastewater treatment projects. These

projects, which constituted a significant

contribution to the nation's water infrastructure,

included sewage treatment plants, pumping

stations, and collection and intercept sewers,

rehabilitation of sewer systems, and the control of

combined sewer overflows. The construction

grants led to the improvement of water quality in

thousands of municipalities nationwide. 

Congress set 1990 as the last year that funds would

be appropriated for Construction Grants. Projects

funded in 1990 and prior will continue until

completion. Beyond 1990, EPA shifted the focus

of municipal financial assistance from grants to

loans that are provided by State Revolving Funds.

State Revolving Funds: The Environmental

Protection Agency provides capital, in the form of

capitalization grants, to state revolving funds which

state governments use to make loans to individuals,

businesses, and governmental entities for the

construction of wastewater and drinking water

treatment infrastructure. When the loans are repaid
2CIG"92 EPA’s FY 1999 Annual Financial Statements

to the state revolving fund, the collections are used

to finance new loans for new construction projects.

The capital is reused by the states and is not

returned to the Federal Government.

The Agency is also appropriated funds to finance

the construction of infrastructure outside the

Revolving Funds. These are reported below as

Other Infrastructure Grants. 

The Agency’s expenses related to investments in the

Nation’s Water Infrastructure are outlined below:

FY 99

Construction Grants: $ 414,528

Clean Water SRF: $ 925,744

Safe Drinking Water SRF: $ 387,429

Other Infrastructure Grants: $ 245,606

Allocated Expenses: $ 213,117

FY 98

Construction Grants: $ 444,817

Clean Water SRF: $1,109,017

Safe Drinking Water SRF: $ 94,936

Other Infrastructure Grants: $ 138,363

Allocated Expenses: $ 187,649

STEWARDSHIP LAND

The Agency acquires title to certain land and land

rights under the authorities provided in Section 104

(J) CERCLA related to remedial clean-up sites. The

land rights are in the form of easements to allow

access to clean-up sites or to restrict usage of

remediated sites. In some instances, the Agency

takes title to the land during remediation and returns

it to private ownership upon the completion of

clean-up.

As of 9/30/99, the Agency possesses the following

land and land rights:

Superfund Sites with Easements

Beginning Balance 22

Additions 2

Withdrawals 0

Ending Balance 24

Superfund Sites with Land

Beginning Balance 18

Additions 2

Withdrawals 0

Ending Balance 20

HUMAN CAPITAL

Agencies are required to report expenses incurred

to train the public with the intent of increasing or

maintaining the nation’s economic productive

capacity. Training, public awareness, and research

fellowships are components of many of the

Agency’s programs, and are effective in achieving

the Agency’s mission of protecting public health

and the environment, but the focus is on enhancing

the nation’s environmental, not economic, capacity.

FY 99

Training and Awareness Grants $46,630

Fellowships $10,239

Allocated Expenses $ 6,142

FY 98

Training and Awareness Grants $39,131

Fellowships $11,084

Allocated Expenses $ 5,273
Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG"93

OIG’S REPORT

ON EPA’S FY 1999 

FINANCIAL STATEMENTS
Audit Report 00100231

2CIG"94 EPA’s FY 1999 Annual Financial Statements

Note: This summary is part of Audit Report Number 00100231 issued by the EPA Office of

Inspector General on February 29, 2000. Therefore, it contains references to other sections of the

report (e.g., attachments) which are not included. For a complete copy of the report, please contact:

Environmental Protection Agency

Office of the Inspector General

Financial Audit Division

Mail Code 2422

401 M Street, S.W.

Washington, D.C.

Telephone: 202-260-1397

FAX: 202-260-1398
Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG"95

INSPECTOR GENERAL'S REPORT ON EPA’S 

FISCAL 1999 FINANCIAL STATEMENTS

The Administrator

U.S. Environmental Protection Agency:

In accordance with the requirements of the Government Management Reform Act (GMRA), we

performed an audit of EPA s fiscal 1999 financial statements. Following are our opinions on the

Agency’s financial statements, and the results of our evaluation of internal controls and tests of

compliance.

The financial statements include expenses of grantees, contractors and other Federal agencies. 

Our audit work pertaining to these expenses included testing only within EPA. Audits of grants,

contracts and interagency agreements performed at a later date may disclose questioned costs of

an undeterminable amount at this time. 

The Office of Inspector General (OIG) is not independent with respect to amounts pertaining to

its operations that are presented in the financial statements. The amounts included for the OIG

are not material to EPA’s financial statements. The OIG is organizationally independent with

respect to all other aspects of the Agency s activities.

OPINIONS ON EPA’S FISCAL 1999 FINANCIAL STATEMENTS

Superfund Trust Fund Financial Statements

The Agency was unable to provide support in a timely manner for the composition of Other

Financing Sources for the Superfund Trust Fund, so we were unable to apply audit procedures to

satisfy ourselves as to the fair presentation of this line item. In addition, Note 28 to the financial

statements discloses these differences as Custodial Liability Reclassifications and Other which in

our opinion does not adequately address the source or composition of these amounts. Except for

the effects, if any, of adjustments that may have been necessary to correct the amounts reported

as Other Financing Sources in the Statement of Changes in Net Position and the related effects

on Equity and Net Costs of Operations, the financial statements for the Superfund Trust Fund

fairly present the assets, liabilities, and net position; net costs; changes in net position; budgetary

resources; and reconciliation of net costs to budgetary obligations for the fund as of and for the

year ended September 30, 1999, in accordance with generally accepted accounting principles, as

described in Note 1 to the financial statements.
Audit Report 00100231

2CIG"96 EPA’s FY 1999 Annual Financial Statements

All Other Appropriated Funds Financial Statements

The Agency was unable to provide support for the composition of “Other” in the Statement of

Financing for All Other Appropriated Funds, and we were unable to apply audit procedures to

satisfy ourselves as to the fair presentation of this line item. Except for the effects, if any, of

adjustments that may have been necessary to correct the amounts reported as “Other” in the

Statement of Financing, the financial statements for All Other Appropriated Funds fairly present

the assets, liabilities, and net position; net costs; changes in net position; budgetary resources;

reconciliation of net costs to budgetary obligations; and custodial activity for All Other

Appropriated Funds as of and for the year ended September 30, 1999, in accordance with

generally accepted accounting principles, as described in Note 1 to the financial statements.

Agency-wide Financial Statements

The Agency was unable to provide support in a timely manner for the composition of Other

Financing Sources for the Agency as a whole. In addition, Note 28 to the financial statements

discloses these differences as Custodial Liability Reclassifications and Other which in our

opinion does not adequately address the source or composition of these amounts. In addition, the

Agency was unable to provide support for the composition of “Other” in the Statement of

Financing for the Agency as a whole. We were unable to apply audit procedures to satisfy

ourselves as to the fair presentation of these line items. Except for the effects, if any, of

adjustments that may have been necessary to correct the amounts reported as Other Financing

Sources in the Statement of Changes in Net Position and the related effects on Equity and Net

Costs of Operations, and the amounts reported as “Other” in the Statement of Financing the

Agency-wide financial statements fairly present the assets, liabilities, and net position; net costs;

changes in net position; budgetary resources; and reconciliation of net costs to budgetary

obligations for the Agency as of and for the year ended September 30, 1999, in accordance with

generally accepted accounting principles, as described in Note 1 to the financial statements. 

Other Significant Matters

Although we were able to render opinions on EPA’s financial statements, weaknesses existed in

the Agency’s process for preparing the fiscal 1999 financial statements that resulted in the

Agency being unable to provide us with complete, accurate and reliable statements, footnotes and

supplemental information by the agreed upon dates. Significant audit effort was needed to assist

the Agency in improving the presentation of the financial statements and to resolve preparation

issues in order for the Agency to obtain the best possible opinions by March 1, 2000.

In addition, GRPA requires EPA to develop plans on intended accomplishments, measure how

well it is doing, make appropriate decisions based on the information gathered, and communicate

information about performance to Congress and the public. To do this, EPA developed a

strategic plan with ten goals and during fiscal 1999 began tracking the cost to achieve each of its
Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG"97

goals. We found that the Agency’s methodology for accumulating costs by goal could not be

relied upon to fairly state costs by goal. The Agency had originally planned to present its

Statement of Net Cost by goal. After we expressed concern about the Agency’s ability to fairly

present its costs by goal, Agency management decided to present EPA’s costs for the Superfund

Trust Fund and All Other Appropriated Funds rather than present the information by goal. 

Weaknesses in this area also affect the quality of cost accounting data Agency managers have

available for decision making.

REVIEW OF EPA’S REQUIRED SUPPLEMENTAL STEWARDSHIP

INFORMATION, REQUIRED SUPPLEMENTAL INFORMATION, AND

MANAGEMENT DISCUSSION AND ANALYSIS

EPA s Required Supplemental Stewardship Information, Required Supplemental Information,

and Management Discussion and Analysis are presented for purposes of additional analysis. We

inquired of EPA s management as to their methods of preparing this information and reviewed

this information for consistency with the principal financial statements. However, our audit was

not designed to express, and we are not expressing an opinion on it. 

We did not identify any material inconsistencies between the information presented in EPA s

principal financial statements and the information presented in EPA s: (1) Required

Supplemental Stewardship Information, (2) Required Supplemental Information, and (3)

Management Discussion and Analysis. We did find that EPA was unable, in most cases, to

provide Required Supplemental Information about its trading partners. The January 7, 2000,

technical amendments to OMB Bulletin 97-01 require agencies to report, as Required

Supplemental Information, their intra-governmental assets and liabilities by federal trading

partner (see Attachment 3 for additional details on this issue) .

EPA s Management Discussion and Analysis presents performance information about various

EPA programs. Our audits of EPA s programmatic areas have identified weaknesses in the

environmental data information systems used to generate data used for managing the Agency s

environmental programs. The Agency has several initiatives underway to address data quality

and ensure that environmental data systems contain timely and accurate data. Although these

initiatives move the Agency in the right direction, EPA has not developed an overall strategy to

address the completeness of its environmental data. As a result, EPA s ability to evaluate the

outcomes of its programs in terms of environmental changes will continue to be limited by gaps

and inconsistencies in the quality of its data.

EPA s Management Discussion and Analysis states that the Agency is in compliance with

Statement of Federal Financial Accounting Standards No. 4, “Managerial Cost Accounting

Concepts and Standards for the Federal Government.” We do not believe the Agency is in
Audit Report 00100231

2CIG"98 EPA’s FY 1999 Annual Financial Statements

compliance with this standard because EPA was not able to: (1) determine the full costs of its

activities, (2) accumulate and report cost of activities on a regular basis for management

information purposes, and (3) use appropriate costing methodologies to accumulate and assign

costs to outputs (see Attachment 3 for additional details on this issue). 

EPA s Management Discussion and Analysis also states that, during fiscal 1999, the Agency

conducted a review of its user fees in accordance with the requirements of the CFO Act and

provisions of OMB Circular A-25, “User Charges.” Our audit work showed, however, that the

Acting CFO still needs to follow through and either institute, revise, or update its user fees or

obtain exceptions from OMB for the user fees identified during the 1997 review, as updated by

the 1999 review (see Attachment 3 for additional details on this issue). 

EVALUATION OF INTERNAL CONTROLS

We evaluated the Agency's internal controls over financial reporting: (1) to determine the audit

procedures necessary to express an opinion on the financial statements, and (2) to determine

whether the internal controls provide reasonable assurance that:

 q transactions are properly recorded, processed, and summarized to permit the preparation

of reliable principal financial statements in accordance with generally accepted

accounting standards;

 q financial transactions are executed in compliance with applicable laws and regulations;

and

 q assets are safeguarded against loss from unauthorized acquisition, use or disposition.

Recognizing on-going work by the General Accounting Office (GAO) on computer security

controls, we supplemented our review of these controls by relying on the GAO review. We did

not test all internal controls relevant to operating objectives as broadly defined by the Federal

Managers Financial Integrity Act, such as those controls relevant to ensuring efficient

operations. Our objective in evaluating controls was not to express an opinion on controls. 

Consequently, we are not expressing an opinion on EPA s internal controls. Our evaluation

would not necessarily disclose all matters in the internal control structure that might be

reportable conditions or material weaknesses. Because of inherent limitations in any system of

internal controls, losses, noncompliance, or misstatements could occur and not be detected. 

Also, projecting our evaluation of internal controls to future periods is subject to the risk that

controls may become inadequate because of changes in conditions, or the degree of compliance

with such controls may deteriorate.
Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG"99

Material Weaknesses

OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements," defines a material

weakness as a situation where internal controls do not reduce to a relatively low level, the risk

that errors, fraud or noncompliance in amounts material to the audited financial statements,

Required Supplemental Stewardship Information, or reported performance measures may occur

and not be detected in a timely manner by employees in the normal course of performing their

assigned functions. In evaluating the Agency's internal control structure, we identified the

following material weaknesses. 

Although the Agency made some improvements in its financial statement preparation processes,

the financial statements provided to us for the purpose of expressing an opinion were incomplete

and contained significant errors. The financial statements that we used as a basis for rendering

our opinions were not received until late February 2000. Further, significant audit effort was

needed to assist the Agency in improving the presentation of the financial statements and to

resolve preparation issues in order for the Agency to obtain the best possible opinions by March

1, 2000. The Agency needs to make further improvements in its financial statement preparation

process. These improvements should be designed to improve the accuracy and reliability of

financial information used to prepare financial statements after the end of the year, as well as the

data that is available on an ongoing basis throughout the year to manage EPA’s environmental

programs. Attachment 1 describes weaknesses in the Agency s financial statement preparation

process in more detail.

The Office of Inspector General previously reported concerns that security plans for EPA’s core

financial systems were not compliant with Federal financial management system requirements.

Our work continues to show significant deficiencies for fiscal 1999. As a result, we continue to

report the issue as a noncompliance with the Federal Financial Management Improvement Act

(FFMIA). (See Attachment 3 for details.) Additional developments for fiscal 1999 support the

listing of computer security controls as a material weakness. 

EPA’s Acting CFO (in his Management Representation letter to us) listed potential

vulnerabilities in the Agency’s mainframe computer and network servers as an exception to

Agency FFMIA compliance. In addition, the Acting CFO cited the lack of sufficient detail in

security plans, and security training programs that were under development but not yet completed

and implemented, as further exceptions to complying with system requirements. 

In addition, a current, more comprehensive, on-going review by the GAO indicates that computer

security weaknesses “pose a serious threat to the integrity of EPA’s information systems; and if

uncorrected could allow unauthorized users to take control of EPA’s network operations.” The

problems are of such magnitude that the security program was rendered ineffective. There have

been numerous computer incidents identified, but the system to document and manage the

incidents is inadequate. The operating computer and network controls were vulnerable to
Audit Report 00100231

2CIG"9: EPA’s FY 1999 Annual Financial Statements

tampering and disruption of services. EPA is vulnerable to serious disruptions, disclosure of data

and destruction of data. A Congressional Committee, citing the seriousness of the vulnerability,

plans a March 2000 hearing on the issue. 

Relying on the work of GAO and our efforts, and noting the concern of the Acting CFO, we

consider the lack of adequate computer security controls a material weakness.

Reportable Conditions

We also identified the following reportable conditions. OMB Bulletin 98-08 defines a reportable

condition as an internal control weakness that could adversely affect EPA's ability to ensure: 

(1) transactions are executed in accordance with applicable laws; (2) assets are safeguarded

against unauthorized acquisition, use, or disposition; (3) transactions are properly recorded,

processed, and summarized to permit the preparation of reliable financial statements and

Required Supplemental Stewardship Information in accordance with generally accepted

accounting principles; and (4) transactions are properly recorded, processed and summarized to

permit the preparation of reliable performance information. 

q The Agency did not timely identify and deobligate unnecessary funds during its annual review

of inactive obligations. Therefore, the Agency had to conduct a $special review# of its open

obligations to ensure an accurate reporting of its open obligations in the Agency s financial

statements. The special review identified $14.6 million of open obligations which should have

been deobligated by September 30, 1999 in addition to the $10 million which should have been

deobligated based on the fiscal 1998 special review. In addition, our fiscal 1999 audit work

identified another $6.3 million which should have been deobligated by September 30, 1999.

q During fiscal 1999, the Agency continued its efforts to improve controls in the accounts

receivable area. However, we continued to find: (1) accounts receivable that were not recorded

and billed timely, (2) accounts receivable balances in the Agency s Integrated Financial

Management System (IFMS) were not reconciled to subsidiary records, (3) outstanding

receivables were not timely followed up on and written off, and (4) collection transactions were

not properly recorded. Consequently, some accounts receivable may not be correctly valued and

timely collected. These problems were primarily caused by Offices of Regional Counsel and

program offices not timely forwarding documentation needed to manage accounts receivable to

the financial management offices.

q Some Agency project officers were not fulfilling one of their program oversight duties, that of

timely reviewing and approving interagency agreement invoices. In addition, some project

officers were not obtaining and reviewing supporting cost documentation for amounts billed by

other agencies. The Agency needs to continue making improvements in this area, so that it can

be assured that payments are only made for costs billed that are valid and allowable under the

terms of its interagency agreements.
Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG"9;

q For a number of years, we have reported that EPA needs to make improvements in accounting

for its property. The Agency has been addressing weaknesses in its accounting for property;

however, our fiscal 1999 audit work disclosed the need for further corrective actions. We again

found property that was not recorded or not recorded timely or accurately. In addition, we found

weaknesses in the reconciliation of property information in the Agency s accounting system with

information contained in the property subsystem. When property is not accurately accounted for

it impacts the quality of data available to manage EPA s resources and increases the risk of theft,

loss or misuse of the property.

q We continue to be unable to assess the adequacy of the automated internal control structure as

it relates to automated input, processing and output controls for the accounting transactions

contained in the Agency s IFMS. We recognize the Agency has initiated a work group to replace

the Agency payroll system, and the Agency s budget request indicated a desire to replace IFMS in

the near future. An active data dictionary would simplify conversion of data in implementing

future financial systems. 

Attachment 2 describes each of these reportable conditions in more detail. We will also be

reporting other less significant matters involving the internal control structure and its operation in

a separate management letter.

Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls

As required by OMB Bulletin 98-08, we compared EPA's Federal Managers Financial Integrity

Act (FMFIA or the Integrity Act) Report with our evaluation of the Agency s internal control

systems. For reporting under FMFIA, material weaknesses are defined differently than they are

defined for financial statement audit purposes. OMB Circular A-123, $Management

Accountability and Control# defines a material weakness as a deficiency that the Agency head

determines to be significant enough to be reported outside the Agency. OMB Bulletin 98-08

defines a material weakness as a weakness in controls that creates a risk that errors, fraud or

noncompliance in amounts material to the financial statements could occur and not be timely

detected.

As a part of the fiscal 1999 Integrity Act process, the Agency reported the following two material

weaknesses that relate to the Agency s financial statements.

q Construction Grants Close Out. In 1992, EPA designated this area as an Agency weakness

and in 1996 reclassified it as a material weakness due to the concern that lack of Agency-wide

attention might result in the loss of resources to properly complete the program. In addition,

there were concerns that millions of dollars in potentially ineligible program costs might not be

available for reuse on other high priority state clean water projects. The Agency is in the process

of implementing its corrective action strategy and expects to close out all construction grants by

2006. 
Audit Report 00100231

2CIG":2 EPA’s FY 1999 Annual Financial Statements

q Information Systems Security Plans. Our audits have identified deficiencies in the

Agency s information security planning. Security plans serve as a management control

mechanism to assist officials in the implementation of Agency security policies and in protecting

valuable information technology resources. Organizational security programs are to include the

development, maintenance, and management reviews of information security plans; to date, the

Agency s program and regional offices are not fully compliant. At risk is the possible

unauthorized access, use, modification, or destruction of EPA information resources that could

result from exploitation of these vulnerabilities. As previously noted, we also consider this

weakness a material weakness, as well as a FFMIA noncompliance.

As a part of the Agency s Integrity Act process, the Agency did not identify and report the 

financial statement preparation process as a material weakness. Rather the Agency elected to 

track the Agency s corrective actions in the financial statement preparation process as an Agencylevel weakness. We believe the Agency should report weaknesses in its financial statement

preparation process as an Integrity Act material weakness.

TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS

We tested compliance with provisions of those laws and regulations that could either materially

affect the financial statements or RSSI, or that OMB or we considered significant to the audit. 

Our compliance testing did not disclose any material misstatements to the financial statements as

a result of noncompliance with laws and regulations. However, the objective of our audit,

including our tests of compliance with applicable laws and regulations, was not to provide an

opinion on overall compliance with such provisions. Consequently, we do not express such an

opinion. There are a number of ongoing investigations involving EPA's grantees and contractors

which could reveal violations of laws and regulations, but a determination about these cases has

not been made. 

Federal Financial Management Improvement Act Compliance

As required by FFMIA, as a part of our audit, we assessed whether EPA s financial management

systems substantially complied with Federal financial management systems requirements,

applicable accounting standards, and the Standard General Ledger at the transaction level. In

planning, performing and reporting on our tests of compliance, we followed OMB Bulletin 98-

08, $Audit Requirements For Federal Financial Statements.#

We found EPA was not in substantial compliance with the FFMIA requirements because of

weaknesses in: (1) the Agency s process for preparing financial statements, and (2) its computer

security controls. We also identified the following instances of substantial noncompliance with

FFMIA requirements. Attachment 3 describes the following two noncompliance issues in more
Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG":3

detail and provides our recommendations on actions that should be taken to correct these

noncompliances.

  ̧ EPA s methodology for accumulating and reporting costs by the Agency s ten strategic

goals could not be relied upon to fairly state the Agency s costs to achieve each goal.

Weaknesses in this area affected the quality of cost accounting data EPA managers had

available during fiscal 1999 to manage their programs. In addition, the Agency was not

in compliance with Statement of Federal Financial Accounting Standards (SFFAS) No. 4

that requires EPA to: (1) determine the full costs of its activities, (2) accumulate and

report cost of activities on a regular basis for management information purposes, and (3)

use appropriate costing methodologies to accumulate and assign costs to outputs. 

  ̧ EPA was unable, in most cases, to report its intra-governmental assets and liabilities by

trading partner because finance offices were not coding transactions to show this

information. The Treasury Financial Manual requires agencies to report trading partner

information, so Treasury can eliminate intra-governmental transactions when it prepares

the Financial Report of the United States Government. Agencies also need this

information, so they can manage their assets and liabilities.

Other Noncompliance Issues

We also identified the following noncompliance issues that did not cause a material misstatement

to the financial statements, but are nonetheless significant. 

Disbursements for Multiple Appropriation Grants. EPA is not complying with appropriation

law when making disbursements for grants funded with more than one appropriation.

Disbursements for these grants are made using the oldest available funding (appropriation) first

which may or may not be the appropriation that benefitted from the work performed. Thus, EPA

is not complying with Title 31 U.S.C. 1301 which requires EPA to match disbursements to the

benefitting appropriation. A January 13, 2000, Office of General Counsel decision concluded

that making disbursements for multiple appropriation grants using the oldest available funding

first violates 31 U.S.C. 1301 and is an inappropriate method of charging, except in limited

situations. 

User Fees. In response to our prior audit report findings, EPA s OCFO conducted biennial

reviews of user fees required by OMB Circular A-25, $User Charges# and the CFO Act. The

November 1997 review showed five current fees, four proposed fees, and eight exceptions. To

be in complete compliance with OMB Circular A-25, the Acting CFO needs to follow through

and either institute, revise, or update its user fees or obtain exceptions from OMB for the user

fees updated in 1997, as updated by the 1999 review. See Attachment 3 for a further discussion

of this issue, including the Agency’s comments on this issue and our recommended corrective

action. 
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2CIG":4 EPA’s FY 1999 Annual Financial Statements

PRIOR AUDIT COVERAGE

During previous financial audits, weaknesses that impacted our audit objectives were reported in

the areas of:

q the Agency s process for preparing financial statements, including the Statements of 

 Budgetary Resources and Financing;

q recording unbilled Superfund oversight costs;

q accounting for and managing Superfund accounts receivable;

q accounting for and controlling property; 

q recording accrued liabilities for grants;

q approving payments for interagency agreements;

q identifying, tracking and reporting EPA s environmental liabilities;

q recording revenue for Superfund state contracts;

q documenting EPA's Integrated Financial Management System;

q complying with federal financial management system security requirements;

q accounting for payments for grants funded from multiple appropriations;

q reconciling the components of Superfund net position; 

q identifying and allocating indirect costs;

q reviewing Agency fees; and

q allocating costs to the Superfund Trust Fund.

Attachment 4 summarizes the status of the prior audit report recommendations in each of these

areas. Other sections of this report on internal controls and compliance with laws and regulations

provide additional details on the current status of the Agency's corrective actions. 

The Chief Financial Officer (CFO), as the Agency s Audit Follow-up Official, oversees EPA s

follow-up on audit findings and recommendations, including resolution and implementation of

corrective actions. For these prior audits, final action occurs when the Agency completes

implementation of the corrective actions to remedy weaknesses identified in the audit. 

We acknowledge that many actions and initiatives have been taken to resolve prior financial

statement audit issues. We also recognize that the issues we have reported are complex, and

require extensive, long-term corrective actions and coordination by the CFO with various

Assistant Administrators, Regional Administrators and Office Directors before they can be

completely resolved. A number of issues have been unresolved for a number of years. 

On January 13, 2000, the OCFO and the OIG jointly sponsored a meeting with a number of

senior managers and representatives from the OCFO, the Office of General Counsel and the

Office of Administration and Resources Management to discuss our concerns about the audit

management process and the length of time management was taking to complete corrective
1 We expect the General Accounting Office will also make recommendations designed to improve the Agency’s computer security.

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EPA’s FY 1999 Annual Financial Statements 2CIG":5

action on some of our older audit recommendations. The intended outcome of this meeting was

to ensure a clear understanding of the roles, responsibilities and processes needed to implement a

quality audit management program. 

We acknowledge that EPA updated its policy in fiscal 1999 to enhance the audit management

process (EPA Order 2750, Audit Management Process, revised December 3, 1998). 

Nevertheless, the Agency s Audit Follow-up Official, OCFO, agreed on a number of additional

actions to ensure appropriate resources and priority attention by senior management is devoted to

our prior audit issues and that progress and status on these issues is appropriately discussed in

management’s semiannual reports to Congress. Because efforts are underway by the OCFO to

further strengthen and enhance the audit management process, we will monitor the progress

during fiscal 2000 to determine if we need to make any audit recommendations concerning the

audit follow-up process and management s reporting of progress made on corrective action plans

to Congress. Our office will continue to work with the OCFO in helping them to resolve all

audit issues resulting from our financial statement audits. 

RECOMMENDATIONS

We are not making any new recommendations concerning the Agency’s financial statement

preparation process. The recommendations we made as a part of the fiscal 1998 audit, when

fully implemented, should correct weaknesses in the Agency’s financial statement preparation

process. 

To correct the other FFMIA noncompliances we noted during this audit, we are recommending

the Acting Chief Financial Officer (CFO):

 q incorporate planned fiscal 2000 security plan actions for financial systems into a formal

remediation plan,1

 q establish procedures to identify actual costs by goal, objective and subobjective at the time

the costs are recorded,

 q develop timely, reliable, accurate cost reports to enable managers to monitor the total cost of

their programs,

 q develop a Statement of Net Cost with accurate and reliable cost information by goal which

can be used for external reporting, and
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2CIG":6 EPA’s FY 1999 Annual Financial Statements

 q issue policies to require all finance offices to expedite the review and input of trading partner

information for the Agency’s intra-governmental assets and liabilities.

Our report also contains recommendations related to the other internal control and compliance

issues we identified during this audit.

AGENCY COMMENTS AND OIG EVALUATION

In a memorandum dated February 24, 2000, the Acting CFO responded to our draft report. In the

response, he indicated that his office agrees that further improvements need to be made to the

process for preparing financial statements. However, the weaknesses we identified in the

financial statement preparation process do not warrant categorization as a material weakness, nor

are they indicative of the Agency’s inability to provide managers with information that is

accurate and reliable for use on a day-to-day basis to manage Agency programs. The Acting

CFO also disagreed with our conclusion that the Agency is in noncompliance with the

requirements of SFFAS No. 4, “Managerial Cost Accounting Concepts and Standard for the

Federal Government.” The Acting CFO agreed with many of the recommendations and indicated

corrective actions are planned or ongoing to implement these recommendations. Finally, the

Acting CFO expressed appreciation for our cooperation in resolving outstanding financial

statement issues. The Agency’s complete response is included as Appendix II to this report. 

We will continue to support the Agency’s efforts to improve its processes for preparing timely,

reliable financial statements. In particular, we look forward to working with the Agency to make

improvements in the cost accounting information available to Agency managers to use in

carrying out their environmental programs. We have not changed our classification of the

reported material weakness and noncompliance issue. The rationale for our conclusions is

included in the appropriate sections of this report. 

RESPONSIBILITIES AND METHODOLOGY

EPA MANAGEMENT RESPONSIBILITIES

EPA's management is responsible for:

 q preparing annual financial statements and Required Supplemental Stewardship

Information;
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EPA’s FY 1999 Annual Financial Statements 2CIG":7

 q establishing and maintaining a system of internal controls; and

 q complying with applicable laws and regulations.

OIG RESPONSIBILITIES

We are responsible for:

q auditing the financial statements to determine if they are free of material misstatements 

and presented fairly in accordance with generally accepted accounting principles, and

q evaluating related internal controls and testing compliance with applicable provisions of 

laws and regulations.

AUDIT METHODOLOGY

In order to fulfill our responsibilities, except as described in our opinions, we:

 q examined on a test basis, evidence supporting the amounts and disclosures in the

principal financial statements;

 q assessed the accounting principles used and significant estimates made by management; 

 q evaluated the overall presentation of the financial statements;

 q obtained an understanding of the significant internal controls over financial reporting,

determined whether they had been placed in operation, assessed control risk, and tested

the effectiveness of significant manual controls relevant to the following significant

cycles, classes of transactions, and account balances:

q Receivables and Collections

q Disbursements and Operating Expenses

q Payroll

q Investments

q Property

q Budget and Obligations

q Accounts Payable and Accrued Liabilities

q Fund Balances

q General Accounting and Financial Reporting 

 q gained an understanding of the significant internal controls related to the RSSI;
2 We evaluated whether EPA was in substantial compliance with OMB Circular A-127; OMB Circular A-130, Appendix 3; and Joint Financial

Management Improvement Program system requirements, as identified in OMB Bulletin 98-08. We also evaluated systems budgetary reporting

requirements, as stated in OMB Circular A-11.

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2CIG":8 EPA’s FY 1999 Annual Financial Statements

 q inquired of EPA s management as to their methods of preparing EPA s Required

Supplemental Information;

 q compared EPA s RSSI and Required Supplemental Information with the Agency s

principal financial statements; 

 

 q obtained an understanding of the automated internal control structure of the subsystem

interfaces with IFMS;

 q completed a separate audit addressing the adequacy of critical mainframe operating

systems libraries, program property tables and supervisory call programs;

 q reviewed the work of the GAO relative to computer security controls at EPA to determine

their findings and that we could rely on their work;

 q documented the status of corrective actions in the Agency s FFMIA remediation plan,

dated March 31, 1999;

 q followed-up on findings and recommendations from previous audits that could materially

affect the financial statements;

 q obtained an understanding of management's process for evaluating and reporting on

internal controls and accounting systems as required by FMFIA;

 q compared the material weaknesses reported in the Agency's FMFIA report to the material

weaknesses we found;

 q tested compliance with applicable sections of laws and regulations that either materially

affect the financial statements or RSSI, or that OMB or our office considered significant

to the audit; and

 q performed sufficient tests to report whether EPA s financial management systems

substantially comply with Federal financial management systems requirements,2

applicable accounting standards, and the Standard General Ledger at the transaction level

as required by the FFMIA.

Detailed system documentation was not available that would have allowed us to develop an

understanding of the IFMS automated transaction level control structure and to test those
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EPA’s FY 1999 Annual Financial Statements 2CIG":9

automated controls. Our systems compliance work also was limited to evaluating the scope and

methodology of three reviews performed by the Treasury Financial Management Service: 

(1) EPA Financial Systems Compliance with OMB Circular A-127, dated November 4, 1999; 

(2) IFMS Documentation Evaluation, dated September 1999; and (3) EPA Financial Systems 

Compliance with OMB Circular A-130, dated August 25, 1999. In addition, we performed field

work to evaluate the adequacy of Agency actions to revise core financial systems security plans,

which were identified in the Agency FFMIA remediation plan, dated March 31, 1999.

We met with GAO and discussed the results of their computer security control review of EPA

and attended the GAO exit conference with EPA on February 2, 2000. This allowed us to

develop an understanding of the issues. We reviewed a GAO summary of the issues and

reviewed supporting work papers. We further reviewed the qualifications of the GAO staff and

obtained assurance of their independence to satisfy ourselves that we could rely on their work.

The information presented in EPA’s Management Discussion and Analysis is supplemental

information required by OMB Bulletin 97-01, entitled "Form and Content of Agency Financial

Statements." OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements,"

requires that we obtain an understanding of the internal controls designed to ensure that data

supporting the measures are properly recorded and accounted for to permit the preparation of

reliable and complete performance information. Our audit work related to EPA’s Management

Discussion and Analysis was limited to comparing the financial information included in the

document with information contained in the principal financial statements.

Details of Audit Field Work

We selected statistical and non-statistical samples from EPA's detailed accounting records

supporting various financial statement amounts. We tested these sample transactions to

determine if they were adequately supported by documentation and were recorded in accordance

with internal control policies and procedures and applicable laws and regulations. We also

reviewed other supporting documentation, such as worksheets and schedules, that the Agency

used in preparing its financial statements. In addition, we applied certain analytical review

procedures to account balances.

The financial management records and supporting documentation we reviewed were maintained

by Financial Management Centers in Washington, D.C., Research Triangle Park, Cincinnati and

Las Vegas; Financial Management Offices in EPA s regional offices; the Office of the Chief

Financial Officer; various offices within the Office of Administration and Resources

Management; the Office of Enforcement and Compliance Assurance (OCEA); and by

Headquarters and regional program offices. To gain an understanding of established internal

control procedures, and to evaluate these controls, we also interviewed personnel in these offices

and reviewed applicable policies and procedures. In addition, we conducted a physical inventory

of a sample of property items, and we observed the Agency’s physical inventory of its property.
Audit Report 00100231

2CIG":: EPA’s FY 1999 Annual Financial Statements

Our fieldwork for the audit was performed from June 9, 1999 through February 24, 2000.

Except as previously discussed in this report, we conducted our audit work in accordance with:

generally accepted auditing standards; the standards applicable to financial audits contained in

the Government Auditing Standards, issued by the Comptroller General of the United States; and

OMB Bulletin No. 98-08, $Audit Requirements for Federal Financial Statements.# These

standards require that we plan and perform our audits to obtain reasonable assurance that the

financial statements are free of material misstatement. We believe that our audit provides a

reasonable basis for our opinions.

This report is intended solely for the information and use of the management of EPA, OMB and

Congress, and it is not intended to be and should not be used by anyone other than these specified

parties. We caution that misstatements, losses and noncompliance may occur and not be detected

by the tests performed and that such testing may not be sufficient for other purposes. 

James O. Rauch

Assistant Inspector General for Audit

U.S. Environmental Protection Agency

February 24, 2000
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EPA’s FY 1999 Annual Financial Statements 2CIG":;

ACRONYMS

Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG";3

ACRONYMS

AC&C Abatement Control and Compliance

APGs Annual Performance Goals

APR Annual Performance Report

ASAP Automated Standard Application for Payments

B&F Buildings and Facilities

BAS Budget Automation System

BCCP Business Continuity and Contingency Planning

BRTs Business Resumption Teams

CCRs Consumer Confidence Reports

CERCLA Comprehensive Environmental Response, Compensation, and Liability Act

CFO Chief Financial Officer

CFO Act Chief Financial Officers Act of 1990

CSRS Civil Service Retirement System

EASY Electronic Approval System

EDCs Endocrine-disrupting Chemicals

EMPACT Environmental Monitoring for Public Access and Community Tracking

EPA Environmental Protection Agency

EPM Environmental Program and Management

EPAYS EPA Integrated Payroll and Personnel System

FAS Fixed Assets Subsystem

FASAB Federal Accounting Standards Advisory Board

FECA Federal Employees Compensation Act

FERS Federal Employees Retirement System

FFMIA Federal Financial Management Improvement Act

FMFIA Federal Managers’ Financial Integrity Act

FTE Full-time Equivalents

FY Fiscal Year

GAO General Accounting Office

GMRA Government Management and Reform Act of 1994

GPRA Government Performance and Results Act of 1993

GSA General Services Administration

IFMS Integrated Financial Management System

LUST Leaking Underground Storage TankFebruary 27, 200044

MD&A Management’s Discussion and Analysis
Audit Report 00100231

2CIG";4 EPA’s FY 1999 Annual Financial Statements

NAAQS National Ambient Air Quality Standards

NPL National Priorities List

NPS Nonpoint Source

OCFO Office of the Chief Financial Officer

OECA Office of Enforcement and Compliance Assurance

OEI Office of Environmental Information

OIG Office of Inspector General

OMB Office of Management and Budget

OPA Oil Pollution Act

PM Particulate Matter

PRO Program and Research Operations

PRPs Potentially Responsible Parties

RP Responsible Parties

S&T Science and Technology

SARA Superfund Amendments and Reauthorization Act of 1986

SO2 Sulfur Dioxide

SRF State Revolving Fund

SSCs Superfund State Contracts

SFFAS Statement of Federal Financial Accounting Statndards

STAG State and Tribal Assistance Grants

TM+ Travel Manager Plus

UAOs Unilateral Administrative Orders

WCF Working Capital Fund

XL eXcellence and Leadership

Y2K Year 2000
Audit Report 00100231

EPA’s FY 1999 Annual Financial Statements 2CIG";5

For more information, contact:

Financial Management Division

U.S. Environmental Protection Agency

Ariel Rios Building

1200 Pennsylvania Avenue, N.W. (2733R)

Washington, DC 20460