Office of Inspector General 

Audit Report 

FINANCIAL MANAGEMENT

Audit of EPA’s Fiscal 2001 and 2000 

Financial Statements 

Audit Report 2002-1-00082 

February 26, 2002 
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Inspector General Divisions Conducting the Audit 

Lead Division: Financial Audit Division 

Washington, DC 

Assist Divisions: Mid-Atlantic Audit Division 

Philadelphia, PA 

Southern Audit Division 

Atlanta, GA, and Research Triangle Park, NC 

Northern Audit Division 

Chicago, IL, and Cincinnati, OH 

Eastern Audit Division 

New York, NY, and Boston, MA 

Western Audit Division 

San Francisco, CA 

Information Technology Audits Staff 

Washington, DC 

Abbreviations 

APG Annual Performance Goal

CFMC Cincinnati Financial Management Center

EPA Environmental Protection Agency

FFMIA Federal Financial Management Improvement Act

FinRS Financial Replacement System

FMFIA Federal Managers’ Financial Integrity Act 

GAD Grants Administration Division

IAG Interagency Agreement

IFMS Integrated Financial Management System

OCFO Office of the Chief Financial Officer

OEI Office of Environmental Information

OIG Office of Inspector General

OMB Office of Management and Budget

RSI Required Supplementary Information

RSSI Required Supplemental Stewardship Information

SFFAS Statement of Federal Financial Accounting Standard

Cover photo of Yosemite by Katherine Thompson, Western Audit Division (Sacramento) 

2 

In accordance with EPA Order 2750, Audit Management Process, the primary action 

official is required to provide us with a written response to the final audit report within 90 days 

of the final audit report date. Since this report deals primarily with financial management 

issues, we are requesting the Deputy Chief Financial Officer, as the primary action official, to 

take the lead in coordinating and providing us a written response to this report. The response 

should address all issues and recommendations contained in Attachments 1 and 2. For 

corrective actions planned but not completed by the response date, reference to specific 

milestone dates will assist us in deciding whether or not to close this report in our audit 

tracking system. 

Should you or your staff have any questions about the report, please contact me at 

(202) 260-8442 or Edward Gekosky at (202) 260-1072. 

Attachment 

cc: See Appendix III, Report Distribution List 
Executive Summary 

Introduction 

We performed this audit in accordance with the Government Management Reform Act, which 

requires the Environmental Protection Agency (EPA, or the Agency) to prepare, and the 

Office of Inspector General (OIG) to audit, the Agency=s financial statements each year. The 

requirement for audited financial statements was enacted to help bring about improvements in 

agencies’ financial management practices, systems, and controls so that timely, reliable 

information is available for managing Federal programs. 

Objectives 

Our primary objectives were to determine whether: 

•	 EPA=s financial statements were fairly presented in all material respects in conformity 

with generally accepted accounting principles; 

•	 EPA’s internal control over financial reporting related to the financial statements were 

in place; and 

•	 EPA management complied with applicable laws and regulations which, if not 

followed, could have a direct and material effect on the financial statements. 

Results in Brief 

Opinions on EPA’s Fiscal 2001 and 2000 Financial Statements 

In our opinion, the consolidating financial statements present fairly the consolidated and 

individual assets, liabilities, net position, net cost, net cost by goal, changes in net position, 

reconciliation of net cost to budgetary obligations, and custodial activity of the U.S. 

Environmental Protection Agency and its subsidiary funds, the Superfund Trust Fund and All 

Other Appropriated Funds, as of and for the years ended September 30, 2001 and 2000, and 

budgetary resources as of and for the year ended September 30, 2001, in accordance with 

generally accepted accounting principles. 

Review of EPA’s Required Supplemental Stewardship Information,

Required Supplemental Information, and Management Discussion and Analysis

We inquired of EPA’s management as to their methods of preparing its Required Supplemental 

Stewardship Information (RSSI), Required Supplemental Information, and Management 

Discussion and Analysis, and reviewed this information for consistency with the principal 

Audit Report 2002-1-00082 i 
financial statements. However, our audit was not designed to express, and we are not 

expressing, an opinion on this information. 

We did not identify any material inconsistencies between the information presented in EPA’s 

financial statements and the information presented in EPA’s RSSI, Required Supplementary 

Information, and Management Discussion and Analysis. Office of Management and Budget 

(OMB) Bulletin No. 01-09, Form and Content of Agency Financial Statements, requires 

agencies to report, as Required Supplemental Information, their intra-governmental assets 

and liabilities by Federal trading partner. We did find that, through no fault of EPA, other 

Federal agencies were unable to reconcile EPA’s reported transactions with their records. 

We note that this is a government-wide issue that needs to be resolved. 

Evaluation of Internal Controls 

The objective of our audit was not to provide assurance on internal controls and, accordingly, 

we do not express an opinion on internal controls. Material weaknesses are situations where 

internal controls do not reduce, to a relatively low level, the risk that errors, fraud, or 

noncompliance in amounts material to the financial statements 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 controls, we noted certain matters discussed below 

involving the internal control and its operation that we consider to be reportable conditions. 

However, none of the reportable conditions is believed to be a material weakness. 

In evaluating the Agency’s internal control structure, we identified three reportable conditions 

in the following areas, which are detailed further in Attachment 1: 

• Accounting for Internal Use Software 

• EPA’s Interagency Agreement Invoice Approval Process 

• Automated Application Processing Controls for the Integrated Financial Management 

System 

Tests of Compliance with Laws and Regulations 

As part of obtaining reasonable assurance about whether the Agency’s financial statements 

were free of material misstatement, we performed tests of its compliance with certain 

provisions of laws and regulations, noncompliance which could have a direct and material 

effect on the determination of financial statement amounts. Providing an opinion on 

compliance with certain provisions of laws and regulations was not an objective of our audit. 

Accordingly, we do not express such an opinion. 

We did not identify any instances of noncompliance with laws and regulations that would 

result in material misstatements to the audited financial statements. However, we did note the 

following noncompliance issues. 

ii Audit Report 2002-1-00082 
Compliance with the Federal Financial Management Improvement Act 

The Federal Financial Management Improvement Act (FFMIA) requires that, as a part of our 

annual financial statement audit, we determine whether EPA’s financial management systems 

substantially comply with Federal financial management system requirements, applicable 

accounting standards, and the Standard General Ledger at the transaction level. 

We identified the following instance of substantial (as defined by OMB) noncompliance with 

FFMIA requirements, and one other noncompliance with FFMIA, which are discussed further 

in Attachment 2: 

•	 The Agency was not in substantial 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. 

• Reconciliation of intra-governmental transactions is reported as a noncompliance, but it 

does not meet the OMB criteria for substantial noncompliance. 

Agency Comments and OIG Evaluation 

In memorandums dated February 12 and 25, 2002, the Comptroller responded to our draft

report. The OCFO generally concurred with our findings and is in process of implementing

corrective actions. However, the OCFO took exception to two issues, Managerial Cost

Accounting and Internal Use Software.

The OCFO believes they are complying with the Managerial Cost Accounting Standard and is

currently preparing a response to the points raised in the Inspector General’s

December 12, 2001 memorandum to the Administrator regarding the impasse over FFMIA

compliance.

The OCFO acknowledged that SFFAS No. 10, Accounting for Internal Use Software, was not

implemented until the end of the fiscal year. However, the OCFO believes that by doing so,

EPA was able to use the most recent guidance and develop more accurate and complete costs. 

We do not agree with the OCFO, we found that some of the data and costs for systems that

were not capitalized were either incomplete or ambiguous. 

Audit Report 2002-1-00082 iii 
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Audit Report 2002-1-00082 
Table of Contents

Page 

Executive Summary .............................................. i 

Inspector General's Report on EPA’s

Fiscal 2001 and 2000 Financial Statements ........................ 1

Review of EPA’s Required Supplemental Stewardship Information, 

Required Supplemental Information, and Management Discussion 

and Analysis ................................................. 2 

Evaluation of Internal Controls ...................................... 2 

Tests of Compliance with Laws and Regulations ........................ 6 

Prior Audit Coverage .............................................. 8 

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

Attachments 

1. Reportable Conditions 

2. Compliance with Laws and Regulations 

Substantial Noncompliance with 

Federal Financial Management Improvement Act 

Other Noncompliance Issue with 

Federal Financial Management Improvement Act 

3. Status of Prior Audit Report Recommendations 

Appendices 

I EPA’s Fiscal 2001 and 2000 Financial Statements 

II Agency’s Response to Draft Report

III Report Distribution List

Audit Report 2002-1-00082 
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Audit Report 2002-1-00082 
Inspector General's Report on EPA’s 

Fiscal 2001 and 2000 Financial Statements 

The Administrator

U.S. Environmental Protection Agency

We have audited the consolidating balance sheets of the U.S. Environmental Protection

Agency (EPA, or the Agency) and its subsidiary funds, the Superfund Trust Fund (Superfund)

and All Other Appropriated Funds (All Other), as of September 30, 2001 and 2000, and the

related consolidating statements of net cost and changes in net position, consolidated

statements of net cost by goal, combined statements of financing, and consolidated statements

of custodial activity for the years then ended, and the related combined statement of budgetary

resources for the year ended September 30, 2001. These financial statements are the

responsibility of EPA’s management. Our responsibility is to express an opinion on these

financial statements based upon our audit.

We conducted our audit in accordance with generally accepted auditing standards; the

standards applicable to financial statements contained in Government Auditing Standards,

issued by the Comptroller General of the United States; and Office of Management and Budget

(OMB) Bulletin 01-02, Audit Requirements for Federal Financial Statements. These

standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatements. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our opinion.

The financial statements include expense 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 amount undeterminable at this time. In addition, the United States

Treasury collects and accounts for excise taxes that are deposited into the Superfund and

Leaking Underground Storage Tank Trust Funds.1 The United States Treasury is also

responsible for investing amounts not needed for current disbursements and transferring funds

to EPA as authorized in legislation. Since the United States Treasury, and not EPA, is

responsible for these activities, our audit work did not cover these activities. 

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

1 The Leaking Underground Storage Tank Trust Fund is included in the All Other Appropriated Funds 

column of the financial statements. 

Audit Report 2002-1-00082 1 
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. 

In our opinion, the consolidating financial statements present fairly the consolidated and 

individual assets, liabilities, net position, net cost, net cost by goal, changes in net position, 

reconciliation of net cost to budgetary obligations, and custodial activity of the U.S. 

Environmental Protection Agency and its subsidiary funds, the Superfund Trust Fund and All 

Other Appropriated Funds, as of and for the years ended September 30, 2001 and 2000, and 

budgetary resources as of and for the year ended September 30, 2001, in accordance with 

generally accepted accounting principles. 

Review of EPA’s Required Supplemental Stewardship Information, 

Required Supplemental Information, and Management Discussion and Analysis

We inquired of EPA’s management as to their methods of preparing its Required Supplemental 

Stewardship Information (RSSI), Required Supplementary Information (RSI), and 

Management Discussion and Analysis, and reviewed this information for consistency with the 

financial statements. However, our audit was not designed to express an opinion and, 

accordingly, we do not express an opinion. 

We did not identify any material inconsistencies between the information presented in EPA’s 

financial statements and the information presented in EPA’s RSSI, Required Supplementary 

Information, and Management Discussion and Analysis. OMB Bulletin No. 01-09, Form and 

Content of Agency Financial Statements, requires agencies to report, as Required 

Supplemental Information, their intra-governmental assets and liabilities by Federal trading 

partner. We did find that, through no fault of EPA, other Federal agencies were unable to 

reconcile EPA’s reported transactions with their records (see Attachment 2 for additional 

details on this issue). 

Evaluation of Internal Controls 

As defined by OMB, internal control, as it relates to the financial statements, is a process, 

affected by the Agency's management and other personnel, designed to provide reasonable 

assurance that the following objectives are met: 

Reliability of financial reporting - Transactions are properly recorded, processed, 

and summarized to permit the timely and reliable preparation of the financial statements 

and RSSI in accordance with generally accepted accounting principles; and assets are 

safeguarded against loss from unauthorized acquisition, use, or disposition. 

Reliability of performance reporting - Transactions and other data that support 

reported performance measures are properly recorded, processed, and summarized to 

permit the preparation of performance information in accordance with criteria stated by 

management. 

2 Audit Report 2002-1-00082 
Compliance with applicable laws and regulations - Transactions are executed in 

accordance with laws governing the use of budget authority and other laws and 

regulations that could have a direct and material effect on the financial statements or 

RSSI; and any other laws, regulations, and government-wide policies identified by 

OMB. 

In planning and performing our audit, we considered EPA's internal controls over financial 

reporting by obtaining an understanding of the Agency’s internal controls, determined whether 

internal controls had been placed in operation, assessed control risk, and performed tests of 

controls in order to determine our auditing procedures for the purpose of expressing our 

opinion on the financial statements. We limited our internal control testing to those controls 

necessary to achieve the objectives described in OMB Bulletin No. 01-02, Audit Requirements 

for Federal Financial Statements, as supplemented by an OMB memorandum dated January 4, 

2001, Revised Implementation Guidance for the Federal Financial Management 

Improvement Act. We did not test all internal controls relevant to operating objectives as 

broadly defined by the Federal Managers’ Financial Integrity Act of 1982, such as those 

controls relevant to ensuring efficient operations. The objective of our audit was not to 

provide assurance on internal controls and, accordingly, we do not express an opinion on 

internal controls. 

Our consideration of the internal controls over financial reporting would not necessarily 

disclose all matters in the internal control over financial reporting that might be reportable 

conditions. Under standards issued by the American Institute of Certified Public Accountants, 

reportable conditions are matters coming to our attention relating to significant deficiencies in 

the design or operation of the internal control that, in our judgment, could adversely affect the 

Agency’s ability to record, process, summarize, and report financial data consistent with the 

assertions by management in the financial statements. Material weaknesses are reportable 

conditions in which the design or operation of one or more of the internal control components 

does not reduce to a relatively low level the risk that misstatements in amounts that would be 

material in relation to the financial statements being audited may occur and not be detected 

within a timely period by employees in the normal course of performing their assigned 

functions. Because of inherent limitations in internal controls, misstatements, losses, or 

noncompliance may nevertheless occur and not be detected. However, we noted certain 

matters discussed below involving the internal control and its operation that we consider to be 

reportable conditions, although none of the reportable conditions is believed to be a material 

weakness. 

In addition, we considered EPA’s internal control over the RSSI by obtaining an understanding 

of the Agency’s internal controls, determined whether these internal controls had been placed 

in operation, assessed control risk, and performed tests of controls as required by OMB 

Bulletin No. 01-02. Our procedures were not designed to provide assurance on these internal 

controls and, accordingly, we do not express an opinion on such controls. 

Audit Report 2002-1-00082 3 
Finally, with respect to internal control related to performance measures presented in EPA’s 

Fiscal Year 2001 Annual Report, Section 1, Overview and Analysis (which addresses 

requirements for a Management’s Discussion and Analysis), we obtained an understanding of 

the design of significant internal controls relating to the existence and completeness assertions, 

as required by OMB Bulletin No. 01-02. Our procedures were not designed to provide 

assurance on internal control over reported performance measures and, accordingly, we do not 

express an opinion on such controls. 

Reportable Conditions 

Reportable conditions are internal control weakness matters coming to the auditor’s attention 

that, in the auditor's judgment, should be communicated because they represent significant 

deficiencies in the design or operation of internal control that could adversely affect the 

organization’s ability to meet the OMB objectives for financial reporting discussed above. 

In evaluating the Agency’s internal control structure, we identified three reportable conditions, 

as follows: 

Implementation of Internal Use Software Standard 

EPA did not implement Statement of Federal Financial Accounting Standard (SFFAS) 

No. 10, Accounting for Internal Use Software, until the end of fiscal 2001, even 

though the standard was applicable for the entire fiscal year. In addition, some of the 

supporting documentation used to identify capitalized software costs was insufficient to 

determine whether such costs exceeded the capitalization threshold. Since EPA issued 

guidance for capitalizing internally-developed software at the end of fiscal 2001, we do 

not have recommendations. 

EPA’s Interagency Agreement Invoice Approval Process 

Some EPA project officers did not fulfill oversight duties related to reviewing and 

approving Interagency Agreement (IAG) invoices. We noted deficiencies in this area 

in prior reports, and we continue to find instances where project offices at EPA’s 

Headquarters and the Cincinnati Financial Management Center (CFMC) did not timely 

approve IAG invoices because they did not receive the supporting cost information 

from other Federal agencies to substantiate invoice amounts. Additionally, CFMC 

continued to use the “first-in first-out” accounting basis (charging the first line of 

accounting) to allocate costs charged on IAGs with multiple goals/subobjectives, which 

provides limited assurance that costs were charged to the appropriate 

goals/subobjectives. 

4 Audit Report 2002-1-00082 
Automated Application Processing Controls 

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 

Integrated Financial Management System (IFMS). IFMS applications have a direct 

and material impact on the Agency’s financial statements. Therefore, an assessment of 

each application’s automated input, processing, and output controls, as well as 

compensating manual controls, is necessary to determine the reliance we can place on 

the financial statements. 

Attachment 1 describes each of the above reportable conditions in more detail, our 

recommendations, and Agency comments on actions that should be taken to correct these 

conditions. 

Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls 

OMB Bulletin No. 01-02, Audit Requirements for Federal Financial Statements, requires us 

to compare material weaknesses disclosed during the audit with those material weaknesses 

reported in the Agency's Federal Managers= Financial Integrity Act (FMFIA or Integrity Act) 

report that relate to the financial statements and identify material weaknesses disclosed by 

audit that were not reported in the Agency’s FMFIA report. EPA reports on Integrity Act 

decisions in EPA’s Fiscal Year 2001 Annual Report. For a discussion on Agency reported 

Integrity Act material weaknesses and corrective action strategy, please refer to EPA’s Fiscal 

Year 2001 Annual Report, Section III, FY 2001 Management Accomplishments and 

Challenges. 

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. 

For financial statement audit purposes, OMB defines material weaknesses in internal control as 

reportable conditions in which the design or operation of the internal control does not reduce 

to a relatively low level the risk that errors, fraud, or noncompliance in amounts that would be 

material in relation to the financial statements or RSSI being audited, or material to a 

performance measure or aggregation of related performance measures, may occur and not be 

detected within a timely period by employees in the normal course of performing their assigned 

functions. Our audit did not disclose any material weakness that was not reported by the 

Agency as part of the Integrity Act process. 

As a part of the fiscal 2001 Integrity Act process, the Agency reported the following material 

weaknesses that relate to the Agency=s financial statements: 

Audit Report 2002-1-00082 5 
Information System Security - The Office of Environmental Information recognizes 

that past improvements to its information security program have not resulted in a 

complete, comprehensive information security program. Therefore, this office is 

expanding its existing material and Agency weaknesses, Information Systems Security 

Plans, and Cyber Security to address all security-related deficiencies. In fiscal 2001, 

Office of Environmental Information reported that it had developed an approach to 

correct the information systems security weakness and plans to evaluate the 

effectiveness of its guidance and security measures through continued testings and 

audits. Corrective actions are expected to be completed in fiscal 2002. 

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 a concern that lack 

of Agency-wide attention might result in the loss of resources to properly complete the 

program. Corrective actions are expected to be completed in fiscal 2002. 

Tests of Compliance with Laws and Regulations 

EPA management is responsible for complying with laws and regulations applicable to the 

Agency. As part of obtaining reasonable assurance about whether the Agency’s financial 

statements are free of material misstatement, we performed tests of its compliance with certain 

provisions of laws and regulations, noncompliance with which could have a direct and material 

effect on the determination of financial statement amounts, and certain other laws and 

regulations specified in OMB Bulletin No. 01-02, Audit Requirements for Federal Financial 

Statements, as supplemented by an OMB Memorandum dated January 4, 2001, Revised 

Implementation Guidance for the Federal Financial Management Improvement Act. The 

OMB guidance requires that we evaluate compliance with Federal financial management 

system requirements, including the requirements referred to in the Federal Financial 

Management Improvement Act (FFMIA) of 1996. We limited our tests of compliance to these 

provisions and did not test compliance with all laws and regulations applicable to EPA. 

Providing an opinion on compliance with certain provisions of laws and regulations was not an 

objective of our audit and, accordingly, we do not express such an opinion. There are a 

number of ongoing investigations involving EPA's grantees and contractors that could disclose 

violations of laws and regulations, but a determination about these cases has not been made. 

None of the noncompliances discussed below would result in material misstatements to the 

audited financial statements. 

Federal Financial Management Improvement Act Noncompliance 

Under FFMIA, we are required to report whether the Agency’s financial management systems 

substantially comply with the Federal financial management systems requirements, applicable 

Federal accounting standards, and the United States Government Standard General Ledger at 

the transaction level. OMB Bulletin No. 01-02, as supplemented by an OMB memorandum 

6 Audit Report 2002-1-00082 
dated January 4, 2001, Revised Implementation Guidance for the Federal Financial 

Management Improvement Act, substantially changed the guidance for determining whether or 

not an Agency substantially complied with the Federal financial management systems 

requirements, applicable Federal accounting standards, and the United States Government 

Standard General Ledger at the transaction level. The document is intended to focus Agency 

and auditor activities on the essential requirements of FFMIA. The document lists the specific 

requirements of FFMIA, as well as factors to consider in reviewing systems and for 

determining substantial compliance with FFMIA. It also provides guidance to Agency heads 

for developing corrective action plans to bring an Agency into compliance with FFMIA. To 

meet the FFMIA requirement, we performed tests of compliance with FFMIA section 803(a) 

requirements and used the OMB guidance, revised on January 4, 2001, for determining 

substantial noncompliance with FFMIA. 

The results of our tests disclosed one instance where the Agency’s financial management 

systems did not substantially comply with the applicable Federal accounting standard. 

We identified a substantial noncompliance with the SFFAS No. 4 accounting standard for 

managerial cost accounting, which is described more fully in Attachment 2. 

In addition to the above instance of substantial noncompliance, we identified one other 

noncompliance, related to reconciliation of intra-governmental transactions. However, this 

noncompliance does not meet the definition of a substantial noncompliance as described in 

OMB guidance. 

Attachment 2 provides additional details, as well as our recommendations and Agency 

comments on actions that should be taken on these matters. 

Appropriation Law Noncompliance 

Since fiscal 1994, we have reported that EPA was not complying with appropriation law when 

making disbursements for grants funded with more than one appropriation. Specifically, 

disbursements for these grants were made using the oldest available funding (appropriation) 

first, which may or may not have been the appropriation that benefitted from the work 

performed. Therefore, EPA was not in compliance with Title 31, U.S. Code, Section 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 violates Title 31, U.S. Code, Section 

1301 and is an inappropriate method of charging, except in limited situations. In fiscal 2001, 

EPA adopted new procedures for allocating costs on such grants for new awards, although 

existing grants are still being disbursed using the oldest available funding first. Since EPA has 

issued guidance for new awards, and since the remaining obligated balances will dissipate and 

the problem will be corrected, we are not making any recommendations. See Attachment 3 for 

a description of the Agency's corrective action plans and milestones. 

Audit Report 2002-1-00082 7 
Prior Audit Coverage 

During previous financial or financial-related audits, weaknesses that impacted our audit 

objectives were reported in the following areas: 

• The Agency’s process for preparing financial statements, including the 

Statements of Budgetary Resources, Financing, and Net Cost. 

• Complying with FFMIA requirements. 

• Reviewing unliquidated obligations. 

• Reporting intra-governmental assets and liabilities by Federal trading partner. 

• Complying with SFFAS No. 4, including accounting for the cost to achieve 

goals and identifying and allocating indirect costs. 

• Accounting for capitalized property. 

• Recording accrued liabilities for grants. 

• IAG invoice approval process. 

• Documenting EPA’s IFMS. 

• Complying with Federal financial management system security requirements. 

• Accounting for payments for grants funded from multiple appropriations. 

• Reviewing Agency user fees. 

• Documentation and approval of journal vouchers. 

• Timely repayment of Asbestos Loan Debt to Treasury. 

• Automated application processing controls for the IFMS could not be assessed. 

• Reconciliation of intra-governmental transactions. 

• Financial system security plans continue to be noncompliant. 

Attachment 3, Status of Prior Audit Report Recommendations, summarizes the current status 

of corrective actions taken on prior audit report recommendations in each of these areas. 

The Chief Financial Officer, as the Agency=s Audit Follow-up Official, oversees EPA=s followup 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 Chief Financial Officer 

with various Assistant Administrators, Regional Administrators, and Office Directors before 

they can be completely resolved. A number of issues have been unresolved for many years. 

In response to our inquiries on actions taken by the Office of the Chief Financial Officer 

(OCFO) to resolve long outstanding audit recommendations, a representative informed us of a 

number of efforts that were conducted in fiscal 2000. The OCFO continued efforts to stress 

8 Audit Report 2002-1-00082 
Audit Report 2002-1-00082 9 
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Audit Report 2002-1-00082 
Attachment 1 

Reportable Conditions 

Table of Contents 

Page 

1 - EPA Did Not Implement Accounting for 

Internal Use Software Standard Timely ............................ 1-1 

2 - Additional Improvements Needed in EPA’s 

Interagency Agreement Invoice Approval Process ................... 1-3 

3 - Automated Application Processing Controls for 

Integrated Financial Management System Could Not Be Assessed ..... 1-5 

Audit Report 2002-1-00082 
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Audit Report 2002-1-00082 
EPA Did Not Implement

Accounting for Internal Use Software Standard Timely

EPA did not implement SFFAS No. 10, Accounting for Internal Use Software, until the end of 

fiscal 2001. This required EPA to adopt an alternative method for capitalizing software. Also, 

we found that some of the supporting documentation used in this alternative method to identify 

capitalized software costs was insufficient. As a result, the capitalized software balance (net of 

accumulated depreciation) of $11 million, may not represent all capitalized software costs. 

SFFAS No. 10, issued in June 1998, provides the Federal accounting standard for capitalizing 

internal use software. Use of the standard was required starting with fiscal 2001. However, 

EPA did not issue its own implementing guidance on the standard (Comptroller Policy 

Announcement No. 01-10) until September 28, 2001, only 2 days before the end of fiscal 

2001. The EPA guidance informed program managers on how to determine whether 

internally-developed software should be capitalized and how to identify and record it in the 

Agency’s accounting system. The policy also established an EPA threshold of $500,000 for 

capitalizing internally-developed software. Because of the lateness of the guidance, the 

SFFAS criteria was not used for capitalizing internally-developed software during fiscal 2001. 

Instead, the Agency used a year-end cost accumulation process to implement SSFAS No. 10. 

As a result of not having adequate guidance in place during most of fiscal 2001, EPA 

personnel had to review each of its systems to determine whether costs should be capitalized. 

EPA reviewed costs listed in Exhibit 53 of its Budget Submission to OMB, which lists all of 

EPA’s large software systems and hardware costs for the current year, to identify systems that 

met the $500,000 threshold in current year developmental costs. Current year costs for 

software systems are divided into “steady state” (maintenance) costs and development, 

modification, and enhancement costs. However, we found that: 

• Not all costs listed as development, modification, and enhancement costs on the Exhibit 53 

should be capitalized. To determine which costs should be capitalized, Agency personnel 

had to seek additional documentation (the Capital Planning and Investment Control 

Proposal) on each system’s cost. This documentation provides information on how funds 

are being spent for the system and milestones for the project. 

• Investment information for several systems that were not capitalized were either 

incomplete or ambiguous. For these systems, we could not determine whether the total 

systems development costs would reach the $500,000 in capitalized costs threshold. 

Since EPA has issued its guidance for capitalizing internally-developed software, we do not 

believe a recommendation is needed at this time. 

Audit Report 2002-1-00082 1-1 
Agency Comments and OIG Evaluation 

The OCFO acknowledged that SFFAS No. 10 was not implemented until the end of the fiscal 

year. However, the OCFO believes that by doing so, EPA was able to use the most recent 

guidance and develop more accurate and complete costs. The OCFO went on to say that the 

amount capitalized reflected verifiable and compliant software balances, that systems not 

capitalized either did not meet the $500,000 dollar threshold or capitalization criteria, and that 

their review provided for a consistent application of the requirements of SFFAS No. 10. 

The OIG recognizes the efforts the Agency went through to identify software systems and 

capitalize costs, and we agree that the costs capitalized reflect verifiable costs. However, such 

costs may not represent all capitalized software costs. The Agency’s efforts were based upon 

an alternative method to determine costs after the end of the fiscal year from sources that were 

not designed to capture costs for a software system.. As a result, we found that some of the 

data and costs for systems that were not capitalized were either incomplete or ambiguous. 

1-2 Audit Report 2002-1-00082 
Additional Improvements Needed in EPA’s 

Interagency Agreement Invoice Approval Process 

Some EPA project officers did not fulfill oversight duties related to reviewing and approving 

IAG invoices. We noted deficiencies in this area in prior reports, and we continue to find 

instances where program offices at EPA Headquarters and Regions did not timely approve 

IAG invoices or identify the proper line of accounting on the Project Officer Approval Form. 

We also noted additional instances where project officers do not receive supporting cost 

documentation from other Federal agencies to substantiate invoice amounts. We found five 

instances in various program offices where the project officer approved the invoice without the 

detailed documentation. And one instance where the project officer did not sign the approval 

document. Without project officer approval or proper identification of accounting information, 

transactions may be recorded in the accounting system with limited assurance that invoices are 

valid, appropriate, and allowable under the terms of the IAG, and that costs are charged to the 

appropriate goal, objective, or subobjective. 

Project Officer Responsibilities Outlined 

The Resources Management Directive System, Section 2550C, Chapter 4, Interagency 

Agreements, paragraph 5(g), states that the project officer is responsible for: 

• Providing technical and managerial oversight. 

• Receiving and reviewing detailed cost information submitted by other agencies, which 

should be provided on a project-by-project basis. 

• Approving vouchers and OPAC (On-Line Payment and Collection System) billings 

received from other agencies after determining that performance is in accordance with 

the agreement. 

• Forwarding approved vouchers to CFMC for payment within 5 days after receipt. 

Also, paragraph 10(d) states it is the responsibility of the project officer to monitor Funds-Out 

disbursement agreements. This responsibility includes monitoring EPA's receipt of goods or 

services to ensure their delivery in accordance with the terms of the agreement, reviewing 

detailed cost information required of the agency providing the goods or services, and resolving 

any discrepancies which may arise. 

EPA’s training manual for project officers, Managing Your Financial Assistance Agreement, 

3rd Edition, October 1996, Module VIII, provides guidance on OPAC billing. CFMC charges 

a bill to the appropriate IAG and submits the invoice to the project officer for approval. If 

there is a problem with the bill, EPA has 90 days to “charge back” the funds to the appropriate 

account. 

Audit Report 2002-1-00082 1-3 
Progress Being Made But Further Improvements Needed 

We recognize that the Agency has taken corrective actions in response to our previous 

recommendations and plans to take additional corrective actions. In response to our previous 

recommendations, the Grants Administration Division issued Fact Sheet No. 12 dated 

February 7, 2000, “Project Officer’s Responsibility for Payments Under Interagency 

Agreements.” The fact sheet directs program leaders to assure project officers disapprove 

IAG invoices unless adequate information on progress and costs incurred are reasonable. In 

addition, the fact sheet advises project officers to request the necessary information from the 

receiving agency (with Grants Administration Division or Financial Services Branch assistance, 

if necessary) and to request Financial Management Division to suspend or charge back 

payment if information is not provided promptly. In addition, the Agency stated they plan to 

implement an automated process during FY 2002. 

Since our finding on IAG invoices is similar to what we previously found, and since EPA 

appears to be taking steps to implement its corrective actions, we are not repeating our 

previous recommendations. We will continue to evaluate the effectiveness of the Agency’s 

corrective action plans during subsequent financial statement audits. Attachment 3, “Status of 

Prior Audit Report Recommendations,” notes our previous recommendations on this issue and 

the status of corrective actions. 

Agency Comments and OIG Evaluation 

The agency agreed with our findings. 

1-4 Audit Report 2002-1-00082 
Automated Application Processing Controls for 

Integrated Financial Management System 

Could Not Be Assessed 

As we first reported in our fiscal 1995 financial statement audit report, 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 IFMS. IFMS applications have a direct 

and material impact on the Agency’s financial statements. Therefore, an assessment of each 

application’s automated input, processing, and output controls, as well as compensating 

manual controls, is necessary to determine the reliance we can place on the financial 

statements. 

Prior Reports Noted Issues 

During past financial statement audits, we attempted to evaluate controls without 

documentation, but these alternatives proved to be inefficient and impractical. Program level 

transaction flowcharts or similarly descriptive narrative system documentation were not 

available. Furthermore, we previously concluded that the IFMS user manuals and other EPA 

contractor baseline Federal financial systems manuals did not contain the level of detail 

necessary to construct tests of automated internal controls that would satisfy our field work 

standards. 

Since 1995, Agency officials have maintained that the current level of documentation is 

sufficient. Nevertheless, Agency officials have taken actions on a number of our 

recommendations, including completing a system documentation analysis, developing updated 

accounts receivable documentation, and completing an analysis for creating a comprehensive 

IFMS data dictionary. 

Our fiscal 2000 financial statement audit work indicated EPA upgraded its user documentation 

in 1999, and that it was adequate for users’ needs for entering data. However, we determined 

that the combined upgraded users’ and technical systems documentation still did not address 

critical system operational controls, such as access to tables or data, electronic approvals, and 

use of supervisory overrides. Furthermore, neither the users nor technical systems 

documentation addressed transaction “processing” edits and data flows. Lastly, the Agency 

has not developed a data dictionary. 

Fiscal 2001 Review Results 

As part of our fiscal 2001 financial statement audit, we evaluated the Agency’s IFMS 

replacement activities and found that EPA has taken tangible steps to replace IFMS with the 

Financial Replacement System (FinRS) project. In fiscal 2001, the Agency performed the 

following activities: 

Audit Report 2002-1-00082 1-5 
• Included a budget for FinRS in its annual submission to OMB, Exhibit 300B. The 

milestones and costs associated with FinRS were estimated using a reasonable 

method. 

•	 Formed the Systems Planning and Integration Staff, which reports directly to the 

Controller and is responsible for the development of the overall financial system plan. 

The Systems Planning and Integration Staff’s mission and responsibilities are 

appropriate for replacing IFMS. 

• Initiated a contract to develop a high level strategic financial systems assessment that 

includes alternatives for the replacement of financial systems, along with a 

cost/benefit analysis of the solutions. 

In conclusion, we believe that the steps described above indicate EPA is moving in a credible 

fashion towards replacing IFMS. However, until the new system is in place and we have had 

a chance to audit it, we cannot assess the adequacy of the automated internal control 

structure. 

Agency Comments and OIG Evaluation 

The agency agreed with our findings. 

1-6 Audit Report 2002-1-00082 
Attachment 2 

Compliance with Laws and Regulations 

Table of Contents 

Substantial Noncompliance with Federal Financial Management 

Improvement Act 

Page 

4 - EPA Did Not Comply with 

Managerial Cost Accounting Standard ............................... 2-1 

Other Noncompliance Issue with Federal Financial Management 

Improvement Act 2 

5 - EPA Continues to Experience Difficulties in Reconciling 

Intra-Governmental Transactions ................................... 2-5 

2 We are reporting this noncompliance issue under FFMIA as it directly relates to FFMIA reporting 

requirements; however, we note that the issue does not meet the OMB criteria for substantial noncompliance 

under FFMIA. 

Audit Report 2002-1-00082 
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Audit Report 2002-1-00082 
EPA Did Not Comply with

Managerial Cost Accounting Standard

EPA did not comply during fiscal 2001 with SFFAS No. 4, Managerial Cost Accounting Concepts 

and Standards for the Federal Government. Specifically, EPA did not comply with the 

requirements to provide cost per output to management in a timely fashion. In addition, under 

EPA’s current cost accounting structure, when costs by output are produced, such costs are not in 

sufficient detail to be useful to managers. To comply with the Standard, EPA needs to: 

• Educate managers on the importance of, possibilities for, and effective use of a cost 

accounting system. 

• Canvass managers on the level of detail and types of reports needed to effectively manage 

their programs. 

• Develop a cost accounting system that is flexible enough to handle the Agency’s diverse 

missions. 

• Ensure that the system is being utilized on a regular basis. 

When making decisions, EPA managers often focus their financial consideration on the availability 

of funds. Much less concern is given to the cost of operations. While some cost information is 

available, it is generally not in sufficient detail to be used in a meaningful way by Agency decision 

makers. In our view, EPA needs to elevate the actual cost of operations as a factor in EPA 

decisions so that the cost of key activities is just as important a consideration as whether funds are 

available in a budget. 

Agency Disagreed with OIG Position in the Past 

In our audits of fiscal 1999 and 2000 financial statements, we concluded that EPA did not comply 

with SFFAS No. 4. OCFO did not agree; and despite numerous discussions between our offices, 

we have not reached agreement on this issue. In many areas, the Standard allows for broad 

interpretation of what constitutes compliance. We believe this flexibility, along with varying 

interpretations by other government agencies, are the causes of our disagreement. However, we 

do believe that there are several litmus tests of compliance with the standard. For example, the 

standard requires cost per output to be provided to management in a timely fashion. However, 

EPA did not do this. Therefore, while there is room to debate some areas of the standard, this 

basic requirement was not satisfied. Accordingly, for reasons discussed below, we continue to 

believe that EPA does not comply with the Standard. We do believe that OCFO supports creating 

systems that can provide managers the detailed information necessary to support results-based 

decisions. However, we believe this process needs to be intensified and visibility heightened. 

Objectives and Purpose of Standard 

Compliance with the standard, to us, means that a meaningful, useful system is in place and is 

being effectively utilized by the Agency. The specific objectives of SFFAS No. 4 are listed at 

paragraph 22 of the standard. They include: 

Audit Report 2002-1-00082 2-1 
• Provide program managers with relevant and reliable information relating costs to outputs 

and activities. Based on this information, program managers can respond to inquiries about 

the costs of the activities they manage. The cost information will assist them in improving 

operational economy and efficiency. 

• Provide relevant and reliable cost information to assist the Congress and executives in 

making decisions about allocating Federal resources, authorizing and modifying programs, 

and evaluating program performance. 

• Ensure consistency in costs reported in general purpose financial reports and to program 

managers. This includes standardizing terminology for managerial cost accounting to 

improve communication among Federal organizations and users of cost information. 

The focus of the statement is on cost information needed to improve Federal financial management 

and management decisions. The standard identifies five essential cost information areas: (1) 

budgeting and cost control, (2) performance measurement, (3) determining reimbursements and 

setting fees and prices, (4) program evaluations, and (5) making economic choice decisions. 

In recent years, cost accounting has become increasingly important, and Congress has placed a 

greater emphasis on improving information to manage Federal programs. The FFMIA of 1996 

was intended to ensure agencies develop and use systems that generate reliable, timely, and 

consistent information necessary for managing current operations. Also, the managerial cost 

accounting concepts and requirements contained in the Standard require each Federal agency to 

produce reliable and timely information on the full costs of Federal programs, their activities, and 

outputs. 

The development of cost information is also important because The President’s Management 

Agenda for Fiscal Year 2002 emphasizes the need to achieve effective and efficient competition 

between public and private sources. To facilitate this competition, agencies will need to develop 

cost information for activities that may be subject to competition with the private sector or other 

Federal entities in the future. Additionally, the Administration plans to integrate information about 

costs and program performance into a single oversight process. 

More Meaningful Cost Information Needed 

In our opinion, EPA’s cost accounting system does not completely satisfy the aforementioned 

objectives of the standard. 

To comply with the cost accounting standard, EPA systems should provide program managers 

with enough basic cost information to accomplish objectives associated with planning, decision 

making, control, and reporting, as well as accommodating managers’ particular cost information 

needs that may arise due to special situations or circumstances. This cost information should be 

detailed enough to allow managers to compare alternative courses of action and make decisions by 

assessing costs and benefits. Agency cost information should also be specific enough to account 

for activities that cross program lines. 

2-2 Audit Report 2002-1-00082 
At a minimum, EPA managers should know the cost of Agency efforts to meet Annual 

Performance Goals (APGs). In fiscal 2000, EPA committed to 73 APGs. However, EPA’s cost 

accounting system was not designed to capture the costs associated with these APGs, or compare 

the costs against a budget for the APGs. Instead, EPA is working to capture costs by subobjectives. While the sub-objectives are an integral part of EPA’s budget structure, they present 

costs at too high a level to be useful to managers for activity-based assessments and decisionmaking purposes. Also, in most cases, the costs associated with the sub-objectives cannot be tied 

to the costs of an APG. Sometimes the sub-objectives are too broad or vague to tie to a particular 

APG, and other times the costs associated with an APG are spread over multiple sub-objectives. 

To be truly meaningful, EPA’s cost accounting system should provide managers with cost 

information about their basic outputs. For example: 

• Managers in the Office of Pesticides should know how much it costs to perform a tolerance 

reassessment. 

• Managers in the Office of Enforcement and Compliance Assurance should know the costs 

of the various enforcement actions. 

• Managers in the Office of Water should know how much it costs to develop the new 

standard for arsenic in drinking water. 

However, EPA’s current cost accounting system cannot provide managers with this level of cost 

information, and the information that is provided relevant to cost of sub-objectives is not timely. 

Once managers have basic cost information, they should use it to improve their operations and 

make them more efficient. This fact has been proven through the operations of EPA’s Working 

Capital Fund. When Agency managers were not aware of the costs of running mainframe 

computer reports, they ran their reports during peak hours. Once they became aware of the cost 

differential between peak and off-peak usage rates, many opted to have their reports run during 

off-peak hours. The same is true with postage costs. Once managers realized how much they 

were paying for postage services, they began to use electronic mail more and postage services less. 

Recommendations 

We recommend that the OCFO: 

1. Lead an effort to create a more cost conscious culture within the Agency. 

2. Canvass Agency managers, executives, and other key stakeholders for the type of cost 

information they believe they need to effectively manage programs and activities (beyond 

the currently required costs per sub-objective). 

3. Begin an education effort to explain why managerial cost accounting is important, the types 

of information that can be provided, and how it can benefit decisions. 

Audit Report 2002-1-00082 2-3 
4. Develop a method for providing cost information to managers in a timely manner. 

5. Provide on-going technical assistance to managers on how to effectively utilize cost 

information, to help ensure proper use of cost information when managers make decisions. 

Agency Comments and OIG Evaluation 

The OCFO believes they are complying with the Managerial Cost Accounting Standard and is 

currently preparing a response to the points raised in the Inspector General’s December 12, 2001 

memorandum to the Administrator regarding the impasse over FFMIA compliance. We are 

awaiting the Administrator’s response. 

2-4 Audit Report 2002-1-00082 
EPA Continues to Experience Difficulties in Reconciling 

Intra-Governmental Transactions 

EPA continues to experience difficulties in reconciling some of its intra-governmental assets and 

liabilities due to some Federal entities not performing reconciliations. Without the proper 

confirmations from its trading partners, EPA has limited assurance that intra-governmental 

balances are accurate. EPA experienced similar occurrences last year that prohibited the Agency 

from complying with the applicable requirements. Consequently, EPA prepared the RSI using data 

from the Agency’s financial accounting system. 

OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements, requires Federal 

agencies to report intra-governmental assets, liabilities, and earned revenue (exchange and nonexchange) by Federal trading partner. This information is to be presented in the financial 

statements as Required Supplementary Information and should reconcile with the applicable line 

items in the financial statements. The Treasury Financial Manual also requires Federal agencies to 

disclose intra-governmental assets, liabilities, and earned revenue by trading partner in the Federal 

Agencies Centralized Trial-Balance System transmission. On September 28, 2001, Treasury 

updated the Federal Intra-governmental Transactions Accounting Policies and Procedures Guide 

to provide additional guidance to Federal entities (agencies) to reconcile intra-governmental 

transactions. 

EPA’s intra-governmental earned revenue did not exceed the $500 million criterion; therefore, 

EPA is excluded from reconciling and disclosing this activity. 

The OCFO issued a supplemental procedural policy in May 2001 to assist finance offices in 

confirming and reconciling intra-governmental transactions. The OCFO continues to undertake 

proactive efforts to reconcile intra-governmental transactions in order to comply with Federal 

financial reporting requirements. The OIG acknowledges and commends EPA’s efforts to 

reconcile intra-governmental transactions as required by Federal financial reporting requirements. 

Intra-governmental reconciliations has been a major issue within the Federal government. A study 

directed by Joint Financial Management Improvement Program task force identified multiple 

deficiencies that prohibit Federal agencies from reconciling intra-governmental transactions. 

Short-term major priorities being addressed are developing identification codes at business level, 

revising the standard general ledger, determining standard data structure, and creating a web-based 

clearinghouse portal for intra-governmental activity. 

OIG suggests that EPA continue its proactive efforts in reconciling the Agency’s intragovernmental transactions to comply with Federal financial reporting requirements. 

Audit Report 2002-1-00082 2-5 
Agency Comments and OIG Evaluation 

The agency agreed with our findings. 

2-6 Audit Report 2002-1-00082 
Attachment 3 

Status of Prior

Audit Report Recommendations

The Chief Financial Officer, 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. 

In response to our inquiry on actions taken by OCFO to resolve long outstanding audit 

recommendations, a representative informed us that the Deputy Chief Financial Officer formed an 

Audit Follow-up Council in July 2000. The purpose of the Council is to: (1) review the progress 

on audit findings, (2) discuss approaches to resolving audit issues, and (3) provide coordination 

and support across OCFO on audit-related matters. Council membership consists of the Deputy 

Chief Financial Officer; the OCFO Audit Follow-up Coordinator; the Comptroller and Comptroller 

Division Directors, and the Director of the Office of Planning, Analysis, and Accountability. The 

Council meets approximately every six weeks, as the need arises. Through its efforts, the Council 

has resolved several long-standing audit issues. 

The OIG will continue to work with the OCFO in helping to resolve all audit issues resulting from 

our financial statement audits. 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, as well as coordination 

by the Chief Financial Officer with various Assistant Administrators, Regional Administrators, and 

Office Directors, before they can be completely resolved. 

During the audit of the fiscal 2001 financial statements, we noted substantial progress in 

completing a number of corrective actions from prior year audits. The major audit issue areas 

where corrective actions were completed are shown in Table 1. 

Audit Report 2002-1-00082 3-1 
Table 1 

Fiscal 

Year 

Audited Audit Issue Area for Corrective Actions Reported as Completed 

2000 • Process for Preparing Financial Statements Needs Improvement. (Although all planned 

corrective actions were reported as completed, we note that the Agency will continue to 

improve its preparation process and is, or will be, automating major portions of the process for 

preparing financial statements.) 

• Accounting for Capitalized Property. (Although all planned corrective actions were reported as 

completed, we again identified a reportable condition for this issue area. Please see Attachment 

1 for additional comments and recommendations.) 

• Process for Reviewing Unliquidated Obligations Needs Improvement. 

• Documentation and Approval of Journal Vouchers Needs Improvement. 

• EPA Needs to Timely Repay the Asbestos Loan Debt to the Treasury. 

• EPA Was Unable to Reconcile Intra-Governmental Transactions. (Although all actions were 

reported as completed, EPA continues to experience difficulties in reconciling some of its intragovernmental assets and liabilities due to some Federal entities not performing their respective 

reconciliations. Without the proper confirmations from its trading partners, EPA has limited 

assurance that intra-governmental balances are accurate. Please see Attachment 2 for 

additional comments.) 

1998 • Further Improvements Needed in Managing EPA’s Accounts Receivable. 

1997 • EPA Is Not Compliant With Appropriations Law When Disbursing Grants Funded With 

Multiple Appropriations. (Please see page 7 for additional comments.) 

1995 • Automated Application Processing Controls for IFMS Could Not be Assessed. (Although all 

planned corrective actions are shown as completed, additional actions are underway to replace 

IFMS. Until such time as management implements a replacement automated accounting 

system that addresses past issues, we will continue to disclose a reportable condition concerning 

the current accounting system and its automated application processing controls. Please see 

Attachment 1 for additional comments.) 

1994 • Grantee Payment Requests Did Not Provide Necessary Information. 

1993 • Higher Priority Needs to be Placed on Completing Required Reviews of User Fees. 

3-2 Audit Report 2002-1-00082 
Since the completion of the audit of EPA’s fiscal 2000 financial statements (February 28, 2001), 

Agency managers have been working on completing a few corrective actions which are repeat 

findings from prior audits. The major audit issue areas and the latest anticipated dates for 

completion are shown in Table 2. 

Table 2 

Audit Issue Area for Corrective Actions In Process 

Anticipated 

Completion 

Date 

EPA’s Interagency Agreement Invoice Approval Process 

[Repeat finding since the fiscal 1994 audit] 

• Implement manual process as a corrective action and plan to automate process. 

04/30/02 

Despite Improvements, Financial System Security Plans Continue to be Noncompliant 

[Repeat finding since the fiscal 1997 audit] 

The EPA Deputy Chief Financial Officer continues to address planned corrective actions 

included in its fiscal 1999 remediation plan submitted to OMB on November 13, 2000, under 

the FFMIA. On January 18, 2002, a revised remediation plan was updated and submitted as 

part of EPA’s fiscal 2003 budget submission to OMB. EPA reported that corrective actions 

remain in progress for one of four areas included in the plan. Actions in progress are as 

follows: 

• Financial System Security Corrective Action Plan. While progress has been noted, the 

planned completion date of June 2002 for Financial System Security Plan Improvements 

will not be met in some instances. Some slippages have occurred due to contractor delays 

beyond OCFO’s control. 

07/31/02 

Compliance with Managerial Cost Accounting Standard 

In the audits of the fiscal 1999 and 2000 financial statements, we reported that EPA did not 

comply with the managerial cost accounting standard, and the OCFO and OIG remain at an 

impasse on actions to be taken. The Deputy Chief Financial Officer, while acknowledging the 

desirability for continuing improvements as envisioned by the standard, continues to disagree with 

our conclusion that EPA did not comply with the standard. Because of this impasse, on December 

12, 2001, we elevated this issue to the Administrator for resolution, as required by FFMIA. Please 

refer to Attachment 2 for this audit issue. 

Audit Report 2002-1-00082 3-3 
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Audit Report 2002-1-00082 
Appendix I 

EPA’s Fiscal 2001 and 2000 Financial Statements 

______________________________________________________________ 

Audit Report 2002-1-00082 
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Audit Report 2002-1-00082 
February 2002 

EPA’s FY2001 CFO 

AUDITED FINANCIAL 

STATEMENTS 

Produced by the U.S. Environmental Protection Agency

Office of the Chief Financial Officer

Office of the Comptroller

Financial Management Division

Audit Report 2002-1-00082 
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Audit Report 2002-1-00082 
TABLE OF CONTENTS 

Overview and Analysis ....................................................... 5

Principal Financial Statements ................................................. 27

Audit Report 2002-1-00082 Page 1
Note: All components of EPA’s FY2001 CFO Audited Financial Statements are included in EPA’s 

FY2001 Annual Report. 

Page 2 Audit Report 2002-1-00082 
OVERVIEW

AND

ANALYSIS

Audit Report 2002-1-00082 Page 3
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Page 4 Audit Report 2002-1-00082 
OVERVIEW AND ANALYSIS 

INTRODUCTION 

The mission of the U.S. Environmental Protection Agency (EPA) is to protect human 

health and to safeguard the natural environment—air, water, and land—upon which life depends. 

The Agency is committed to making America’s air cleaner, water purer, and land better protected 

and to working closely with its federal, state, tribal, and local government partners; with citizens; 

and with the regulated community to accomplish these goals. To carry out its mission, EPA has 

established 10 long-term strategic goals that identify the environmental results the Agency is 

working to achieve and reflect the sound financial and management practices it intends to employ. 

Each year, as required under the Government Performance and Results Act (GPRA), the Agency 

develops an annual plan that translates these long-term goals and objectives into specific actions to 

be taken and resources to be used during the fiscal year. EPA is accountable to the American 

people for making progress toward its long-term goals by achieving these annual performance 

goals (APGs) and using taxpayer dollars efficiently and effectively to do so. 

To manage its work and resources most effectively to achieve measurable environmental 

results, for the past 3 years EPA has linked its long-term and annual planning, budgeting, financial 

accounting, and performance reporting. For example, EPA has structured its strategic plan to 

encompass the full scope of its workforce and resources and has restructured its budget and 

finance processes to mirror strategic goals and objectives. To this end, the Agency’s strategic 

goals include both environmentally oriented goals, such as Clean Air and Safe Water, and 

functional goals, such as Sound Science and Effective Management, which are critical to achieving 

environmental and human health outcomes. Linking planning, budgeting, and finance helps EPA to 

focus resource management on the environmental and human health results to be achieved, 

provides longer term perspective and continuity for budgeting, and reinforces the importance of 

financial stewardship and fiscal integrity in achieving the Agency’s mission. As a result, EPA can 

demonstrate to Congress and the public how taxpayer dollars are applied across the Agency’s 

strategic goals to support the achievement of environmental results. 

EPA’s Fiscal Year 2001 Annual Report demonstrates the Agency’s accountability to 

Congress and the American people. First, the Report describes the progress that EPA—working 

with its federal, state, tribal, and local government partners—made toward the annual performance 

goals established in its Fiscal Year (FY) 2001 Annual Plan and toward its longer range strategic 

goals. Next, it discusses major management challenges EPA faced during the year and presents the 

Agency’s approaches, solutions, and accomplishments. Finally, after summarizing EPA’s financial 

activities and achievements, it presents the annual financial statements, a portrayal of the Agency’s 

financial position independently audited by EPA’s Inspector General. 

This Overview and Analysis, which addresses requirements for a “Management’s 

Discussion and Analysis” of the annual financial statements component of the Fiscal Year 2001 

Audit Report 2002-1-00082 Page 5 
Annual Report,

3

 is intended to provide a broad view of EPA’s performance and fiscal 

accountability over the year. In discussing performance results, it focuses on accomplishments 

that contributed to environmental achievements, particularly under EPA’s Goals 1 through 6. 

The goal chapters that follow in Section II provide a more extensive discussion of progress and 

achievements under all goals. The Overview and Analysis also presents approaches and tools the 

Agency is using to improve results, reviews EPA’s financial accomplishments, and discusses 

significant factors that might affect future Agency operations. 

PERFORMANCE RESULTS 

During FY 2001 EPA, working with its federal, state, tribal, and local government 

partners, continued to make significant progress toward a healthier environment—cleaner air, 

purer water, and better protected land. The discussion that follows briefly describes results 

achieved over the past fiscal year: it highlights environmental achievements, notes Agency 

accomplishments in improved management and other functions, aggregates performance results 

in terms of annual performance goals met and missed, and discusses performance issues and 

concerns. 

Environmental Accomplishments 

Under EPA’s Clean Air goal, the Agency and its partners continued to improve air 

quality and to protect the health of all the public, including sensitive populations such as 

asthmatics, children, and seniors, from the hazards of air pollution. Since the Clean Air Act 

Amendments of 1990 EPA and its partners have dramatically reduced air pollution from mobile 

and stationary sources to meet the National Ambient Air Quality Standards (NAAQS) and have 

reduced acid rain and toxic air pollution to safeguard public health and the environment. Sulfur 

dioxide (SO2) and nitrogen oxide (NOX) gases, for example, form fine particles that, when 

inhaled, contribute to premature mortality, chronic bronchitis, and other respiratory problems 

and, in the environment, form haze resulting in decreased visibility. 

During FY 2001 people who lived in all counties in which concentrations of nitrogen 

dioxide (NO2) or SO2 were measured breathed air that met NAAQS for these pollutants. Today 

all areas of the country are in attainment for NO2; compared to 1990, fewer than half as many 

people live in counties where monitored air quality exceeds the NAAQS for carbon monoxide; 

and only 1.5 million people live in counties where lead levels exceed the NAAQS. In terms of 

3

Because the Fiscal Year 2001 Annual Report consolidates a number of specific 

reports, some required components of the “Management’s Discussion and Analysis” are 

presented in greater detail elsewhere in this report. In particular, EPA’s mission statement and 

long-range goals appear at the front of the report and an EPA organization chart is included as 

Appendix C. For a discussion of the Agency’s performance goals, objectives, and results, refer 

to Section II. Management accomplishments and challenges are discussed in Section III. 

Financial statements, along with a discussion of systems, controls, and legal compliance, are 

presented in Section IV. 

Page 6 Audit Report 2002-1-00082 
ozone, air quality continues to improve: nearly half the areas out of attainment with the 1-hour 

NAAQS for ozone in 1991 have been brought into attainment and have approved maintenance 

plans. 

In FY 2001 EPA issued far-reaching rules that will dramatically reduce pollution from 

heavy-duty trucks and buses and cut sulfur levels in diesel fuel, thereby providing the cleanest 

running heavy-duty trucks in history. These vehicles will be 90 percent cleaner than today’s 

trucks and buses, resulting in an annual reduction of 2.6 million tons of NOX emissions by 

calendar year 2030. In addition, during calendar year 2000, EPA’s Acid Rain Program controlled 

annual SO2 emissions from utility sources to 11.2 million tons. Compared to the 17.5 million tons 

released in 1980, this reduction represents a decrease of 6.3 million tons in annual emissions and 

puts the Agency well on the way to achieving its 2010 goal of reducing SO2 emissions to 8.5 

million tons per year. Further, the Acid Rain Program reduced annual NOX emissions from coalfired utility sources by more than 2 million tons below those that would have occurred in the 

absence of the Clean Air Act Amendments of 1990. In the area of air toxics, as of FY 2001 

emissions from area, mobile, and stationary sources had decreased by 35 percent from the 1993 

baseline of 4.3 million tons. 

During FY 2001 EPA continued its work to ensure that all people have drinking water 

that is clean and safe to drink; that the Nation’s rivers, lakes, wetlands, aquifers, and coastal and 

ocean waters are healthy; and that watersheds and aquatic ecosystems will be restored and 

protected. Although population growth, as well as urban and rural nonpoint source pollution, 

continues to challenge the capability of community water systems to provide safe drinking water, 

in FY 2001, 91 percent of people served by community water systems received water that 

complied with all health-based standards. In addition, during FY 2001, drinking water facilities 

completed 469 infrastructure improvement projects to help maintain this high level of public 

health protection. 

Ensuring protection of America’s land unites a variety of efforts under a number of the 

Agency’s strategic goals. Throughout FY 2001, EPA worked closely with its federal, state, 

tribal, and local government partners to ensure that the public has food that is safe to eat and are 

protected from health threats posed by pesticide residues. The Agency expanded the availability 

of reduced-risk pesticides and alternatives to organophosphates to reduce health and 

environmental risks from pesticide use while maintaining the vigor of the country’s agricultural 

production. In addition to preventing pollution from pesticides and other chemicals, the Agency 

continued its work to reduce risk in communities, homes, workplaces, and ecosystems. 

Culminating more than 5 years of work, in FY 2001 the Agency promulgated the Lead Hazard 

Rule, which defines specific levels of lead in dust and soil to be considered “lead-based paint 

hazards.” EPA estimates that, as response actions are taken in homes that exceed these 

standards, approximately 46 million children will benefit from reduced exposure to lead in paint, 

dust, and soil over the next 50 years. 

Audit Report 2002-1-00082 Page 7 
Critical to protecting the Nation’s land are better waste management, restoration of 

contaminated sites, and rapid and effective response to waste-related or industrial accidents and 

emergencies. In FY 2001 EPA’s Emergency Response Program responded rapidly and 

effectively to the terrorist incidents of September 11 and to subsequent acts of bioterrorism. EPA 

employees were on the ground within hours of the attacks at the World Trade Center and the 

Pentagon, monitoring for contamination, assisting with waste management, advising on cleanup 

and decontamination, and providing information to the public. At the World Trade Center, EPA 

assumed the lead role for coordination of the federal hazardous materials response. When 

outbreaks of anthrax bioterrorism occurred in early October 2001, EPA response personnel were 

among the first on the scene. They led the effort to clean up and decontaminate six post offices in 

Florida and four Congressional office buildings in Washington, DC—the Ford, Longworth, 

Dirksen, and Hart buildings. Because of their expertise in environmental matters, EPA criminal 

investigators assisted the Federal Bureau of Investigation in the investigation of the attack. 

Apart from these emergency situations, the Agency, working cooperatively with states, 

tribes, and the regulated community, continued to improve environmental conditions and protect 

human health by cleaning up hazardous waste sites and seeking to return abandoned or 

underutilized industrial and commercial properties to productive use. In FY 2001 the Superfund 

Program achieved 47 construction completions. (“Construction completion” refers to the point at 

which a site remedy is in place, safeguards prevent the spread of further contamination, and no 

further cleanup construction is needed.) The Superfund Program also cleaned up 2 million cubic 

yards of solid hazardous waste and 68,000 gallons of liquid-based waste as a result of removal 

response actions. The Agency and its partners provided alternative drinking water supplies to 

1,000 people at 6 sites. Additionally, EPA cleaned up 302 Superfund removal sites and 19,074 

leaking underground storage tanks. From the program’s inception through the third quarter of 

FY 2001, EPA’s Brownfields Program, one of the Agency’s most successful public partnerships, 

leveraged more than $3.73 billion in public and private investments and helped create more than 

17,000 jobs in cleanup, construction, and redevelopment. 

EPA continued to work with other nations and to lead multilateral efforts to reduce 

global and cross-border environmental risks. For example, the Agency and its partners made 

significant progress in protecting and improving environmental conditions in the Great Lakes 

region, removing or containing more than 400,000 cubic yards of contaminated sediments in 

FY 2000;4

 releasing the State of the Great Lakes 2001 report, for which more than 50 

governmental and nongovernmental entities used 33 indicators to assess the health of the Great 

Lakes; and demonstrating glass furnace technology on 70 tons of Fox River sediment near Green 

Bay, Wisconsin. (Glass furnace technology destroys organic contaminants and immobilizes 

inorganic metals in a glass matrix that can then be used as construction fill or for other beneficial 

uses.) 

4

During FY 2001 new FY 2000 performance data became available for several EPA 

programs for which there were delayed reporting cycles or targets set beyond FY 2000. These 

FY 2000 data represent the Agency’s latest results information; FY 2001 data will become 

available in spring 2002. 

Page 8 Audit Report 2002-1-00082 
Results reported in FY 2001 demonstrate that EPA’s voluntary ENERGY STAR program, 

methane outreach programs, and High Global Warming Potential (HGWP) environmental 

stewardship program have increased the penetration of energy-efficient products into the 

marketplace through effective program planning, implementation, and outreach to manufacturers 

and consumers. The ENERGY STAR label, for example, has become a national symbol for energy 

efficiency recognized by more than 40 percent of the people. These voluntary programs yield an 

immediate impact on environmental improvement. In results reported in FY 2000, actions taken 

through EPA’s voluntary climate programs such as ENERGY STAR have saved consumers and 

businesses more than $8 billion on their energy bills and saved 74 billion kilowatt-hours and more 

than 10,000 megawatts of peak power. In addition, emissions of almost 160,000 tons of smogforming NOX were prevented in 2000, equivalent to the annual emissions from more than 100 

power plants. 

Finally, EPA’s ongoing efforts to promote and monitor compliance and to enforce 

environmental statutes and regulations continued to advance results in environmental and human 

health protection. For example, in FY 2001 EPA reached settlements with four major petroleum 

refiners to resolve significant areas of noncompliance with the Clean Air Act. The settlements, 

adding pollution controls and operation changes at 27 separate refineries representing 

approximately 28.8 percent of the Nation’s domestic refining capacity, will result in an estimated 

annual reduction of 87,000 tons of SOX, 49,500 tons of NOX, 8,220 tons of volatile organic 

compounds, and 2,100 tons of particulate matter (PM). In addition, the companies will spend 

$12 million in a variety of Supplemental Environmental Projects (SEPs) to improve the 

environment. The SEPs will provide a variety of environmental benefits, including dissemination 

of information to the public about local environmental issues, additional ambient monitoring, and 

increased facility controls. One creative SEP will support an effort to reduce emissions from 

school buses, while another will provide for enhanced public access to permit and compliance 

information. 

Other Agency Accomplishments 

To carry out its mission and achieve environmental and human health results, EPA must 

function effectively as an organization, serve the public responsively and efficiently, work well 

with its partners and stakeholders, and make the most of its resources—such as quality 

environmental information and sound science—to inform decision making and advance its efforts. 

During FY 2001 EPA expanded its multi-year planning to address all major research programs 

and to allow better assessment of progress toward its strategic research objectives. The Agency 

continued to improve the collection, quality, and availability of environmental information and to 

develop and apply the best available science, an improved understanding of environmental risk, 

and greater innovation to detect emerging risks and to address environmental problems. For 

example, for EPA’s on-line Integrated Risk Information System, the Agency completed or 

updated seven consensus human health assessments that describe the potential impacts of various 

chemicals found in the environment. This information will be used for hazard and dose-response 

evaluations in risk assessments across EPA, at the state level, and by the public and will provide 

information critical to developing EPA’s regulatory standards and making site cleanup decisions. 

Audit Report 2002-1-00082 Page 9 
Similarly, in FY 2001 EPA completed a 5-year pilot of the Environmental Technology 

Verification program, through which the Agency can provide verified, commercial-ready 

technologies that eliminate, minimize, or control high-risk pollutants from multiple sectors. 

In the area of improved management, EPA’s most significant accomplishments reflect 

strides in strategic management of resources, as the Agency prepared to address the President’s 

Management Agenda. Specifically EPA developed a human capital strategic plan, “Investing in 

Our People: EPA’s Strategy for Human Capital, 2001 through 2003.” In preparing the plan, 

Agency executives and human resources professionals worked in partnership to fine-tune goals, 

key strategies, and actions to address human resources. In FY 2001 EPA capitalized on the 

power of the Internet by implementing electronic processes that allow citizens, grantees, and 

vendors to transact business with the Agency on-line 24 hours a day, 7 days a week. 

Summary of Performance Data 

In FY 2001 EPA met 65 percent of the APGs for which data are provided in this report. 

(EPA committed to a total of 70 APGs in its FY 2001 Annual Plan; however, because data for 9 

of these APGs will not be available until FY 2002 or later, they are not included in these tallies.) 

EPA also made significant progress toward the 20 APGs that were not achieved in FY 2001, and 

the Agency remains on track to meet the long-term goals and objectives associated with these 

annual targets. 

During FY 2001 new performance data also became available for FY 2000 and FY 1999 

APGs for which there were delayed reporting cycles or targets set beyond those fiscal years. EPA 

now has performance data for five of the nine FY 2000 APGs for which there were delayed 

reporting cycles or targets set beyond FY 2000. For example, the Agency met its goals for 

reducing greenhouse gas emissions and restricting consumption of ozone depleting substances. In 

summary, EPA can now report achievement of 81 percent (56) of the 69 APGs for which it has 

FY 2000 performance data. In addition, new performance data became available during FY 2001 

for three of the seven FY 1999 APGs for which there were delayed reporting cycles or targets set 

beyond FY 1999. For FY 1999, EPA can now report achievement of 52 of the 65 APGs for 

which it has performance data. Delays in reporting cycles and targets set beyond the fiscal year 

continue to affect four FY 2000 APGs and four FY 1999 APGs. 

Charts presenting EPA’s FY 2001 performance results are provided with each goal 

chapter in Section II. These charts present performance data for each of the Agency’s FY 2001 

APGs. 

Page 10 Audit Report 2002-1-00082 
Performance Issues and Concerns 

Despite the best efforts of EPA and its partners, the Agency was not able to meet all 

planned targets for FY 2001. However, the Agency does not expect the shortfall in meeting these 

APGs to compromise progress toward achieving its long-range goals and objectives. For more 

than half of the missed APGs, EPA fell only slightly short of the targets and met the cumulative 

goals. 

External factors contributed to over 75 percent of the missed APGs. For example, under 

its Clean Air goal, EPA sets targets for both the number of areas that will move from 

nonattainment to attainment for the six principal air pollutants and the number of people who will 

breathe cleaner air as a result. In FY 2001 EPA anticipated that five areas would request 

redesignation from nonattainment to attainment for the 1-hour ozone standard; however, only 

three areas were redesignated. States have been reluctant to request redesignation to the current 

1-hour ozone standard as long as legal issues remain to be resolved by the courts concerning the 

more protective 8-hour standard that will replace the 1-hour standard. Despite this uncertainty, 

however, EPA and states continue to work together to ensure that areas are striving to meet or 

are maintaining the current 1-hour ozone standard. 

For some missed APGs, shortfalls cannot be attributed to a single reason. For example, 

under the Agency’s Clean Water goal, EPA missed its target for issuing National Pollutant 

Discharge Elimination System (NPDES) permits for major and minor point sources. NPDES 

permits reduce or eliminate discharges into the Nation’s waters of inadequately treated 

wastewater from municipal and industrial facilities and of pollutants from urban storm water, 

combined sewer overflows, and concentrated animal feeding operations. In FY 2001 the Agency 

and its partners exceeded the target for permitting minor point sources, achieving 75 percent of a 

planned 66 percent; however, permits issued covered only 75 percent of the targeted 89 percent 

of major point sources. Many factors contributed to the permit backlog and missed target, 

including permit appeals and challenges, states’ lack of or redirection of resources, newly adopted 

water quality standards that are increasingly comprehensive and more stringent, and the need to 

integrate individual permits with watershed and other planning processes. 

In many cases, missed APGs represent “near misses.” One such example falls under the 

Agency’s leaking underground storage tank (LUST) program, which is responsible for cleaning 

up releases from underground storage tank systems containing gasoline, other petroleum 

products, or hazardous substances. In FY 2001 EPA and its state partners completed 19,074 

cleanups, for a total of nearly 270,000 cleanups since FY 1987. The FY 2001 target of 21,000 

LUST cleanups was not met, however, because of the increasing complexity of sites where 

contaminated groundwater has migrated off-site or which require groundwater cleanup. In 

addition, many cleanups were complicated by the presence of the contaminant methyl tertiary 

butyl ether (MTBE), a gasoline additive. These factors have resulted in longer-than-expected 

cleanup times and higher-than-expected cleanup costs at LUST sites. 

Audit Report 2002-1-00082 Page 11 
In all, EPA and its partners did not meet 20 of the 61 APGs for which performance data 

are currently available. These APGs are associated with 7 of EPA’s 10 strategic goals. The 

Agency is considering the varied causes of these shortfalls—legal issues; implementation of new, 

more stringent regulations or requirements; redirection or shortages of staff and resources; 

unforeseen technical complexities in cleanup or remediation processes; and other factors—as it 

adjusts its work and APGs for FY 2002 and proceeds to plan and set priorities for FY 2003 and 

beyond. The performance data charts included in Section II provide more complete information 

on these missed targets and discuss the progress the Agency has made toward its goals. 

IMPROVING RESULTS 

During FY 2001 EPA continued to sharpen its focus on achieving results and improving 

performance. In August 2001 the Agency launched an effort to examine a number of its current 

management practices—including priority-setting; planning and budgeting; and performance 

tracking, measuring, and reporting—with an eye toward strengthening these processes and 

improving the way the Agency works with its partners to focus resources on areas of greatest 

concern and achieve better results. In addition, the Agency continues to advance its work by 

strengthening its partnerships, further developing its capability to conduct and apply the results of 

program evaluation activities, improving performance tracking and measurement, addressing data 

quality issues, and looking ahead to anticipate future trends and issues. 

Strengthening Partnerships 

The advances in protection of human health and the environment made over the past year 

and discussed in the goal chapters that follow would not have been possible without the 

participation and collaboration of the Agency’s federal, state, and tribal partners. During FY 2001 

EPA worked in particular to strengthen its partnership with states and tribes to focus on 

environmental results and make more effective use of collective resources. In spring 2001, for 

example, states and tribes participated in the Agency’s FY 2003 planning and priority-setting 

process and in a May “lessons learned” forum on improving the Agency’s annual performance 

report. 

In August 2001 Administrator Christine Todd Whitman initiated an effort to advance 

EPA-state performance partnerships under the National Environmental Performance Partnership 

System (NEPPS). Within the limits of its statutory and regulatory authorities, EPA is working to 

provide the states with as much flexibility as possible to address state priorities and achieve the 

greatest environmental results. During FY 2001 EPA Regional Administrators began to meet 

individually with state leaders to maximize the opportunities available through negotiation of 

performance partnership agreements and grants. Discussions focused on the flexibility available 

under performance partnerships, creating additional incentives for participation, and the testing of 

better measures of program performance. In FY 2001 EPA also began to consult closely with 

states on two new initiatives to promote achievement of environmental results: designing a 

strategy for developing and applying innovative approaches (“Innovating for Better 

Page 12 Audit Report 2002-1-00082 
Environmental Results”) and developing an “Information Agenda” that will establish a strategic 

vision and goals for the role of information in environmental programs in the coming years. 

EPA also continues to work closely with tribal governments to identify priorities for 

Indian Country, to improve management of environmental issues, and to develop tribal capability 

to implement environmental programs. EPA’s Indian Program involves significant cross-Agency 

and multimedia activities designed to ensure that the Agency’s trust responsibility to federally 

recognized tribes is carried out. 

In July 2001 Administrator Whitman met with the Tribal Operations Committee to 

reaffirm the Agency’s Indian Policy and the Tribal Operations Committee Charter. The Indian 

Policy outlines the Agency’s firm commitment to principles that promote partnerships with tribes 

as an integral part of EPA’s system to carry out its mission of environmental protection. The resigning of the Tribal Operations Committee Charter further demonstrates the Administration’s 

support for EPA-tribal government partnerships. EPA is committed to ensuring protection of the 

environment and human health in Indian Country in a manner that is consistent with the 

government-to-government relationship and conserves cultural use of natural resources. 

EPA also continued to collaborate closely with other federal agencies on a variety of 

efforts, from research and development projects to the design and implementation of cooperative 

programs to advance protection of the environment and human health. For example, under the 

Agency’s National Coastal Assessment Program, EPA, the U.S. National Oceanic and 

Atmospheric Administration, and U.S. Geological Survey laboratories in the Southern Atlantic 

and Gulf of Mexico regions worked with the Delaware River Basin Committee and 24 of 26 

coastal-marine states and tribes to assess the condition of the Nation’s coastal resources. In 

another joint effort to develop information and analytical methods that will improve EPA’s 

economic analyses of its policies and regulations, the Agency worked with the National Science 

Foundation on solicitations designed to support economic research in a number of key areas. 

Apart from such research initiatives, EPA continued to develop and implement 

environmental programs in partnership with its sister agencies. An important area of 

collaboration, for example, involves the cleanup of federal sites. During FY 2001 EPA worked 

with the U.S. Department of Defense, the U.S. Department of Energy, and other federal agencies 

to complete construction at 3 Superfund sites, to complete cleanups at 28 removal sites, and to 

sign 4 interagency agreements to obtain enforceable cleanup commitments. In the area of 

protecting human health, EPA and the U.S. Food and Drug Administration (FDA) developed a 

national advisory for children and women of childbearing age on mercury in commercial and 

noncommercial fish. EPA and FDA, in cooperation with the Centers for Disease Control, 

distributed the advisory throughout the U.S. medical community. 

Examples of significant partnership efforts with federal agencies, states, tribes, and local 

governments are highlighted in the individual goal chapters in Section II. 

Audit Report 2002-1-00082 Page 13 
Using Program Evaluation 

During FY 2001 EPA made significant strides in building Agency-wide capability to 

conduct program evaluation and fostering the use of program evaluation as a management tool 

for continuous improvement. These efforts will help EPA keep pace with the rapidly expanding 

evaluation activities conducted at the state level and with the emergence of Environmental 

Program Evaluation as a nationally recognized sub-discipline of program evaluation. For 

example, in FY 2001 EPA’s Office of the Inspector General (OIG) and Office of Research and 

Development (ORD) participated in a joint pilot program evaluation focused on the Agency’s 

pollution prevention and new technologies research program. The pilot used a “logic model,” 

which allows evaluators to identify relationships among resources, activities, outputs, customers, 

and outcomes, to assess environmental research within the context of the Agency’s strategic 

goals and objectives. The pilot demonstrated the potential benefits of a partnership approach to 

program evaluation and pointed out the need to focus on outcomes to identify the impacts of 

research on long-term environmental results. 

To continue to foster such program evaluation efforts, EPA has developed a Program 

Evaluation Network of over 50 members who actively promote program evaluation within the 

Agency. In addition, EPA has accelerated the application of evaluation practice within the 

Agency by centrally funding internal evaluations on a competitive basis. From the FY 2001 

competition, the Agency selected 6 out of 23 proposals for funding, allowing evaluation of a 

variety of environmental programs. These evaluations are underway and will be reported in the 

FY 2002 Annual Report. 

Improving Environmental Indicators and Performance Measurement 

EPA recognizes the need to make greater use of outcome-oriented performance goals and 

measures. Therefore, the Agency has continued to invest in the development of environmental 

indicator, monitoring, and management systems that will improve its capability to measure results, 

plan accordingly, and manage its work to achieve environmental and health outcomes. During 

FY 2001 EPA initiated a variety of projects to improve performance measurement: conducting 

training and workshops; preparing analyses to support development of more outcome-oriented 

goals and measures; benchmarking performance measures used by other agencies with similar 

functions; and working with its federal, state, tribal, and local government partners and with other 

stakeholders to improve environmental indicators and measures. 

For example, to increase national and state capabilities for strategic monitoring of 

ecological health, EPA worked with 24 states to complete the first national survey of coastal 

waters, completed an integrated assessment of the Mid-Atlantic Highlands, and initiated the 

Western Pilot Study to demonstrate the use of ecological indicators for streams in the 12 western 

states. Approximately 30 states are evaluating new monitoring designs and a core set of 

ecological indicators that provide consistent data on quality of the environment and identify 

Page 14 Audit Report 2002-1-00082 
changes taking place. Regional vulnerability analyses that use socioeconomic factors to forecast 

environmental conditions more reliably are being tested in forests in the eastern United States. 

In addition, through its Science to Achieve Results competitive research grants, EPA 

established five Estuarine and Great Lakes Programs at major academic research institutions with 

coastal expertise. These institutions will work to develop the next generation of environmental 

indicators for use by the states in assessing the biological health of estuaries and the Great Lakes. 

In FY 2001 a cooperative agreement between EPA and Florida State University (FSU) 

supported the “Chemical and Pesticides Results Measures” project and its first published report. 

The purpose of the project is to develop a set of environmental outcome indicators and measures 

for toxic substances, pesticides, and pollution prevention. By working in cooperation with FSU, 

stakeholders, and the Pollution Prevention Roundtable, EPA will identify indicators and measures 

that federal, state, and local agencies; tribal entities; and others will find useful in describing, 

measuring, and understanding environmental trends and conditions in response to environmental 

programs. Data generated from this project, targeted to a broad audience of potential users, will 

be used in improving FY 2002 and FY 2003 annual performance goals and measures. The second 

phase of the project will provide a foundation for additional work on environmental indicators. 

The Agency completed several other indicators projects during FY 2001, including the 

report Development, Selection, and Pilot Demonstration of Preliminary Environmental 

Indicators for the Clean Water State Revolving Fund. The product of a joint EPA/state work 

group, the report demonstrated the feasibility of applying a set of 7 environmental indicators to 

62 State Revolving Fund projects in 6 states. 

Addressing Data Quality Problems 

While data quality continues to present a significant management challenge for EPA, the 

Agency’s FY 2001 performance data generally can be considered acceptably reliable and 

complete, according to criteria established by the Office of Management and Budget (OMB) and 

discussed in OMB Circular A-11. (See Appendix B for a more complete discussion of data 

quality issues.) Most of the Agency’s performance data are collected in major EPA data systems 

that are subject to Agency-wide data quality standards and periodic audits for accuracy and 

completeness. As indicated in Appendix B, some common limitations in the performance data are 

inconsistencies in data collection methods among multiple data sources; inaccuracies due to 

imprecise measurement or unrepresentative statistical sampling; and uncertainties associated with 

survey, voluntarily reported, or modeled data. The Agency is committed to full disclosure of 

these limitations and is working to make significant improvements in its quality systems. For 

many measures, EPA relies on states and other external sources for performance data and the 

quality assurance/quality control protocols already in place. The Agency is making significant 

efforts to engage its partners in improving detection and correction of data error, standardizing 

measures, and improving the exchange of electronic data and data quality information. 

EPA’s performance data used to determine whether APGs have been attained are 

complete for most performance measures. (See performance data charts provided with each goal 

Audit Report 2002-1-00082 Page 15 
chapter in Section II.) Where performance data are not yet available, Appendix B indicates when 

complete data are expected. 

During FY 2001 EPA undertook several initiatives to improve the quality of 

environmental data used to support performance measurement. For example, 

• In response to the EPA OIG’s declaration of laboratory quality systems as one of the 

Agency’s top 10 “management challenges,” independent technical assessments of EPA 

laboratories were conducted to determine whether laboratory operating systems are 

producing environmental data of known and documented quality. The assessments 

identified a number of “best practices” that are being shared across the laboratory 

community. 

• EPA worked with the American Council of Independent Laboratories to develop 

environmental laboratory ethical standards and train public and private sector laboratory 

staff and managers on ethical conduct. 

• EPA developed the Data and Information Quality Strategic Plan which, when 

implemented, will improve the measurement and quality of the Agency’s data and 

information over the next 5 to 10 years. The plan provides six overarching 

recommendations: (1) create an Agency-wide information quality network to clarify the 

roles, responsibilities, and relationships of Agency staff having data quality functions; (2) 

develop and require the use of standard data quality indicator metadata; (3) improve 

implementation of quality assurance requirements for grantees; (4) regularly assess and 

report on standard quality measures throughout the information life-cycle; (5) expand 

quality training for EPA and grantees; and (6) provide guidelines to improve information 

use and product development. The plan represents one Agency response to a major 

management challenge identified by the General Accounting Office and EPA’s OIG. (See 

Section III, “Management Accomplishments and Challenges,” for further discussion.) 

Further Agency responses to this challenge include implementation of the Central Data 

Exchange (CDX), which allows the seamless, secure exchange of quality data between 

EPA and its industrial and governmental partners. Three EPA programs (Toxics Release 

Inventory, Air, and Drinking Water) now use the CDX. 

• EPA adopted a government-wide standard for quality system requirements for contractors 

and grantees and issued interim guidelines for its use. The Agency is now revising its 

official policy. 

• EPA reviewed 14 organizational Quality Management Plans (QMPs) and approved 9. 

QMPs, which describe data quality management responsibilities, are required for every 

EPA organization that collects or uses environmental data. The Agency scheduled followup assessments of QMP implementation. EPA also reviewed eight quality systems. 

Page 16 Audit Report 2002-1-00082 
• EPA undertook a formal assessment of Agency-wide, quality-related training needs. The 

Agency also made progress in improving data quality under specific programs. 

While undertaking long-term improvements in data quality, it is important for EPA to 

disclose the limitations of its data supporting specific goals and measures, as reflected in 

Appendix B. EPA’s long-term strategies—including the Data and Information Quality Strategic 

Plan—will address recognized Agency vulnerabilities in data quality management within and 

across programs. 

Considering Future Trends 

Apart from long-standing environmental protection issues, new areas of focus will 

challenge EPA’s ability to look to the future and plan strategically. The future will likely be 

characterized by increased rates of change and greater uncertainty about the responses of 

complex biological, ecological, social, and political systems to this rapid change. EPA is exploring 

ways to keep pace with these developments by looking ahead to gain a better understanding of 

potential threats to ecological and human health. Issues such as global warming, biotechnology, 

or threats to biodiversity will require the forging of new cooperative relationships with EPA’s 

federal, state, tribal, and local government partners and with the Agency’s stakeholders. 

The collective perspective about what actually constitutes “the environment” also is 

changing. As we begin to appreciate the extent to which humans depend on the ecological 

systems of the planet, it is becoming clear that numerous issues, previously thought of as 

independent of the environment, are in fact connected to it. Human health, the economy, social 

justice, and national security—particularly in terms of the potential for ecoterrorism—all have 

important environmental aspects because each is dependent to some degree on the structure, 

functioning, and resiliency of ecological systems. 

In today’s world, population growth and the resources consumed to sustain this growth 

are altering the earth in unprecedented ways. Over the next 25 years, for example, the world’s 

population will grow by nearly 2 billion people, largely in developing areas. By 2025 an estimated 

2.7 billion people will live in areas experiencing severe water scarcity, creating a potential for 

major regional conflicts over water rights. Domestically, growth in the southern and southwestern 

regions will pose major water management issues: water and wastewater infrastructure 

maintenance, aquifer depletion, and prevention of surface water contamination. 

Further, as the population continues to grow, the Agency’s general environmental 

concerns, such as air quality, are likely to continue. Urbanization of previously underdeveloped 

areas will potentially generate a greater demand for transportation infrastructure, leading to 

increases in vehicle miles traveled and emissions of conventional pollutants and greenhouse gases 

like carbon dioxide. 

Audit Report 2002-1-00082 Page 17 
As EPA looks to the future, it will need to employ innovative approaches and sound 

science to investigate complex, interdisciplinary problems in environmental protection. The 

Agency will need to expand its efforts for interagency and international cooperation to address 

environmental issues on an increasingly global scale. Considering energy efficiency and the 

impacts of energy use—from global climate change to acid rain and multi-pollutant air 

emissions—promoting closed-loop manufacturing technologies to prevent or reduce pollution, 

and encouraging design for the environment are among the strategies the Agency is now 

exploring. 

LOOKING AHEAD 

As noted earlier, in August 2001 EPA launched a new effort to examine and strengthen its 

current management practices to achieve better results. As part of this “Managing for Improved 

Results” initiative, during FY 2002 a Steering Group of senior Agency leaders will consider 

options for improving EPA’s strategic planning, annual planning and budgeting processes, 

performance measurement, and capability to implement results-based management. As a result of 

this work, the Agency expects both to make incremental changes to its processes and systems and 

to effect far-reaching reforms that improve the way it works with its partners to achieve 

environmental results. 

The Agency continues to strive toward making more effective use of performance and 

results information to inform internal planning and decision-making and to inform the public. In 

FY 2001 EPA initiated an Agency-wide “Environmental Indicators Initiative” to gather the 

information it needs to evaluate its progress and make sound, strategic decisions. Environmental 

indicators are used to track and measure the environment’s capacity to support human and 

ecological health. EPA and others will use indicators such as ozone concentrations, nutrient levels 

exported from watersheds, and blood lead concentrations to describe and assess conditions, 

stressors, exposure, and response and to show progress toward meeting management or 

performance goals. In FY 2002 EPA plans to compile the indicators information it collects to 

develop the Agency’s first State of the Environment Report. 

Applying Lessons Learned 

EPA is using its FY 2001 results to adjust approaches and develop new strategies for 

FY 2002 and beyond. In some cases FY 2001 performance information has indicated a need to 

revise existing annual targets. For example, EPA did not achieve its target for Superfund 

construction completions in FY 2001. Several factors account for the FY 2001 decline in 

completions including the large size and considerable complexity of remaining sites. Based on this 

experience EPA is reducing its FY 2002 construction completion target and reevaluating the 

constraints and complexity of remaining Superfund sites. 

On the other hand, based on FY 2001 performance, the Agency expects that in FY 2002 

states will be able to complete more drinking water source assessments than anticipated. In this 

case national targets were originally established when states were in the early stages of 

Page 18 Audit Report 2002-1-00082 
implementing the assessment program and were focused on the preliminary steps necessary to 

establish source water protection programs (hiring staff, collecting data, setting up databases, 

presenting plans to the public). Because states have completed these preliminary steps, they will 

likely undertake source water assessment and prevention activities at a faster pace in the future. 

Similarly, EPA has adjusted several of its criteria pollutant targets for FY 2002 based on 

FY 2001 results. In particular EPA is working with states to ensure that they continue to make 

progress toward attaining the ozone standard as the Agency continues to develop a policy to 

make the transition from the 1-hour standard to the 8-hour standard. 

In other cases the lessons EPA has learned from its FY 2001 performance, although not 

specifically affecting goals or targets, will influence program strategies for the future. For 

example, to achieve clean water, the Agency is continuing to meet its goals for the issuance of 

effluent limitations guidelines. However, the Agency recognizes as a continuing challenge its 

capability to adequately document actual loadings reductions given the limited data available. To 

help address this problem and implement an overall loadings reductions strategy, EPA will take 

steps in FY 2002 to determine the number of facilities in each major program. This will greatly 

improve the Agency’s capability to model expected reductions and validate these models using 

the limited data available. 

Lessons learned in FY 2001 were similarly helpful in reevaluating the Agency’s Great 

Lakes Program. Preliminary 2001 data show dissolved oxygen concentrations in Lake Erie’s 

central basin to be near the worst observed during the past 5 years, despite international success 

in reducing phosphorus loadings. To understand and address this puzzling challenge, EPA’s Great 

Lakes Program is shifting program emphasis to develop missing information such as external 

phosphorus load calculations, to research further the biological effects, to publicize the problem, 

and to integrate research and management efforts through the Lake Erie Lake Management Plan. 

Finally, the unexpected and tragic events of September 11, 2001, have raised new 

concerns about the safety of the Agency’s workforce. Like other federal agencies, in FY 2002 

EPA will implement a national initiative to address security vulnerabilities and risks at all of its 

facilities. This work might lead to the identification of new performance goals and measures 

under a number of EPA’s strategic goals. 

FINANCIAL ANALYSIS 

EPA continues to focus on integrating financial information with program performance 

information to strengthen its planning, analysis, and accountability process. A key goal is to 

provide program managers with timely and useful cost information and financial analysis to better 

inform the decision-making process and ensure taxpayer dollars are used effectively and 

efficiently in protecting the environment and public health. 

The financial statements provided in Section IV are one important example of Agency 

accountability, in that they provide a snapshot of EPA’s financial position at the end of the fiscal 

Audit Report 2002-1-00082 Page 19 
year. These financial statements are prepared in accordance with established federal accounting 

standards and audited by EPA’s OIG. The discussion that follows is a supplement to the financial 

statements and describes EPA’s resources and how they are used to accomplish the Agency’s 

mission. 

FY 2001 Budgetary Resources: EPA Appropriations 

Any discussion of finances begins with the appropriations process. An appropriation is a 

legal authority to spend funds for purposes designated in an appropriations act. Congress 

appropriates funding for EPA in annual legislation covering appropriations for the Department of 

Veterans Affairs, the Department of Housing and Urban Development, and Independent 

Agencies. For FY 2001 EPA’s appropriated resources totaled $7.8 billion. As indicated in the 

chart, three appropriations—Environmental Programs and 

Management (EPM), State and Tribal Assistance Grants 

(STAG), and Superfund—continue to make up a 

substantial portion of the Agency’s resources. The EPM 

appropriation funds most of the Agency’s payroll and 

infrastructure. As its title implies, STAG primarily funds 

grants to state and tribal partners for carrying out their 

environmental programs. The Superfund appropriation 

funds cleanup of abandoned hazardous waste sites. Finally, 

“All Other” EPA appropriations include funding for 

Science and Technology, Buildings and Facilities, Office of 

Inspector General, and a number of smaller appropriation 

accounts. 

Obligations and Costs 

For FY 2001 EPA is reporting both obligations and costs incurred in performance of its 

10 goals. This presentation should provide a better link between the funds budgeted and the 

resources actually used to accomplish each goal. 

EPA’s EPA’s budget execution can be viewed in two ways: as obligations and as costs. 

Obligations reflect legal authority and commitments to incur costs on the part of the 

government. For example, an obligation is recognized when the government awards a contract 

or a grant. In contrast, costs are recognized when the contractor actually delivers the requested 

goods or services. By reporting obligations, EPA can show the use of its budgetary resources in 

terms of 

Page 20 Audit Report 2002-1-00082 
contractual commitments made to achieve its environmental goals, and costs measure the 

obligated resources actually consumed during the reporting period in achieving its goals. 

Audit Report 2002-1-00082 Page 21
5

The total obligations in the chart differ from amounts reported in the Agency’s

financial statements in Section IV because of different accounting and presentation

requirements. The basis for the chart is consistent with Office of Management and Budget

(OMB) budgetary guidance, whereas the financial statements are based on generally accepted

accounting principles.

6

The chart indicates EPA’s gross costs. 

under “Statement of Net Costs”. 

associated exchange revenues, e.g. Superfund cost recoveries and user fees.

Page 22 Audit Report 2002-1-00082

FY 2001 obligations incurred in connection

with EPA’s 10 goals are presented in the FY 2001

Obligations by Goal chart.5 FY 2001 costs incurred

to achieve the Agency’s 10 goals total $8.1 billion

and are summarized in the Costs by Goal chart.6 

EPA’s obligations and costs are largely

incurred for services performed outside the Agency.

As illustrated in the FY 2001 Cost Categories chart,

more than 80 percent of EPA’s costs are in the form

of contracts or grants.

Most of EPA’s costs are associated with grant programs,

and nearly half of the Agency’s grants are awarded from two state

revolving funds (SRFs). The

Clean Water SRF (CWSRF)

provides assistance for wastewater

and other water projects, such as

those dealing with nonpoint

sources, estuaries, and storm

water. The Drinking Water SRF

(DWSRF) provides financing for improvements to community

water systems to assist compliance with the Safe Drinking

Water Act and also allows states to use grant funds for other

activities that support their drinking water programs. (See

Section II, Goal 2, for more information on the SRFs.)

Funding for both is awarded as grants to states and tribes, which then make loans to

municipalities and other entities for construction of infrastructure projects, purchases of land or

conservation easements, and implementation of other water quality activities. Additional funds

from state match and leveraged bond proceeds expand the capital available in the SRFs to address

priority water quality and public health needs, while loan repayments and earnings ensure funding

EPA’s “net”costs are reported in Section IV,

“Net” costs are defined as the gross costs offset by
for these activities far into the future. The flexibility and revolving nature of the SRFs have 

provided states with a powerful tool to apply needed funding toward their clean water and 

drinking water infrastructure needs. 

Through 2001 CWSRFs have turned $18 billion in federal capitalization grants into over 

$34 billion in assistance to municipalities and other entities for water projects. In recent years 

CWSRFs have directed $3 billion to $4 billion in loan assistance to water projects. Approximately 

$200 million of these funds are used each year to prevent polluted runoff, making the CWSRF an 

effective tool in addressing nonpoint source problems. 

Likewise the newer DWSRFs have turned $3.6 billion in federal capitalization grants into 

over $3.8 billion in loan assistance, of which $1.3 billion was provided in assistance in FY 2001 

alone. States have also used $576 million of their DWSRF grants to fund other programs and 

activities that enhance water system management and protect sources of drinking water. 

The large dollar volume of these two grant programs is the reason that more than 44 

percent of EPA’s costs are incurred in connection with its Clean and Safe Water goal. Other 

grant programs include categorical assistance to states and tribes, consistent with EPA’s 

authorizing statutes, and research grants to universities and other nonprofit institutions. 

Superfund Financial Trends 

The Comprehensive Environmental Response, 

Compensation, and Liability Act of 1980 (CERCLA) established 

the Superfund Program and the Hazardous Substance Response 

Trust Fund, now known as the Superfund. The Superfund 

Program addresses the remediation of hazardous waste from 

abandoned sites around the country and emergency response for 

new spills and other incidents. Prior to FY 1996 the bulk of 

Superfund financing consisted of special taxes. Although 

CERCLA has not been reauthorized since it expired in 1995, the 

Superfund Program continues to operate each year. With 

CERCLA’s 

expiration, the 

taxing authority 

also expired, 

resulting in a shift of Superfund financing sources as 

shown in the Cumulative Superfund Trust Fund 

Cost Recoveries, FY 1996 through FY 2001 chart. 

Appropriations from general revenues now 

constitute the largest share of Superfund trust fund 

Audit Report 2002-1-00082 Page 23 
revenues. At the same time cost recovery revenues have increased markedly since FY 1991, when 

the cumulative total stood at $359 million. 

Despite declining revenues to the Superfund Trust Fund, special account revenues have 

continued to grow. Under CERCLA Section 122(b)(3), EPA may retain and use the proceeds it 

receives under settlement agreements to conduct response actions at Superfund sites. Funds 

received under these settlements are subsequently placed in interest-bearing, site-specific 

accounts known as special accounts. Until recently only the future cost (or “cashout”) component 

could be placed in a special account, and any corresponding past cost (or cost recovery) amounts 

were deposited in the Superfund Trust Fund. Based on a recent legal opinion by EPA’s Office of 

General Counsel, however, it was determined that both past and future cost amounts could be 

placed in special accounts. Combining these amounts will make more resources readily available 

without an appropriation for EPA-lead site responses and to reimburse responsible parties for 

response work performed at sites pursuant to settlement agreements with the Agency. 

As of September 30, 2001, EPA had established 197 special accounts with $878 million in 

receipts. These accounts earned an additional $135 million in interest. At the end of FY 2001, 

EPA had disbursed $326 million from its special accounts and had unliquidated obligations of 

$118 million and an unexpended balance of $569 million. 

Accounts Receivable and Debt Management 

Improvement in management of the federal 

government’s debt portfolio has been a concern of 

Congress in the past decade and is manifested in the 1996 

passage of the Debt Collection Improvement Act, which 

supplemented previous authorities for debt management. 

EPA’s accounts receivable do not approach the level of 

other major federal creditor agencies. The Agency, 

nonetheless, manages a gross debt portfolio that exceeded 

$1 billion in each of the past 3 fiscal years. 

More than three-fourths of EPA’s accounts receivable are Superfund-related. Effective 

management of Superfund debts requires close collaboration between two EPA offices (the 

Office of the Chief Financial Officer and the Office of Enforcement and Compliance Assurance) 

and the U.S. Department of Justice (DOJ). As illustrated in the Accounts Receivable 

Management chart, EPA experienced a significant increase in collection of all debts, delinquent 

and nondelinquent, from 2000 to 2001. In addition EPA has greatly stepped up its referral actions 

of delinquent debts to the appropriate collection organizations the U.S. Department of Treasury 

for non-Superfund debts and DOJ for Superfund-related debts), which are set up to take more 

aggressive collection action. 

Page 24 Audit Report 2002-1-00082 
Innovative Environmental Financing: The Advantage of Public Private Partnerships 

EPA has several innovative environmental financing initiatives which enable the Agency 

to leverage federal funds through mutually beneficial public-private partnerships. Two examples 

are the Environmental Finance Program and the Brownfields Program. 

The Environmental Finance Program employs leveraging to extend its reach and magnify 

its impact. The program has three related components that furnish financial outreach services to 

Agency customers and the regulated community. First, the Environmental Financial Advisory 

Board (EFAB), a federally chartered advisory committee, provides innovative ideas and 

recommendations to EPA’s Administrator and program offices on ways to lower the costs of, and 

increase investments in, environmental and public health protection. Second, the Environmental 

Finance Center (EFC) Network consisting of nine university-based programs in eight EPA 

regions, delivers targeted technical assistance to smaller communities on the “how-to-pay” issues 

of providing safe and reliable environmental services that meet standards. Third, the 

Environmental Financing Information Network (EFIN), through its popular website and other 

means, catalogues the results of the Advisory Board and the EFC Network and presents valuable 

summaries of over 350 environmental finance tools and 1,000 abstracts and case studies of 

environmental finance publications. 

A good example of how the components work together to leverage results is presented by 

the EFC Directors who serve on the Advisory Board as expert witnesses, thereby bringing their 

unique perspective on finance issues and opportunities for the Board to consider and pass along 

to EPA. Another innovative example is the charrette, a panel of experts tailored to address a 

community's particular finance problem. After listening to the community, the panel exchanges 

questions and answers and then presents recommendations for actions the community should 

take. The panel is composed of finance experts and has often included EFAB members. Typically 

participating communities would not have access to advice of this caliber, and many communities 

have followed panel recommendations, saving significant resources in implementing their 

projects. EPA further leverages the charrettes by documenting their results and making them 

available as case studies through the EFC and EFIN web sites. 

The Brownfields Program, one of EPA’s most successful public-private partnerships, 

leveraged more than $3.73 billion in public and private investments and resulted in more than 

17,000 jobs in cleanup, construction, and redevelopment through the third quarter of FY 2001. 

“Brownfields” are abandoned, idle, or under-used industrial and commercial properties where 

redevelopment or expansion is complicated by real or perceived contamination. The primary goal 

of EPA’s Brownfields Program is to provide states, tribes, and local governments with the tools 

and financial assistance needed to assess, clean up, and redevelop Brownfields properties. Since 

1995, 2,594 properties have been assessed using federal funds and 876 properties have been 

assessed using leveraged funds. The 46 job training and development demonstration pilots have 

trained at least 700 participants, and more than 75 percent of the graduates have obtained 

employment to date. (See Section II, Goal 5, for more information.) 

Audit Report 2002-1-00082 Page 25 
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Page 26
PRINCIPAL 

FINANCIAL 

STATEMENTS 

Audit Report 2002-1-00082 Page 27 
CONTENTS

Financial Statements 

Consolidating Balance Sheet

Consolidated Statement of Net Cost by Goal

Consolidating Statement of Net Cost

Consolidating Statement of Changes in Net Position

Combined Statement of Budgetary Resources

Consolidating Statement of Financing

Consolidated 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. Other Assets

Note 7. Loans Receivable, Net - Non-Federal

Note 8. Inventory and Property Received in Settlement

Note 9. General Plant, Property and Equipment

Note 10. Debt

Note 11. Custodial Liability

Note 12. Other Liabilities

Note 13. Leases

Note 14. Pensions and Other Actuarial Benefits

Note 15. Cashout Advances and Deferrals, Superfund

Note 16. Unexpended Appropriations

Note 17. Amounts Held by Treasury 

Note 18. Commitments and Contingencies

Note 19. Grant Accrual

Note 20. Environmental Cleanup Costs

Note 21. Superfund State Credits

Note 22. Superfund Preauthorized Mixed Funding Agreements

Note 23. Income and Expenses from Other Appropriations

Note 24. Custodial Non-Exchange Revenues

Note 25. Statement of Budgetary Resources

Note 26. Adjustments

Note 27. Unobligated Balances 

Note 28. Obligated Balance, Net - End of Period

Note 29. Statement of Financing

Note 30. Costs Not Assigned to Goals

Note 31. Transfers-in and out, Statement of Changes in Net Position

Page 28 Audit Report 2002-1-00082 
Notes to Financial Statements (continued) 

Note 32. Imputed Financing

Note 33. Payroll and Benefits Payable

Note 34. Restatement of Imputed Costs and Financing for Prior Years

Note 35. Change in Accounting for Trust Funds in FY 2000

Note 36. Change in Accounting for Cashout Interest, Superfund in FY 2000

Note 37. Change in Accounting for Expenditure Transfers

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)

Working Capital Fund Supplemental Statement of Budgetary Resources (Unaudited)

Working Capital Fund Supplemental Statement of Financing (Unaudited)

Required Supplemental Stewardship Information 

Annual Stewardship Information (Unaudited) 

Audit Report 2002-1-00082 Page 29 
Environmental Protection Agency

Consolidating Balance Sheet

As of September 30, 2001 and 2000 (FY 2000 Restated-See Note 37*) 

(Dollars in Thousands)

Superfund Superfund All All Combined 

Trust Fund Trust Fund Others Others Totals 

FY 2001 FY 2000* FY 2001 FY 2000* FY 2001 

ASSETS 

Intragovernmental: 

Fund Balance with Treasury (Note 2) $ 6,706 $ 37,397 $ 11,272,374 $ 11,059,256 $ 11,279,080 

Investments (Note 4) 3,724,044 3,960,313 1,778,818 1,593,357 5,502,862 

Accounts Receivable, Net (Notes 5 and 37) 31,178 40,671 69,977 80,824 101,155 

Other (Note 6) 5,521 21,789 4,386 7,452 9,907 

Total Intragovernmental $ 3,767,449 4,060,170 13,125,555 12,740,889 16,893,004 

Accounts Receivable, Net (Note 5) 466,038 617,039 75,027 87,895 541,065 

Loans Receivables, Net - Non Federal (Note 7) 0 0 75,552 89,128 75,552 

Cash (Note 3) 0 0 0 48 0 

Inventory & Property Received in Settlement (Note 8) 0 5,086 253 347 253 

Property, Plant and Equipment, Net (Note 9) 16,515 13,581 526,893 473,028 543,408 

Other (Note 6) 8,878 750 875 1,712 9,753 

Total Assets $ 4,258,880 $ 4,696,626 $ 13,804,155 $ 13,393,047 $ 18,063,035 

LIABILITIES 

Intragovernmental: 

Accounts Payable (Note 37) $ 65,809 $ 121,920 $ 1,118 $ 1,506 $ 66,927 

Accrued Liabilities 57,728 51,748 40,541 50,580 98,269 

Custodial Liability (Note 11) 0 0 77,778 102,469 77,778 

Debt (Note 10) 0 0 31,124 37,922 31,124 

Other (Note 12) 21,308 8,848 27,507 28,849 48,815 

Total Intragovernmental 144,845 182,516 178,068 221,326 322,913 

Accounts Payable 39,878 46,066 91,083 84,956 130,961 

Accrued Liabilities 97,857 145,358 564,191 631,909 662,048 

Cashout Advances & Deferrals, Superfund (Note 15) 394,699 372,586 0 0 394,699 

Payroll and Benefits Payable (Note 33) 35,111 32,832 163,730 151,363 198,841 

Pensions and Other Actuarial Liabilities (Note 14) 7,731 6,637 31,902 27,036 39,633 

Environmental Cleanup Costs (Note 20) 0 0 14,528 15,499 14,528 

Commitments and Contingencies (Note 18) 3,778 5,000 6,020 2,950 9,798 

Other (Note 12 and Note 13) 27,659 30,192 60,536 49,147 88,195 

Total Liabilities 751,558 821,187 1,110,058 1,184,186 1,861,616 

NET POSITION 

Unexpended Appropriations (Note 16) 0 0 10,358,961 10,119,838 10,358,961 

Cumulative Results of Operations (Note 37) 3,507,322 3,875,439 2,335,136 2,089,023 5,842,458 

Total Net Position (Note 37) 3,507,322 3,875,439 12,694,097 12,208,861 16,201,419 

Total Liabilities and Net Position $ 4,258,880 $ 4,696,626 $ 13,804,155 $ 13,393,047 $ 18,063,035 

* Intragovernmental Accounts Receivable and Payable and Cumulative Results of Operations restated for FY 2000 - see Note 37. 

The accompanying notes are an integral part of these statements. 

Page 30 Audit Report 2002-1-00082 
Environmental Protection Agency 

Consolidating Balance Sheet 

As of September 30, 2001 and 2000 (FY 2000 Restated-See Note 37*) 

(Dollars in Thousands) 

Combined Intra-agency Intra-agency Consolidated Consolidated 

Totals Elimination Elimination Totals Totals 

FY 2000* FY 2001 FY 2000* FY 2001 FY 2000 

ASSETS 

Intragovernmental: 

Fund Balance with Treasury (Note 2) $ 11,096,653 $ 0 $ 0 $ 11,279,080 $ 11,096,653 

Investments (Note 4) 5,553,670 0 0 5,502,862 5,553,670 

Accounts Receivable, Net (Notes 5 and 37) 121,495 (48,128) (50,644) 53,027 70,851 

Other (Note 6) 29,241 (5,739) (6,510) 4,168 22,731 

Total Intragovernmental 16,801,059 (53,867) (57,154) $ 16,839,137 16,743,905 

Accounts Receivable, Net (Note 5) 704,934 0 0 541,065 704,934 

Loans Receivables, Net - Non Federal (Note 7) 89,128 0 0 75,552 89,128 

Cash (Note 3) 48 0 0 0 

Inventory & Property Received in Settlement (Note 8) 5,433 0 0 253 5,433 

General Property, Plant and Equipment, Net (Note 9) 486,609 0 0 543,408 486,609 

Other (Note 6) 2,462 0 0 9,753 2,462 

Total Assets $ 18,089,673 $ (53,867) 0 (57,154) $ 18,009,168 $ 18,032,519 

LIABILITIES 

Intragovernmental: 

Accounts Payable (Note 37) $ 123,426 $ (45,271) $ (46,453) 21,656 $ 76,973 

Accrued Liabilities 102,328 (3,241) (4,191) 95,028 98,137 

Custodial Liability (Note 11) 102,469 0 0 77,778 102,469 

Debt (Note 10) 37,922 0 0 31,124 37,922 

Other (Note 12) 37,697 (5,355) (6,510) 43,460 31,187 

Total Intragovernmental 403,842 (53,867) (57,154) $ 269,046 346,688 

Accounts Payable 131,022 0 0 130,961 131,022 

Accrued Liabilities 777,267 0 0 662,048 777,267 

Cashout Advances & Deferrals, Superfund (Note 15) 372,586 0 0 394,699 372,586 

Payroll and Benefits Payable (Note 33) 184,195 0 0 198,841 184,195 

Pensions and Other Actuarial Liabilities (Note 14) 33,673 0 0 39,633 33,673 

Environmental Cleanup Costs (Note 20) 15,499 0 0 14,528 15,499 

Commitments and Contingencies (Note 18) 7,950 0 0 9,798 7,950 

Other (Note 12 and Note 13) 79,339 0 0 88,195 79,339 

Total Liabilities 2,005,373 (53,867) (57,154) 1,807,749 1,948,219 

NET POSITION 

Unexpended Appropriations (Note 16) 10,119,838 0 0 10,358,961 10,119,838 

Cumulative Results of Operations (Note 37) 5,964,462 0 0 5,842,458 5,964,462 

Total Net Position (Note 37) 16,084,300 0 0 16,201,419 16,084,300 

Total Liabilities and Net Position $ 18,089,673 $ (53,867) $ (57,154) $ 18,009,168 $ 18,032,519 

* Intragovernmental Accounts Receivable and Payable and Cumulative Results of Operations restated for FY 2000 - see Note 37. 

Audit Report 2002-1-00082 Page 31 

48 
The accompanying notes are an integral part of these statements.

Environmental Protection Agency

Consolidated Statement of Net Cost by Goal

For the Year Ended September 30, 2001

(Dollars in Thousands)

Clean and Better 

Clean Safe Safe Prevent Waste Global 

Air Water Food Pollution Management Risks 

COSTS: 

Federal $ 87,360 $ 156,900 $ 30,210 $ 41,065 $ 465,452 $ 39,816 

With the Public 458,256 3,482,906 77,687 236,933 1,442,650 186,919 

Total Costs 545,616 3,639,806 107,897 277,998 1,908,102 226,735 

Less: 

Earned Revenues 702 4,966 17,051 1,545 510,905 7,286 

Total Revenue 702 4,966 17,051 1,545 510,905 7,286 

Management Cos t

Allocation 65,958 77,128 33,657 42,067 103,802 23,282

NET COST OF

OPERATIONS $ 610,872 $ 3,711,968 $ 124,503 $ 318,520 $ 1,500,999 $ 242,731

Environmental Protection Agency

Consolidated Statement of Net Cost by Goal

For the Year Ended September 30, 2000-Restated (See Note 34)

(Dollars in Thousands)

Clean and Better 

Clean Safe Safe Prevent Waste Global 

Air Water Food Pollution Management Risks 

COSTS: 

Federal (Note 34) $ 62,400 $ 134,808 $ 18,372 $ 29,823 $ 387,651 $ 30,549 

With the Public 462,922 3,209,971 80,003 231,151 1,478,910 179,880 

Total Costs 525,322 3,344,779 98,375 260,974 1,866,561 210,429 

Less: 

Earned Revenues 219 5,794 21,247 4,180 336,253 6,939 

Total Revenue 219 5,794 21,247 4,180 336,253 6,939 

Management Cost

Allocation (Note 34) 53,522 73,540 21,779 34,754 135,265 15,755

NET COST OF

OPERATIONS (Note 34) $ 578,625 $ 3,412,525 $ 98,907 $ 291,548 $ 1,665,573 $ 219,245

Detailed descriptions of the above Goals are provided in EPA’s FY 2001 Annual Report, Section II – GPRA Performance 

Results by Strategic Goal. 

Page 32 Audit Report 2002-1-00082 
The accompanying notes are an integral part of these statements. 

Environmental Protection Agency 

Consolidated Statement of Net Cost by Goal 

For the Year Ended September 30, 2001 

(Dollars in Thousands) 

Right Not 

to Sound Credible Effective Assigned Consolidated 

Know Science Deterrent Management to Goals* Totals 

COSTS: 

Federal $ 41,540 $ 58,804 $ 100,116 $ 66,461 $ 29,438 $ 1,117,162 

With the Public 126,154 290,056 299,021 424,036 (60,977) 6,963,641 

Total Costs 167,694 348,860 399,137 490,497 (31,539) 8,080,803 

Less: 

Earned Revenues 324 706 786 4,330 (1,898) 546,703 

Total Revenue 324 706 786 4,330 (1,898) 546,703 

Management Cos t

Allocation 30,017 47,331 62,925 (486,167) 0 0

NET COST OF

OPERATIONS $ 197,387 $ 395,485 $ 461,276 $ 0 $ (29,641) $ 7,534,100

Environmental Protection Agency

Consolidated Statement of Net Cost by Goal

For the Year Ended September 30, 2000-Restated (see Note 34)

(Dollars in Thousands)

Right Not 

to Sound Credible Effective Assigned Consolidated 

Know Science Deterrent Management to Goals* Totals 

COSTS: 

Federal (Note 34) $ 22,120 $ 42,324 $ 52,421 $ 125,211 $ 120,149 $ 1,025,828 

With the Public 114,439 286,882 317,423 339,874 25,346 6,726,801 

Total Costs 136,559 329,206 369,844 465,085 145,495 7,752,629 

Less: 

Earned Revenues 338 1,490 495 1,694 3,335 381,984 

Total Revenue 338 1,490 495 1,694 3,335 381,984 

Management Cos t 

Allocation (Note 34) 22,752 30,676 75,348 (463,391) 0 0 

NET COST OF

OPERATIONS (Note 34) $ 158,973 $ 358,392 $ 444,697 $ 0 $ 142,160 $ 7,370,645

* See Note 30. 

Audit Report 2002-1-00082 Page 33 
Detailed descriptions of the above Goals are provided in EPA’s FY 2001 Annual Report, Section II – GPRA Performance 

Results by Strategic Goal. 

The accompanying notes are an integral part of these statements. 

Environmental Protection Agency 

Consolidating Statement of Net Cost 

For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated-See Note 34) 

(Dollars in Thousands) 

Superfund Superfund All All Combined 

Trust Fund Trust Fund Others Others Total 

FY 2001 FY 2000* FY 2001 FY 2000* FY 2001 

COSTS: 

Intragovernmental (Note 34) $ 426,499 $ 353,782 $ 710,290 $ 689,140 $ 1,136,789 

With the Public 1,179,013 1,259,464 5,784,628 5,467,337 6,963,641 

Expenses from Other Appropriations (Note 23) 103,654 31,270 (103,654) (31,270) 0 

Total Costs 1,709,166 1,644,516 6,391,264 6,125,207 8,100,430 

Less:

Earned Revenues 488,397 307,200 77,933 91,878 566,330

Total Revenue 488,397 307,200 77,933 91,878 566,330 

NET COST OF OPERATIONS (Note 34) $ 1,220,769 $ 1,337,316 $ 6,313,331 $ 6,033,329 $ 7,534,100 

* Restated amounts - See Note 34. 

Page 34 Audit Report 2002-1-00082 
The accompanying notes are an integral part of these statements. 

Environmental Protection Agency

Consolidating Statement of Net Cost 

For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated-See Note 34)

(Dollars in Thousands)

Combined Intra-agency Intra-agency Consolidated Consolidated 

Total Eliminations Eliminations Totals Totals 

FY 2000* FY 2001 FY 2000 FY 2001 FY 2000* 

COSTS: 

Intragovernmental (Note 34) $ 1,042,922 $ (19,627) $ (17,094) $ 1,117,162 $ 1,025,828 

With the Public 6,726,801 0 0 6,963,641 6,726,801 

Expenses from Other Appropriations (Note 23) 0 0 0 0 0 

Total Costs $ 7,769,723 $ (19,627) $ (17,094) $ 8,080,803 $ 7,752,629 

Less:

Earned Revenues 399,078 (19,627) (17,094) 546,703 381,984

Total Revenue 399,078 (19,627) (17,094) 546,703 381,984 

NET COST OF OPERATIONS (Note 34) $ 7,370,645 $ 0 $ 0 $ 7,534,100 $ 7,370,645 

* Restated amounts - See Note 34. 

The accompanying notes are an integral part of these statements. 

Audit Report 2002-1-00082 Page 35 
Environmental Protection Agency

Consolidating Statement of Changes in Net Position

For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated*-See Notes 34 & 37)

(Dollars in Thousands)

Superfund Superfund All Others All Others Combined 

Trust Fund Trust Fund FY 2001 FY 2000* Totals 

FY 2001 FY 2000* FY 2001 

Net Cost of Operations (Note 34) $ 1,220,769 $ 1,337,316 $ 6,313,331$ 6,033,329 $ 7,534,100 

Financing Sources (Other Than Exchange Revenues): 

Appropriations Used 0 0 6,867,762 6,632,631 6,867,762 

Taxes & Non-Exchange Interest (Note 17) 226,861 240,808 276,346 260,272 503,207 

Other Non-Exchange Revenue 2,775 1,192 11,878 12,958 14,653 

Imputed Financing (Notes 32 and 34) 13,686 12,534 77,855 70,384 91,541 

Trust Fund Appropriations (Note 17) 633,603 700,000 (633,603) (700,000) 0 

Transfers-In (Note 31 and 37) 0 9,707 62,861 64,995 62,861 

Transfers-Out (Notes 31 and 37) (127,927) (124,200) 0 (990) (127,927) 

Income from Other Appropriations (Note 23) 103,654 31,270 (103,654) (31,270) 0 

Net Results of Operations before Accounting Changes for (368,117) (466,005) 246,114 275,651 (122,003) 

Trust Funds, Cashout Interest, & Transfers 

Cumulative Effect of Trust Fund Accounting Changes on Net 0 2,656,831 0 91,596 0 

Results of Operations (Note 35) 

Cumulative Effect of Cashout Interest Accounting Changes 0 85,382 0 0 0 

on Net Results of Operations (Note 36) 

Cumulative Effect of Expenditure Transfer Accounting 0 (45,188) 0 45,188 0 

Changes on Net Results of Operations (Note 37) 

Net Change in Cumulative Results 

of Operations (368,117) 2,231,020 246,114 412,435 (122,003) 

Increases/(Decreases) in Unexpended Appropriations 0 (2,656,831) 239,122 42,874 239,122 

Change in Net Position (368,117) (425,811) 485,236 455,309 117,119 

Net Position - Beginning of Period (Note 37) 3,875,439 4,301,250 12,208,861 11,753,552 16,084,300 

Net Position - End of Period (Note 37) $ 3,507,322 $ 3,875,439 $ 12,694,097$ 12,208,861 $ 16,201,419 

* FY 2000 Net Cost of Operations and Imputed Financing are restated - See Note 34. 

Also FY 2000 Transfers-in, Transfers-out, and Ending Net Position are restated; with an addtional 

Accounting Change for Expenditure Transfers. - See Note 37. 

The accompanying notes are an integral part of these statements. 

Page 36 Audit Report 2002-1-00082 
Environmental Protection Agency

Consolidating Statement of Changes in Net Position

For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated*-See Notes 34 and 37)

(Dollars in Thousands)

Combined Intra-agency Intra-agency Consolidated Consolidated 

Totals Eliminations Eliminations Totals Totals 

FY 2000* FY 2001 FY 2000* FY 2001 FY 2000* 

Net Cost of Operations (Note 34) $ 7,370,645 $ 0 $ 0$ 7,534,100$ 7,370,645 

Financing Sources (Other Than Exchange Revenues): 

Appropriations Used 6,632,631 0 0 6,867,762 6,632,631 

Taxes & Non-Exchange Interest (Note 17) 501,080 0 0 503,207 501,080 

Other Non-Exchange Revenue 14,150 0 0 14,653 14,150 

Imputed Financing (Notes 32 and 34) 82,918 0 0 91,541 82,918 

Trust Fund Appropriations (Note 17) 0 0 0 0 0 

Transfers-In (Notes 31 and 37) 74,702 (47,894) (49,990) 14,967 24,712 

Transfers-Out (Notes 31 and 37) (125,190) 47,894 49,990 (80,033) (75,200) 

Income from Other Appropriations (Note 23) 0 0 0 0 0 

Net Results of Operations before Accounting Changes for (190,354) 0 0 (122,003) (190,354) 

Trust Funds, Cashout Interest, & Transfers 

Cumulative Effect of Trust Fund Accounting Changes on Net 2,748,427 0 0 0 2,748,427 

Results of Operations (Note 35) 

Cumulative Effect of Cashout Interest Accounting Changes 85,382 0 0 0 85,382 

on Net Results of Operations (Note 36) 

Cumulative Effect of Expenditure Transfer Accounting 0 0 0 0 0 

Changes on Net Results of Operations (Note 37) 

Net Change in Cumulative Results 

of Operations 2,643,455 0 0 (122,003) 2,643,455 

Increases/(Decreases) in Unexpended Appropriations 

(2,613,957) 0 0 239,122 (2,613,957) 

Change in Net Position 29,498 0 0 117,119 29,498 

Net Position - Beginning of Period (Note 37) 16,054,802 0 0 16,084,300 16,054,802 

Net Position - End of Period (Note 37) $ 16,084,300 $ 0 $ 0$ 16,201,419$ 16,084,300 

* FY 2000 Net Cost of Operations and Imputed Financing are restated - See Note 34. 

Also FY 2000 Transfers-in, Transfers-out, and Ending Net Position are restated; with an additional 

Accounting Change for Expenditure Transfers. - See Note 37. 

The accompanying notes are an integral part of these statements. 

Audit Report 2002-1-00082 Page 37 
Environmental Protection Agency 

Combined Statement of Budgetary Resources 

For the Year Ended September 30, 2001 

(Dollars in Thousands) 

Superfund All Combined 

Trust Fund Others Totals 

Budgetary Resources 

Budget Authority $ 1,288,437 $ 7,245,878 $ 8,534,315 

Unobligated Balances, Beginning of Period 450,538 1,774,158 2,224,696 

Net Transfers, Prior Period Balances 0 1,003 1,003 

Spending Authority from Offsetting Collections 348,758 303,972 652,730 

Adjustments (Note 26) 196,644 18,095 214,739 

Total Budgetary Resources (Note 25) $ 2,284,377 $ 9,343,106 $ 11,627,483 

Status of Budgetary Resources 

Obligations Incurred (Note 25) $ 1,570,056 $ 7,431,802 $ 9,001,858 

Unobligated Balances Available - Apportioned (Note 27) 714,321 1,791,475 2,505,796 

Unobligated Balances Not Available (Note 27) 0 119,829 119,829 

Total, Status of Budgetary Resources (Note 25) $ 2,284,377 $ 9,343,106 $ 11,627,483 

Outlays (Note 25) 

Obligations Incurred (Note 25) $ 1,570,056 $ 7,431,802 $ 9,001,858 

Less: Spending Authority from Offsetting Collections and Adjustments (545,402) (380,786) (926,188) 

Subtotal $ 1,024,654 $ 7,051,016 $ 8,075,670 

Obligated Balance, Net - Beginning of Period 2,283,790 9,289,444 11,573,234

Obligated Balance Transferred, Net 0 0

Less: Obligated Balance, Net - End of Period (Note 28) (2,108,696) (9,324,855) (11,433,551)

Total Outlays (Note 25) $ 1,199,748 $ 7,015,605 $ 8,215,353

The accompanying notes are an integral part of these statements. 

Page 38 Audit Report 2002-1-00082 
Environmental Protection Agency

Consolidating Statement of Financing

For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated*-See Note 34)

(Dollars in Thousands)

Superfund Superfund All All 

Trust Fund Trust Fund Others Others 

FY 2001 FY 2000* FY 2001 FY 2000* 

Obligations and Nonbudgetary Resources 

Obligations Incurred $ 1,570,056 $ 1,701,337 $ 7,431,802 $ 7,158,665 

Less: Spending Authority for Offsetting Collections and Adjustments 

Earned Reimbursements 

Collected (311,271) (108,997) (227,827) (230,981) 

Receivable from Federal Sources 3,716 13,324 6,306 20,720 

Change in Unfilled Customer Orders (Decreases)/Increases (41,203) (17,846) (36,273) (54,653) 

Transfers from Trust Funds 0 (9,642) (46,178) (46,358) 

Recoveries of Prior Year Obligations (196,644) (201,660) (76,814) (111,767) 

Imputed Financing for Cost Subsidies (Notes 32 and 34) 13,686 12,534 77,855 70,384 

Income from Other Appropriations (Note 23) 103,654 31,270 (103,654) (31,270) 

Transfers-in/(out) of Nonmonetary Assets 0 39 0 0 

Exchange Revenue Not in the Entity’s Budget (182,013) (215,449) (2,072) (3,088) 

Total Obligations as Adjusted and Nonbudgetary Resources 959,981 1,204,910 7,023,145 6,771,652 

Resources that Do Not Fund Net Cost of Operations 

Change in Amount of Goods, Services, and Benefits Ordered but Not 

Yet Provided - (Increases)/Decreases 145,931 143,536 (117,998) (74,345) 

Change in Unfilled Customer Orders, etc. 41,203 17,846 36,273 53,227 

Costs Capitalized on the Balance Sheet - (Increases)/Decreases 

General Plant, Property and Equipment (8,306) (3,827) (74,092) (107,711) 

Purchases of Inventory 0 0 52 (68) 

Adjustments to Costs Capitalized on the Balance Sheet (40) 0 (4) 153 

Collections that Decrease Credit Program Receivables or Increase 

Credit Program Liabilities 0 0 7,722 5,014 

Adjustment for Trust Fund Outlays that Do Not Affect Net Cost (47,894) (38,090) (587,424) (652,268) 

Total Resources that Do Not Fund Net Costs of Operations 130,894 119,465 (735,471) (775,998) 

Components of Costs that Do Not Require or Generate Resources 

Depreciation and Amortization 4,031 3,654 19,333 20,651 

Bad Debt Related to Uncollectible Non-Credit Reform Receivables 133,761 3,075 2,881 1,518 

Revaluation of Assets and Liabilities 0 0 0 (165) 

Loss (Gain) on Disposition of Assets (9,426) (813) 895 0 

Other Expenses not Requiring Budgetary Resources 699 45 (5,686) 3,409 

Total Costs That Do Not Require Resources 129,065 5,961 17,423 25,413 

Financing Sources Yet to be Provided (Note 29) 829 6,980 8,234 12,262 

Net Costs of Operations (Note 34) $ 1,220,769 $ 1,337,316 $ 6,313,331 $ 6,033,329 

* Imputed Financing and Net Cost of Operations restated for FY 2000 - See Note 34. 

The accompanying notes are an integral part of these statements. 

Audit Report 2002-1-00082 Page 39 
Environmental Protection Agency

Consolidating Statement of Financing

For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated*-See Note 34)

(Dollars in Thousands) 

Consolidated 

Totals 

FY2001** 

Consolidated

Totals

FY 2000* **

Obligations and Nonbudgetary Resources 

Obligations Incurred $ 9,001,858 $ 8,860,002 

Less: Spending Authority for Offsetting Collections and Adjustments 

Earned Reimbursements 

Collected 

Receivable from Federal Sources 

Change in Unfilled Customer Orders (Decreases)/Increases 

Transfers from Trust Funds 

Recoveries of Prior Year Obligations 

Imputed Financing for Cost Subsidies (Notes 32 and 34) 

Income from Other Appropriations (Note 23) 

Transfers-in/(out) of Nonmonetary Assets 

Exchange Revenue Not in the Entity’s Budget 

Total Obligations as Adjusted and Nonbudgetary Resources 

Resources that Do Not Fund Net Cost of Operations 

Change in Amount of Goods, Services, and Benefits Ordered but Not 

Yet Provided - (Increases)/Decreases 

Change in Unfilled Customer Orders, etc. 

Costs Capitalized on the Balance Sheet - (Increases)/Decreases 

General Plant, Property and Equipment

Purchases of Inventory

Adjustments to Costs Capitalized on the Balance Sheet

Collections that Decrease Credit Program Receivables or Increase 

Credit Program Liabilities 

Adjustment for Trust Fund Outlays that Do Not Affect Net Cost 

Total Resources that Do Not Fund Net Costs of Operations 

Components of Costs that Do Not Require or Generate Resources 

Depreciation and Amortization 

Bad Debt Related to Uncollectible Non-Credit Reform Receivables

Revaluation of Assets and Liabilities

Loss (Gain) on Disposition of Assets

Other Expenses not Requiring Budgetary Resources

Total Costs That Do Not Require Resources

Financing Sources Yet to be Provided (Note 29) 

(539,098) (339,978) 

10,022 34,044 

(77,476) (72,499) 

(46,178) (56,000) 

(273,458) (313,427) 

91,541 82,918 

0 0 

0 39 

(184,085) (218,537) 

7,983,126 7,976,562 

27,933 69,191 

77,476 71,073 

(82,398) (111,538) 

52 (68) 

(44) 153 

7,722 5,014 

(635,318) (690,358) 

(604,577) (656,533) 

23,364 24,305 

136,642 4,593 

0 (165) 

(8,531) (813) 

(4,987) 3,454 

146,488 31,374 

9,063 19,242 

Net Costs of Operations (Note 34) $ 7,534,100 $ 7,370,645 

* Imputed Financing and Net Cost of Operations restated for FY 2000 - See Note 34. 

** This statement did not have any intra-agency eliminations for FY 2001 or FY 2000. 

The accompanying notes are an integral part of these statements. 

Page 40 Audit Report 2002-1-00082 
Environmental Protection Agency

Consolidated Statement of Custodial Activity

For the Years Ended September 30, 2001 and 2000

(Dollars in Thousands)

FY 2001 FY 2000 

Revenue Activity: 

Sources of Collections: 

Fines and Penalties 114,830 76,850 

Other $ 31,754 $ 18,418 

Total Cash Collections 146,584 95,268 

Accrual Adjustment (24,692) (8,678) 

Total Custodial Revenue (Note 24) 121,892 86,590 

Disposition of Collections: 

Transferred to Others (General Fund) 147,045 97,730 

Increases/(Decreases) in Amounts To Be Transferred (25,153) (11,140) 

Total Disposition of Collections 121,892 86,590 

Net Custodial Revenue Activity (Note 24) $ 0 $ 0 

The accompanying notes are an integral part of these statements. 

Audit Report 2002-1-00082 Page 41 
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 01-09, 

and the Agency's accounting policies which are summarized in this note. In addition, to the guidance 

in Bulletin 01-09, the Statement of Net Cost has been prepared by the EPA strategic goals. 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 2001, 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. The Superfund Trust Fund includes the 

Treasury collections and investment activity. The Superfund Trust Fund is accounted for under 

Treasury symbol number 8145. 

Page 42 Audit Report 2002-1-00082 
All Other Funds 

All Other Funds include other 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 the Leaking 

Underground Storage Tank (LUST) Trust Fund and the Oil Spill Response Trust Fund. General 

Fund appropriations are the 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 

appropriation activities that no longer receive current definite appropriations but have unexpended 

authority are the Asbestos Loan Program 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. Monies 

were appropriated to the Oil Spill Response Trust Fund in 1993. 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, 

Audit Report 2002-1-00082 Page 43 
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 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 2001, 

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) appropriation 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; 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 Funds are appropriated under those Trust Fund accounts and are 

transferred to the Office of Inspector General account. The audit function provides contract, internal 

and performance, 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 

Page 44 Audit Report 2002-1-00082 
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 disburses the subsidy to the 

Financing Fund for increases in subsidy. The Financing Fund receives the subsidy payment, borrows 

from Treasury 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 FIFRA Revolving Fund was authorized by the Federal Insecticide, Fungicide and Rodenticide 

Act of 1972 as amended and 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 a fee for services. WCF’s customers currently 

consist solely of Agency program offices. Accordingly, revenues 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. 

Allocations and 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 transfer allocations are accounted for under Treasury symbols 

0200, 1010, and 4542; and the appropriation transfers are accounted for under 0108. 

Clearing Accounts include the Budgetary suspense account, Unavailable Check Cancellations and 

Overpayments, and Undistributed OPAC Payments and Collections. Clearing accounts are accounted 

for under Treasury symbols 3875, 3880, and 3885. 

Audit Report 2002-1-00082 Page 45 
Page 46 Audit Report 2002-1-00082 
Deposit funds include Fees for Ocean Dumping; Nonconformance Penalties; Clean Air Allowance 

Auction and Sale; Advances without Orders; and 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, 6266, 6275, and 6500. 

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, 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 to 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 were $56.3 million for FY 2000 and $53.5 

million for FY 2001. 

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 

Audit Report 2002-1-00082 Page 47 
account, the Agency draws down monies from the Superfund Trust Fund at Treasury to cover the 

amounts being disbursed. 

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 appropriations 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 costs of the loans and another for the remaining non-subsidized portion of the 

loans. Congress adapted a one year appropriation, available for obligation in the fiscal year for which 

it was 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 did not represent long term cost was financed under a 

permanent indefinite borrowing authority established with the Treasury. A permanent indefinite 

appropriation is available to finance the costs of subsidy re-estimates that occur after the year in 

which the loan was disbursed. In FY 2000, subsidy increases totaled $3,580 thousand which became 

an indefinite appropriation in FY 2001. In FY 2001, subsidy increases equaled $272 thousand for 

loans disbursed from FY 1992 authority. The increases in subsidy will be appropriated in FY 2002. 

Also in FY 2001, subsidy decreases totaled $1,313 thousand for loans disbursed from FY 1993 

authority; the decreases in subsidy will be deposited with Treasury in FY 2002. 

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 are 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 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 

Page 48 Audit Report 2002-1-00082 
Receipt accounts capture amounts receivable to or collected for the General Fund of the U.S. 

Treasury. 

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 program receives most of its funding through appropriations that may be used, within 

specific statutory limits, for operating and capital expenditures (primarily equipment). Additional 

financing for the Superfund program is obtained through: reimbursements from other Federal agencies 

under Inter-Agency Agreements (IAGs), state cost share payments under Superfund State Contracts 

(SSCs), and settlement proceeds from Potentially Responsible Parties (PRPs), under CERCLA Section 

122(b)(3), placed in special accounts. Special accounts were previously limited to settlement amounts 

for future costs; however, beginning in FY 2000, cost recovery amounts received under CERCLA 

Section 122(b)(3) settlements could be placed in special accounts. Cost recovery settlements that are not 

placed in special accounts, continue to be deposited in the Superfund Trust Fund. 

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 outstanding loans through 

collections from the Program fund for the subsidized portion of the loan. The last year Congress 

provided appropriations to make new loans was 1993. 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. 

Audit Report 2002-1-00082 Page 49 
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 

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. 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 of $5.1 

million from a company in settlement of Superfund cost recovery actions, which were sold during FY 

2001. 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. Notes Receivable 

Superfund 

In FY 2001, the Agency received a note receivable valued at $8.1 million, from a company in 

settlement of Superfund cost recovery actions. The Agency records notes receivable at their face 

value and any accrued interest as of the date of receipt. 

J. 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 

Page 50 Audit Report 2002-1-00082 
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. 

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. 

K. 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 is 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. 

L. 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 2001, approximately $2.8 billion remained in the Treasury managed Superfund 

Trust Fund and approximately $83.5 million remained in the LUST Trust Fund to meet the Agency's 

disbursement needs. During FY 2000, the funds’ balances were $2.7 billion and $86.2 million, 

respectively. 

M. Advances and Prepayments 

Superfund and All Other Funds 

Audit Report 2002-1-00082 Page 51 
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. 

N. Property, Plant, and Equipment 

Superfund and All Other Funds 

The Fixed Assets Subsystem (FAS), implemented in FY 1997, maintains EPA-held personal, real 

property, and capital software records in accordance with Statement of Federal Financial Accounting 

Standards Number Six, “Accounting for Property, Plant and Equipment,”(SFFAS No. 6). The FAS 

automatically generates depreciation entries monthly based on acquisition dates. Purchases of EPAheld and contractor-held personal property are capitalized if it 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. This modified straight-line method is still used for contractor-held 

property. All EPA-held personal property purchased before the implementation of FAS was assumed 

to have an estimated useful life of five years. New acquisitions of EPA-held personal property are 

depreciated using the straight-line method over the specific assets with useful lives, ranging from two 

to 15 years. 

In FY1997, EPA implemented requirements to capitalize software if the purchase price was $100,000 

or more with an estimated useful life of two years or more for the Working Capital Fund, which is a 

revenue generating activity. In FY 2001, the Agency began capitalizing software for All Other Funds 

whose acquisition value is $500,000 or more in accordance with the provisions of SFFAS No. 10, 

“Accounting for Internal Use Software.”. Software is depreciated using the straight-line method over 

the specific assets’ useful lives ranging from two to 10 years. 

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 were valued at an estimated original cost basis, and land was valued at fair market 

value if purchased prior to FY 1997. Real property purchased during and after FY 1997 are valued 

at actual costs. 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. Additions to property and 

improvements not meeting the capitalization criteria, expenditures for minor alterations, and repairs 

and maintenance are expensed as incurred. 

O. 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. 

Page 52 Audit Report 2002-1-00082 
P. 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. 

Q. 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 2001 and FY 2000, there was no outstanding interest payable to Treasury 

since payment was made through September 30. 

R. Accrued Unfunded Annual Leave 

Superfund and All Other Funds 

Annual, sick and other leave is expensed as taken during the fiscal year. Sick 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, 2001, 

the unfunded leave liability for the Superfund Trust Fund was $20.4 million, and for All Other Funds, 

it was $98.2 million. During FY 2000, these liabilities were $19.6 million for the Superfund Trust 

Fund and $93.2 million for All Other Funds. 

S. Retirement Plan 

Superfund and All Other Funds 

Agency employees participate in either the Civil Service Retirement System (CSRS) or the Federal 

Employees Retirement System (FERS). From October 1, 2000 to the pay period beginning prior to 

January 1, 2001, employees contributed 7.4% and 1.2% to CSRS and FERS, respectively. The 

employee contribution rates were rolled back as of January 1, 2001 to 7% and .8%, respectively. The 

Agency contributed 8.51% to CSRS employees’ and 10.7% for FERS employees’ retirement plans. 

On January 1, 1987, the 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. 

Audit Report 2002-1-00082 Page 53 
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, 2001 and 2000, consist of the following (in 

thousands): 

FY 2001 FY 2000 

Entity Non-Entity Entity Non-Entity

Assets Assets Total Assets Assets Total

Trust Funds: 

Superfund $ 6,706 $ 0 $ 6,706 $ 37,397 $ 0 $ 37,397 

LUST 18,158 0 18,158 1,300 0 1,300 

Oil Spill 3,165 0 3,165 3,106 0 3,106 

Revolving Funds: 

FIFRA 3,465 0 3,465 5,442 0 5,442 

Tolerance 31 0 31 22 0 

Working Capital 51,267 0 51,267 52,509 0 52,509 

Appropriated 11,088,824 0 11,088,824 10,913,471 0 10,913,471 

Other Fund Types 88,218 19,246 107,464 76,338 7,068 83,406 

Total $ 11,259,834 $ 19,246 $ 11,279,080 11,089,585 $ 7,068 $ 11,096,653 

Entity fund balances include balances that 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 clearing accounts and deposit funds. These funds are 

awaiting documentation for the determination of proper accounting disposition. 

Note 3. Cash 

In All Others, as of September 30, 2000, Cash consisted of imprest funds totaling $48 thousand. All 

imprest funds were closed out in fiscal year 2001. 

Page 54 Audit Report 2002-1-00082 

22 
Note 4. Investments 

As of September 30, 2001 and 2000, investments consisted of the following: 

Unamortized 

(Premium) Interest Investments, Market 

Cost Discount Receivable Net Value 

Superfund 

Intragovernmental 

Securities: 

Non-Marketable FY 2001 $ 3,630,186 $ (33,967) $ 59,891 $ 3,724,044 $ 3,724,044 

FY 2000 $ 4,126,450 $ 166,180 $ 43 $ 3,960,313 $ 3,960,313 

All Others 

Intragovernmental 

Securities: 

Non-Marketable FY 2001 $ 1,703,909 $ (52,551) $ 22,358 $ 1,778,818 $ 1,778,818 

FY 2000 $ 1,669,665 $ 76,334 $ 26 $ 1,593,357 $ 1,593,357 

CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from 

responsible parties (RP). Some RPs 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 

securities of the reorganized company. The Agency does not intend to exercise ownership rights to 

these securities, and instead will convert these securities to cash as soon as practicable. 

Note 5. Accounts Receivable 

The Accounts Receivable for September 30, 2001 and 2000, consist of the following: 

FY 2001 FY 2000 

Superfund All Others Superfund All Others 

Intragovernmental Assets: 

Accounts & Interest Receivable $ 31,178 $ 69,977 $ 40,671 $ 80,824 

Total $ 31,178 $ 69,977 $ 40,671 $ 80,824 

Non-Federal Assets: 

Unbilled Accounts Receivable $ 86,470 $ 1,668 $ 88,209 $

Accounts & Interest Receivable 949,566 133,787 883,938 155,581

Less: Allowance for Uncollectibles (569,998) (60,428) (355,108) (67,686)

Total $ 466,038 $ 75,027 $ 617,039 $ 87,895 

The Allowance for Doubtful Accounts is determined on a specific identification basis as a result of a 

case-by-case review of receivables, and a reserve on a percentage basis for those not specifically 

identified. 

Audit Report 2002-1-00082 Page 55 

0 
During FY 2001, an analysis of unbilled Federal accounts receivable revealed that approximately $10 

million of receivables could not be substantiated as valid reimbursements receivable from specific 

Federal agencies. The net receivables were reduced by that amount. Of the total reductions, $2.8 

million affected Superfund receivables, $3.6 million affected expired All Other Funds, and $3.6 million 

were charged against All Other Funds canceled as of September 30, 2001. 

In addition, a non-Federal debtor owing $239 million in Superfund receivables declared bankruptcy. 

That amount was therefore added to the allowance for uncollectibles for non-Federal receivables in 

FY 2001. 

Note 6. Other Assets 

Other Assets for September 30, 2001, consist of the following: 

Superfund All Combined Intra-agency Consolidated 

Trust Fund Others Totals Eliminations Totals 

Intragovernmental Assets: 

Advances to Federal Agencies $ 166 $ 4,265 $ 4,431 $ (384) $ 4,047 

Advances to Working Capital Fund 5,355 0 5,355 (5,355) 0 

Advances for Postage 0 121 121 0 121 

Total Intragovernmental Assets $ 5,521 $ 4,386 $ 9,907 $ (5,739) $ 4,168 

Non-Federal Assets: 

Travel Advances $ 7 $ (854) $ (847) $ 0 $ (847) 

Letter of Credit Advances 0 315 315 0 315 

Grant Advances 0 1,322 1,322 0 1,322 

Other Advances 769 92 861 0 861 

Bank Card Payments 1 0 1 0 1 

Deposit on Returnable Containers 0 0 0 0 0 

Prepaid Rent 0 0 0 0 0 

Bankruptcy Settlement* 8,101 0 8,101 0 8,101 

Total Non-Federal Assets $ 8,878 $ 875 $ 9,753 $ 0 $ 9,753 

*Bankruptcy Settlement: A promissory note in the amount of $8.1 million was issued to the 

Superfund in a bankruptcy settlement by Joy Global, Inc. Interest rate is 10.75 per annum with 

future payment date of April 30, 2006. 

Page 56 Audit Report 2002-1-00082 
Other Assets for September 30, 2000, consist of the following: 

Superfund All Combined Intra-agency Consolidated 

Trust Fund Others Totals Eliminations Totals 

Intragovernmental Assets: 

Advances to Federal Agencies $ 15,279 $ 7,409 $ 22,688 $ 0 $ 22,688 

Advances to Working Capital Fund 6,510 0 6,510 (6,510) 0 

Advances for Postage 0 43 43 0 43 

Total Intragovernmental Assets $ 21,789 $ 7,452 $ 29,241 $ (6,510) $ 22,731 

Non-Federal Assets: 

Travel Advances $ (18) $ (916) $ (934) $ 0 $ (934) 

Letter of Credit Advances 0 599 599 0 599 

Grant Advances 0 1,945 1,945 0 1,945 

Other Advances 767 75 842 0 842 

Bank Card Payments 1 0 1 0 1 

Deposit on Returnable Containers 0 (2) (2) 0 (2) 

Prepaid Rent 0 11 11 0 11 

Total Non-Federal Assets $ 750 $ 1,712 $ 2,462 $ 0 $ 2,462 

Note 7. 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, 2001 and 2000, is provided 

in the following sections. 

FY 2001 FY 2000 

Value of Value of 

Loans Assets Related Loans Assets Related 

Receivable, to Direct Receivable, to Direct 

Gross Allowance* Loans Gross Allowance* Loans 

Direct Loans 

Obligated Prior to 

FY 1992 $ 49,683 $ 0 $ 49,683 $ 58,114 $ 0 $ 58,114 

Direct Loans

Obligated After 

FY 1991 42,779 (16,910) 25,869 46,909 (15,895) 31,014

Total $ 92,462 $ (16,910) $ 75,552 $ 105,023 $ (15,895) $ 89,128 

Audit Report 2002-1-00082 Page 57 
* Allowance for Pre-Credit Reform loans (Prior to FY 1992 ) is the Allowance for Estimated 

Uncollectible Loans 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 Expected Fee 

Differential Defaults Offsets Total 

Direct Loan Subsidy Expense - FY 2001 $ 1,227 $ 2,353 $ 0 $ 3,580 

Direct Loan Subsidy Expense - FY 2000 $ 2,640 $ 0 $ 0 $ 2,640 

Note 8. Inventory and Property Received in Settlement, Net 

The Inventory and Related Property at September 30, 2001 and 2000, consisted of the following: 

FY 2001 FY 2000 

Superfund All Others Superfund All Other 

Operating Materials and Supplies Held $ 0 $ 253 $ 0 $ 306

for Use in Normal Operations 

Securities Received in Settlement 0 0 5,086 $ 41 

Total $ 0 $ 253 $ 5,086 $ 347 

The securities represented assets received during a bankruptcy proceeding, and were all sold in 

FY2001. 

Note 9. 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 

software; real, EPA-Held and Contractor-Held personal, and capitalized-leased property. 

As of September 30, 2001, Plant, Property and Equipment consisted of the following: 

Superfund All Others 

EPA-Held 

Equipment 

Software 

Contractor-Held 

Equipment 

Land and 

Buildings 

Capital Leases 

Total 

Acquisition Accumulated Net Book Acquisition Accumulated Net Book 

Value Depreciation Value Value Depreciation Value 

$ 23,832 $ (15,031) $ 8,801 $ 161,253 $ (105,484) $ 55,769 

559 (5) 554 10,398 (148) 10,250 

9,422 (2,262) 7,160 16,752 (7,647) 9,105 

0 0 0 500,854 (76,951) 423,903 

0 0 0 40,992 (13,126) 27,866 

$ 33,813 $ (17,298) $ 16,515 $ 730,249 $ (203,356) $ 526,893 

Page 58 Audit Report 2002-1-00082 
As of September 30, 2000, Plant, Property and Equipment consisted of the following: 

Superfund All Others 

EPA-Held 

Equipment 

Software 

Contractor-Held 

Equipment 

Land and 

Buildings 

Capital Leases 

Total 

Note 10. Debt 

Acquisition Accumulated Net Book Acquisition Accumulated Net Book 

Value Depreciation Value Value Depreciation Value 

$ 24,733 $ (16,313) $ 8,420 $ 134,893 $ (86,883) $ 48,010 

0 0 0 550 0 550 

8,814 (3,653) 5,161 34,103 (27,551) 6,552 

0 0 0 461,817 (73,430) 388,387 

0 0 0 40,992 (11,463) 29,529 

$ 33,547 $ (19,966) $ 13,581 $ 672,355 $ (199,327) $ 473,028 

The Debt consisted of the following as of September 30, 2001 and 2000: 

FY 2001 FY 2000 

Beginning Net Ending Beginning Net Ending 

All Others Balance Borrowing Balance Balance Borrowing Balance 

Other Debt: 

Debt to Treasury $ 37,922 $ (6,798) $ 31,124 $ 37,922 $ 0 $ 37,922 

Classification of Debt: 

Intra-governmental Debt $ 31,124 $ 37,922 

Total $ 31,124 $ 37,922 

Note 11. Custodial Liability 

Custodial Liability represents the amount of net accounts receivable that, when collected, will be 

deposited to the General Fund of the Treasury. Included in the custodial liability are amounts for 

fines and penalties, interest assessments, repayments of loans, and miscellaneous other accounts 

receivable. 

Note 12. Other Liabilities 

The Other Liabilities, both intragovernmental and non-Federal, for September 30, 2001 are as 

follows: 

Audit Report 2002-1-00082 Page 59 
Other Liabilities - Intragovernmental Covered by 

Budgetary Resources Budgetary Resources Total 

Not Covered by 

Superfund - Current 

Employer Contributions & Payroll Taxes $ 2,682 0 $ 2,682 

Other Advances 1,045 0 1,045 

Advances, HRSTF Cashout 15,208 0 15,208 

Deferred HRSTF Cashout 947 0 947 

Resources Payable to Treasury 0 0 0 

Superfund - Non-Current 

Unfunded FECA Liability 0 1,426 1,426 

Total Superfund $ 19,882 $ 1,426 $ 21,308 

All Other - Current 

Employer Contributions & Payroll Taxes $ 11,935 $ 0 $ 11,935 

WCF Advances 5,355 0 5,355 

Other Advances 2,646 0 2,646 

Liability for Deposit Funds (85) 0 (85) 

Resources Payable to Treasury 2 0 2 

Subsidy Payable to Treasury 1,313 0 1,313 

All Other - Non-Current 

Unfunded FECA Liability 0 6,341 6,341 

Total All Other $ 21,166 $ 6,341 $ 27,507 

Other Liabilities - Non-Federal Covered by Not Covered by 

Budgetary Resources Budgetary Resources Total 

Superfund - Current 

Unearned Advances, Non- Federal $ 27,659 0 27,659 

Total Superfund $ 27,659 $ 0 $ 27,659 

All Other - Current 

Unearned Advances, Non- Federal $ 4,275 $ 0 $ 4,275 

Deferred Credits 0 0 0 

Liability for Deposit Funds, Non-Federal 19,331 0 19,331 

All Other - Non-Current 

Capital Lease Liability 0 36,930 36,930 

Total All Other $ 23,606 $ 36,930 $ 60,536 

The Other Liabilities, both intragovernmental and non-Federal, for September 30, 2000, are as 

follows: 

Page 60 Audit Report 2002-1-00082 
Other Liabilities - Intragovernmental Covered by 

Budgetary Resources Budgetary Resources Total 

Not Covered by 

Superfund - Current 

Employer Contributions & Payroll Taxes $ 2,900 $ 0 $ 2,900 

Other Advances 1,681 0 1,681 

Advances, HRSTF Cashout 2,414 0 2,414 

Deferred HRSTF Cashout 437 0 437 

Resources Payable to Treasury 61 0 61 

Superfund - Non-Current 

Unfunded FECA Liability 0 1,355 1,355 

Total Superfund $ 7,493 $ 1,355 $ 8,848 

All Other - Current 

Employer Contributions & Payroll Taxes $ 12,690 $ 0 $ 12,690 

WCF Advances 6,510 0 6,510 

Other Advances 3,638 0 3,638 

Liability for Deposit Funds (20) 0 (20) 

Resources Payable to Treasury (33) 0 (33) 

All Other - Non-Current 

Unfunded FECA Liability 0 6,064 6,064 

Total All Other $ 22,785 $ 6,064 $ 28,849 

Other Liabilities - Non-Federal* Covered by Not Covered by 

Budgetary Resources Budgetary Resources Total 

Superfund - Current 

Unearned Advances, Non- Federal $ 30,192 $ 0 $ 30,192 

Total Superfund $ 30,192 $ 0 $ 30,192 

All Other - Current 

Unearned Advances, Non- Federal $ 4,729 $ 0 $ 4,729 

Deferred Credits 

Liability for Deposit Funds 6,833 6,833 

All Other - Non-Current 

Capital Lease Liability 37,585 37,585 

Total All Other $ 11,562 $ 37,585 $ 49,147 

* For FY 2000, the Other Liabilities - non-Federal category included amounts reported separately 

in FY 2001 as “Payroll and Benefits Payable.” The portion of this note for FY 2000 is re-stated 

accordingly. See Note 33 for items included in the Other Liabilities, non-Federal category, in FY 

2000 statements. 

Audit Report 2002-1-00082 Page 61 
Note 13. Leases 

The Capital Leases as of September 30, 2001 and 2000, consist of the following: 

Capital Leases, All Other Funds: 

Summary of Assets Under Capital FY 2001 FY 2000 

Lease: 

Real Property $ 40,913 $ 40,913 

Personal Property 79 79 

Total $ 40,992 $ 40,992 

Accumulated Amortization $ 13,126 $ 11,463 

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). EPA has one capital lease for a xerox copier that expires in FY 

2002. The real property leases terminate in fiscal years 2010, 2013, and 2025. The charges are 

expended out of the Environmental Programs and Management (EPM) appropriation. The total 

future minimum lease payments of the capital leases are listed below. 

Future Payments Due: All Others 

Fiscal Year 

2002 $ 6,303 

2003 6,295 

2004 6,295 

2005 6,295 

2006 6,295 

After 5 Years 89,899 

Total Future Minimum Lease Payments 121,382 

Less: Imputed Interest 

Difference in Lease Payments to be 

corrected FY 2002 

Net Capital Lease Liability 

Liabilities not Covered by 

Budgetary Resources (See Note 12) 

Operating Leases: 

(84,461) 

9 

$ 36,930 

$ 36,930 

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 during FY 2001. Most of these leases include a base rental charge and 

Page 62 Audit Report 2002-1-00082 
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). Two of these operating 

leases expire in FY 2002. Two others expire in fiscal years 2017 and 2020. Respectively, the fifth 

lease expired in FY 2001 and is extended on a monthly basis. The charges are expended out of the 

EPM appropriation. The total minimum future costs of operating leases are listed below. 

Total Land 

Fiscal Year Superfund All Others & Buildings 

2002 $ 0 $ 2,102 $ 2,102 

2003 0 74 74 

2004 0 74 74 

2005 0 74 74 

2006 0 74 74 

Beyond 2006 0 920 920 

Total Future Minimum 

Lease Payments $ 0 $ 3,318 $ 3,318 

Note 14. Pension and Other Actuarial Liabilities 

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 the Department of Labor. 

The FECA Actuarial Liability at September 30, 2001 and 2000, consisted of the following: 

FY 2001 FY 2000 

Superfund All Other Superfund All Other 

FECA Actuarial $ 7,731 $ 31,902 $ 6,637 $ 27,036 

The FY 2001 present value of these estimates was calculated using a discount rate of 5.21 percent. 

The estimated future costs are recorded as an unfunded liability. 

Note 15. Cashout Advances and Deferrals, Superfund 

Cashouts are funds received by EPA, a state, or another Potentially Responsible Party under the 

terms of a settlement agreement (e.g., consent decree) to finance response action costs at a 

specified Superfund site. Under CERCLA Section 122(b)(3), cashout funds received by EPA are 

placed in site-specific, interest bearing accounts known as special accounts and are used in 

accordance with the terms of the settlement agreement. Funds placed in special accounts may be 

used without further appropriation by Congress. 

Audit Report 2002-1-00082 Page 63 
Note 16. Unexpended Appropriations 

As of September 30, 2001 and 2000, the Unexpended Appropriations consisted of the following 

for All Other Funds: 

Unexpended Appropriations: FY 2001 FY 2000 

Unobligated 

Available $ 1,635,071 $ 1,518,675 

Unavailable 64,930 83,396 

Undelivered Orders 8,658,960 8,517,767 

Total $ 10,358,961 $ 10,119,838 

Note 17. 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. 

The following reflects the Superfund Trust Fund maintained by the U.S. Department of Treasury 

as of September 30, 2001 and 2000. The amounts contained in these statements have been 

provided by the Treasury and are audited. Outlays represent amounts received by EPA’s 

Superfund Trust Fund; such funds are eliminated on consolidation with the Superfund Trust Fund 

maintained by Treasury. 

Page 64 Audit Report 2002-1-00082 
SUPERFUND FY 2001

EPA Treasury Combined 

Undistributed Balances 

Available for Investment $ 0 $ 768 $ 768 

Unavailable for Investment 0 0 0 

Total Undisbursed Balance 0 768 768 

Interest Receivable 0 59,891 59,891 

Investments, Net of Discounts 2,837,243 826,910 3,664,153 

Total Assets $ 2,837,243 $ 887,569 $ 3,724,812 

Liabilities & Equity 

Debt $ 0 $ 0 $ 0 

Equity 2,837,243 887,569 3,724,812 

Total Liability and Equity $ 2,837,243 $ 887,569 $ 3,724,812 

Receipts 

Petroleum-Imported $ 0 $ 2,471 $ 2,471 

Petroleum-Domestic

Crude and Petroleum

Certain Chemicals

Imported Substances

Corporate Environmental

Cost Recoveries

Fines & Penalties

Total Revenue 

Appropriations Received 

Interest Income 

Total Receipts 

Outlays 

Transfers to EPA 

Transfers to CDC 

Total Outlays 

Net Income 

0 (12) (12) 

0 0 0 

0 32 32 

0 5 5 

0 3,861 3,861 

0 202,132 202,132 

0 2,112 2,112 

0 210,601 210,601 

0 633,603 633,603 

0 220,504 220,504 

0 1,064,708 1,064,708 

1,227,360 (1,227,360) 0 

0 (74,835) (74,835) 

1,227,360 (1,302,195) (74,835) 

$ 1,227,360 $ (237,487) $ 989,873 

Audit Report 2002-1-00082 Page 65 
SUPERFUND FY 2000 EPA Treasury Combined 

Undistributed Balances 

Available for Investment $ 0 $ 1,986 $ 1,986 

Unavailable for Investment 0 0 0 

Total Undisbursed Balance 0 1,986 1,986 

Interest Receivable 0 43 43 

Investments, Net of Discounts 2,770,969 1,189,301 3,960,270 

Total Assets $ 2,770,969 $ 1,191,330 $ 3,962,299 

Liabilities & Equity 

Debt $ 0 $ 0 $ 0 

Equity 2,770,969 1,191,330 3,962,299 

Total Liability and Equity $ 2,770,969 $ 1,191,330 $ 3,962,299 

Receipts 

Petroleum-Imported $ 0 $ 176 $ 176 

Petroleum-Domestic

Crude and Petroleum

Certain Chemicals

Imported Substances

Corporate Environmental

Cost Recoveries

Fines & Penalties

Total Revenue 

Appropriations Received 

Interest Income 

Total Receipts 

Outlays 

Transfers to EPA 

Total Outlays 

0 2 2 

0 (561) (561) 

0 2,166 2,166 

0 606 606 

0 2,679 2,679 

0 230,508 230,508 

0 725 725 

0 236,301 236,301 

0 700,000 700,000 

0 235,740 235,740 

0 1,172,041 1,172,041 

1,628,891 (1,628,891) 0 

1,628,891 (1,628,891) 0 

Net Income $ 1,628,891 $ (456,850) $ 1,172,041 

LUST (Audited) 

LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 

2001 $40 thousand of the fund’s receipts were from cost recoveries. The following represents 

LUST Trust Fund as maintained by the U.S. Department of Treasury. The amounts contained in 

these statements have been provided by Treasury and are audited. Outlays represent 

appropriations received by EPA’s LUST Trust Fund; such funds are eliminated on consolidation 

with the LUST Trust Fund maintained by Treasury. 

Page 66 Audit Report 2002-1-00082 
FISCAL YEAR 2001 LUST

EPA Treasury Combined 

Undistributed Balances 

Available for Investment $ 0 $ 12,211 $ 12,211 

Unavailable for Investment 0 0 0 

Total Undisbursed Balance 0 12,211 12,211 

Taxes Receivable 0 0 0 

Interest Receivable 0 22,358 22,358 

Investments, Net of Discounts 83,460 1,673,000 1,756,460 

Total Assets $ 83,460 $ 1,707,569 $ 1,791,029 

Liabilities & Equity 

Accrued Liabilities $ 0 $ 0 $ 0 

Equity 83,460 1,707,569 1,791,029 

Total Liability and Equity $ 83,460 $ 1,707,569 $ 1,791,029 

Receipts 

Highway TF Tax $ 0 $ 167,408 $ 167,408 

Airport TF Tax 

Inland TF Tax 

Refund Gasoline Tax 

Refund Diesel Tax 

Refund Aviation Tax 

Refund Aviation Fuel Tax 

Cost Recovery 

Audit Adjustment 

Gross Revenue 

Less: Reimbursement to 

General Fund 

Net Revenue 

Interest Income 

Net Receipts 

Outlays 

0 16,114 16,114 

0 582 582 

0 (834) (834) 

0 (1,584) (1,584) 

0 (19) (19) 

0 (123) (123) 

0 40 40 

0 0 0 

0 181,584 181,584 

0 0 0 

0 181,584 181,584 

0 94,802 94,802 

0 276,386 276,386 

Transfers to EPA 74,617 (74,617) 0

Total Outlays 74,617 (74,617) 0

Net Income $ 74,617 $ 201,769 $ 276,386

Audit Report 2002-1-00082 Page 67 
FISCAL YEAR 2000 LUST

EPA Treasury Combined 

Undistributed Balances 

Available for Investment $ 0 $ (725) $ (725) 

Unavailable for Investment 0 0 0 

Total Undisbursed Balance 0 (725) (725) 

Taxes Receivable 0 221 221 

Interest Receivable 0 26 26 

Investments, Net of Discounts 86,283 1,506,348 1,592,631 

Total Assets $ 86,283 $ 1,505,870 $ 1,592,153 

Liabilities & Equity 

Accrued Liabilities $ 0 $ 2,892 $ 2,892 

Equity 86,283 1,502,978 1,589,261 

Total Liability and Equity $ 86,283 $ 1,505,870 $ 1,592,153 

Receipts 

Highway TF Tax $ 0 $ 172,659 $ 172,659 

Airport TF Tax 

Inland TF Tax 

Audit Adjustment 

Gross Revenue 

Less: Reimbursement to 

General Fund 

Net Revenue 

Interest Income 

Net Receipts 

Outlays 

0 16,380 16,380 

0 612 612 

0 (1,710) (1,710) 

0 187,941 187,941 

0 (6,625) (6,625) 

0 181,316 181,316 

0 78,956 78,956 

0 260,272 260,272 

Transfers to EPA 65,718 (65,718) 0 

Total Outlays 65,718 (65,718) 0 

Net Income $ 65,718 $ 194,554 $ 260,272 

Note 18. Commitments and Contingencies 

EPA may be a party in various administrative proceedings, legal actions and claims brought by or 

against it. These include: 

- 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. 

Page 68 Audit Report 2002-1-00082 
- 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 three CERCLA +106(b) administrative claims and one pending lawsuit. If the 

claimants are successful, the total losses on the administrative and judicial claims could amount to 

approximately $25.8 million and $3.8 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 all three of 

these outstanding claims overall is characterized as reasonably possible. The claimants’ chance of 

success in the pending lawsuit is also reasonably possible. 

All Other 

There were no material litigation, asserted or unasserted claims or assessments involving all other 

appropriated funds of the Agency. 

Judgement Fund 

In cases that 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. Until these claims are settled or a 

court judgement is assessed and the Judgement Fund is determined to be the appropriate source 

for the payment, claims that are probable and estimable must be recognized as an expense and 

liability of the agency. For these cases, at the time of settlement or judgement, the liability will be 

reduced and an imputed financing source recognized. See Interpretation of Federal Financial 

Accounting Standards No. 2, Accounting for Treasury Judgement Fund Transactions. 

As of September 30, 2001, $3.8 million of Superfund related claims and $6.0 million of All Other 

funds’ claims were accrued as contingent liabilities under these criteria. Other contingent liabilities 

exist under 27 cases of which anticipated amounts for attorney fees alone cannot be estimated or 

known at this time. These amounts are believed to be less than material. 

In addition, EPA is party to certain pending litigation upon which EPA believes it has a reasonable 

legal position. $25.6 million of Judgement Fund claims in addition to the above accrued amounts 

are pending. 

Audit Report 2002-1-00082 Page 69 
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 19. Grant Accrual 

The EPA has revised the methodology for calculating the accrued grant expense for the Fiscal 

Year 2001 financial statements using a model based on historical grant payments and a survey of 

major grantees on billing practices. Average days of accrual at year end for sample grantees were 

determined from survey results and were used with average daily billings as determined by 

historical payment data to project the year end accrual for the sample group. The accrual for the 

sample group was then projected to provide the year end accrual for all grants. For FY 2001, the 

accrual for Superfund is $16.9 million and the All Other grant accrual is $476.7 million. IN FY 

2000, the accrual for Superfund was $43.0 million and the All Other accrual was $507.6 million. 

In the Statement of Net Cost by Goal, the grant accrual amounts are included in “Not Assigned to 

Goals.” 

Note 20. Environmental Cleanup Costs 

The EPA has four sites that require clean up stemming from its activities. Costs amounting to $98 

thousand for three of these sites will be paid out of the Treasury Judgement Fund. (The $98 

thousand represents the lower end of three separate range estimates, of which the maximum of the 

ranges would total $110 thousand.) EPA estimates cleanup on the one other site will cost 

approximately $20 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 cleanup costs. However, it is expected that the 

Department of Defense and General Services Administration will bear all or most of the cost of 

remediation. 

Accrued Cleanup Cost 

The EPA has 14 sites that will require future clean up associated with permanent closure and one 

site with clean up presently underway. The estimated costs will be approximately $14.5 million. 

Since the cleanup costs associated with permanent closure are not primarily recovered through 

user fees, EPA has elected to recognize the estimated total cleanup cost as a liability and record 

changes to the estimate in subsequent years. 

The FY 2001 estimate for unfunded cleanup costs decreased by $5.8 million from the FY 2000 

estimate. This represents a change of approximately 41 percent due in large part to the funding of 

cleanup at several Research Triangle Park (RTP) facilities associated with the ongoing 

consolidation at RTP. Of the $14.5 million in estimated cleanup costs, approximately $9.5 million 

represents the estimated expense to close the current RTP facility. These costs will be incurred 

within the next two years. The remaining amount represents the future decontamination and 

decommissioning costs of EPA’s other research facilities. There was a net increase of 

approximately $4.8 million in funded cleanup costs from FY 2000 to FY 2001. EPA could also be 

potentially liable for cleanup costs, at a GSA-leased site; however, the amounts are not known. 

Note 21. Superfund State Credits 

Page 70 Audit Report 2002-1-00082 
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 borne 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, 2001, 

total remaining State credits have been estimated at $10.7 million. The estimated ending credit 

balance on September 30, 2000 was $12.6 million. 

Note 22. Superfund Preauthorized Mixed Funding Agreements 

Under Superfund preauthorized mixed funding agreements, Potentially Responsible Parties (PRPs) 

agree to perform response actions at their sites with the understanding that EPA will reimburse the 

PRPs a certain 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 agreed to under a mixed funding agreement. As 

of September 30, 2001, EPA had 15 outstanding preauthorized mixed funding agreements with 

obligations totaling $41.1 million. A liability is not recognized for these amounts until all work has 

been performed by the PRP and has been approved by EPA for payment. Further, EPA will not 

disburse any funds under these agreements until the PRP's application, claim, and claims 

adjustment processes have been reviewed and approved by EPA. 

Note 23. 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 2001, EPA had one appropriation which funded a variety of programmatic and 

non-programmatic 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. 

All of the expenses from EPM 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. 

Audit Report 2002-1-00082 Page 71 
FY 2001 FY 2000 

Income From Expenses From Income From Expenses From 

Other Other Net Other Other Net 

Appropriations Appropriations Effect Appropriations Appropriations Effect 

Superfund $ 103,654 $ (103,654) $ 0 $ 31,270 $ (31,270) $ 0 

All Others (103,654) 103,654 0 (31,270) 31,270 0 

Total $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 

Note 24. Custodial Non-Exchange Revenues 

EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous 

receipts. Collectibility by EPA of the fines and penalties is based on the responsible parties’ 

willingness and ability to pay. 

FY2001 FY2000 

Fines, Penalties and Other Misc Revenue (EPA) $ 121,892 $ 86,590 

Accounts Receivable for Fines, Penalties and 

Other Miscellaneous Receipts 

Accounts Receivable $ 123,966 $ 154,803 

Less: Allowance for Doubtful Accounts 46,186 52,336 

Total $ 77,780 $ 102,467 

Note 25. Statement of Budgetary Resources 

Reconciliations of budgetary resources, obligations incurred, and outlays, as presented in the 

audited Statements of Budgetary Resources, to amounts included in the Budget of the United 

States Government for the years ended September 30, 2001 and 2000, are as follows: 

Page 72 Audit Report 2002-1-00082 
FY 2001 Budgetary Obligations 

Resources Incurred Outlays 

Superfund 

Statement of Budgetary Resources $ 2,284,377 $ 1,570,056 $ 1,199,748 

Adjustments to Unliquidated Obligations, 

Unfilled Customer Orders and Other (3,650) 13,813 0 

Budget of the United States Government $ 2,280,727 $ 1,583,869 $ 1,199,748 

All Other 

Statement of Budgetary Resources $ 9,343,106 $ 7,431,802 $ 7,015,605 

Less: Funds Reported by Other Federal 

Entities (26,148) (25,677) (25,342) 

Adjustments to Unliquidated Obligations, 

Unfilled Customer Orders and Other (5,229) (5,229) 0 

Budget of the United States Government $ 9,311,729 $ 7,400,896 $ 6,990,263 

FY 2000 Budgetary Obligations 

Resources Incurred Outlays 

Superfund 

Statement of Budgetary Resources $ 2,151,875 $ 1,701,337 $ 1,526,587 

Adjustments to Unliquidated Obligations, 

Unfilled Customer Orders and Other (328) (1,744) 1,000 

Budget of the United States Government $ 2,151,547 $ 1,699,593 $ 1,527,587 

All Other 

Statement of Budgetary Resources $ 8,932,823 $ 7,158,665 $ 6,602,265 

Less: Funds Reported by Other Federal 

Entities (24,778) (23,835) (24,545) 

Adjustments to Unliquidated Obligations, 

Unfilled Customer Orders and Other 66,618 67,907 57 

Budget of the United States Government $ 8,974,663 $ 7,202,737 $ 6,577,777 

Note 26. Adjustments 

Adjustments for FY 2001and FY 2000 are represented by the following categories: 

Superfund FY 2001 FY 2000 

Recoveries of Prior Year Obligations $ 196,644 $ 201,660 

Less: Cancelled Authority 0 2,288 

Total $ 196,644 $ 199,372 

Audit Report 2002-1-00082 Page 73 
All Others FY 2001 FY 2000 

Recoveries of Prior Year Obligations $ 76,815 $ 111,767 

Adjustments to Beginning 

Unobligated Balances 0 615 

Less: Payments to Treasury (6,798) 0 

Rescinded Authority (15,668) (28,848) 

Canceled Authority (36,254) (55,687) 

Total $ 18,095 $ 27,847 

Note 27. Unobligated Balances Available 

Availability of unobligated balances ae shown comparatively for FY 2001 and FY 2000. The 

unexpired authority is available to be apportioned by the Office of Management and Budget for 

new obligations at the beginning of FY 2001. Expired authority is available for upward 

adjustments of obligations incurred as of the end of the fiscal year. 

Superfund FY 2001 FY 2000 

Unexpired Unobligated Balance $ 714,321 $ 449,538 

Expired Unobligated Balance 0 1,000 

Total $ 714,321 $ 450,538 

All Others 

Unexpired Unobligated Balance $ 1,791,475 $ 1,644,998 

Expired Unobligated Balance 119,829 129,160 

Total $ 1,911,304 $ 1,774,158 

Note 28. Obligated Balance, Net - End of Period 

The following unpaid undelivered orders are included in the Obligated Balance, Net - End of 

Period for FY 2001 and FY 2000. 

Superfund FY 2001 FY 2000 

Undelivered Orders, Unpaid $ 1,915,743 $ 2,091,767 

All Others 

Undelivered Orders, Unpaid $ 8,787,505 $ 8,657,913 

Note 29. Statement of Financing 

Increases in Unfunded Liabilities relate to changes in unfunded annual leave, environmental 

liabilities, contingent liabilities and the Federal Employees Compensation Act (FECA) special 

benefit fund. For Superfund and All Others, the changes are reflected in Financing Sources Yet to 

Be Provided. 

Page 74 Audit Report 2002-1-00082 
FY2001 FY2000 

Financing Sources Yet to Be Provided 

Superfund $ 829 $ 6,980 

All Others 8,234 12,262 

Total $ 9,063 $ 19,242 

Note 30. Costs Not Assigned to Goals 

FY 2001's Statement of Net Cost by Goal has $(31.5) million in gross costs not assigned to goals. 

Grant accruals are part of the “Costs Not Assigned to Goals.” The FY 2001 amount is comprised 

of a decrease of $57.0 million to the year-end grant accruals (see Note 19); partially offset by 

$19.7 million in bad debt expense not assigned to goals, $2.4 million in interest on Treasury 

borrowing, $3.1 million in undistributed imputed costs, and $0.3 million in miscellaneous expenses. 

For FY 2000's Statement of Net Cost by Goal, $145.5 million in gross costs were not assigned to 

goals. This amount was comprised of a $106.4 million increase to the year-end grant accruals, 

$15.2 million in unfunded expenses, $19.9 million in depreciation expenses that were not assigned, 

$3.0 million in bad debt expense, and $1 million in miscellaneous expenses. 

Note 31. Transfers-in and out, Statement of Changes in Net Position 

The consolidated amounts shown as transfers-in on the Statement of Changes in Net Position are 

comprised of transfers from other Federal agencies in accordance with applicable legislation. The 

consolidated amounts shown as transfers-out are nonexpenditure transfers to other Hazardous 

Substance Superfund allocation agency funds, such as HHS and Labor. Elimination transactions 

consist of intra-agency transfers between EPA funds. 

Note 32. Imputed Financing 

In accordance with Statement of Federal Financial Accounting Standard No. 5 (Liabilities of the 

Federal Government), Federal agencies must recognize the portion of employees’ pensions and 

other retirement benefits to be paid by the Office of Personnel Management (OPM) trust funds. 

These amounts are recorded as imputed costs and imputed financing for the agency. Each year 

the OPM provides federal agencies with cost factors to calculate these imputed costs and financing 

that apply to the current year. These cost factors are multiplied by the current year’s salaries or 

number of employees, as applicable, to provide an estimate of the imputed financing that the OPM 

trust funds will provide for each agency. The estimates for FY 2001 were $13.4 million and $76.5 

million for Superfund and All Other Funds, respectively. For FY 2000, the revised estimates (see 

Note 34) were $12.5 million and $70.4 million for Superfund and All Other Funds, respectively. 

In addition to the pension and retirement benefits described above, in FY 2001 EPA also recorded 

imputed costs and financing for Treasury Judgement Fund payments on behalf of the agency. 

Entries are in accordance with the Interpretation of Federal Financial Accounting Standards No. 2, 

Accounting for Treasury Judgement Fund Transactions. These entries totaled $0.3 million and 

$1.3 million for Superfund and All Other Funds, respectively. 

Audit Report 2002-1-00082 Page 75 
Note 33. Payroll and Benefits Payable 

The amounts that relate to payroll and benefits payable to EPA employees for the years ending 

September 30, 2001 and 2000 are detailed in the following tables. For FY 2000, these amounts 

were included with Other Liabilities, non-Federal. The FY 2000 portion of this note has been 

drawn from the prior year’s note on Other Liabilities. 

FY 2001 Payroll and Covered by Not Covered by Total 

Benefits Payables Budgetary Resources Budgetary Resources 

Superfund - Current 

Accrued Funded Payroll and

Benefits $ 8,361 $ 0 $ 8,361

Withholdings Payable 

Employer Contributions 

Payable, non Federal (TSP) 

Other Post-employment 

Benefits Payable 

Accrued Unfunded Annual 

Leave 

5,935 0 5,935 

372 0 372 

3 0 3 

0 20,440 20,440 

Total - Superfund - Current $ 14,671 $ 20,440 $ 35,111 

All Other Funds - Current 

Accrued Funded Payroll and 

Benefits $ 37,099 $ 0 $ 37,099 

Withholdings Payable 

Employer Contributions 

Payable, non Federal (TSP) 

Other Post-employment 

Benefits Payable 

Accrued Funded Leave, WCF 

Accrued Unfunded Annual 

Leave 

Total - All Other Funds -

26,410 0 26,410 

1,645 0 1,645 

33 0 33 

320 0 320 

0 98,223 98,223 

Current $ 65,507 $ 98,223 $ 163,730 

Page 76 Audit Report 2002-1-00082 
Covered by Not Covered by 

Budgetary Budgetary Total 

Benefits Payables Resources Resources 

FY 2000 Payroll and 

Superfund - Current 

Accrued Funded Payroll and 

Benefits 

Withholdings Payable 

Other Post-employment 

Benefits Payable 

Accrued Unfunded Annual 

Leave 

Total - Superfund -

Current 

All Other Funds-Current 

Accrued Funded Payroll and 

Benefits 

Withholdings Payable 

Other Post-employment 

Benefits Payable 

Accrued Funded Annual 

Leave, WCF 

Accrued Unfunded Annual 

Leave 

Total -All Other Funds -

Current 

$ 7,499 $ 0 $ 7,499 

5,777 0 5,777 

3 0 3 

0 19,553 19,553 

$ 13,279 $ 19,553 $ 32,832 

$ 32,570 $ 0 $ 32,570 

25,278 0 25,278 

44 0 44 

320 0 320 

0 93,151 93,151 

$ 58,212 $ 93,151 $ 151,363 

Note 34. Restatement of Imputed Costs and Financing for Prior Years 

In fiscal years 1998, 1999, and 2000, the imputed costs and financing recognized on EPA’s 

financial statements differed from the calculations stipulated in OPM’s Financial Management 

Letters issued annually. Because these errors resulted in offsetting differences in costs and 

financing sources, they had no effect on Net Position. However, Intragovernmental Costs on the 

Statement of Net Cost and Imputed Financing on the Statements of Changes in Net Position and 

Financing were misstated for those fiscal years. The table below shows the differences in 

thousands for each fiscal year. 

Audit Report 2002-1-00082 Page 77 
 Imputed Costs Imputed Costs Imputed Costs 

and Financing for and Financing and Financing for 

FY 1998 for FY 1999 FY 2000 

Superfund: 

Corrected Amounts $ 12,422 $ 12,851 $ 12,534 

Amounts on Statements 30,155 31,437 32,063 

Difference $ (17,733) $ (18,586) $ (19,529) 

All Other: 

Corrected Amounts $ 74,970 $ 71,839 $ 70,384 

Amounts on Statements 161,853 165,232 168,659 

Difference $ (86,883) $ (93,393) $ (98,275) 

In accordance with the Statement of Federal Financial Accounting Standard No. 21 (Reporting 

Corrections of Errors and Changes in Accounting Principles), the amounts for imputed costs and 

financing are restated in the Statements of Net Cost, the Statement of Changes in Net Position, and 

the Statement of Financing presented for FY 2000. Since this error has no effect on Net Position, 

the beginning Net Position does not need to be restated for either FY 2000 or FY 2001. The effect 

on the applicable lines of FY 2000's statements, in thousands, is presented below: 

Superfund Superfund All Other All Other Consolidated 

FY 2000 FY 2000 Difference FY 2000 FY 2000 Difference FY 2000 Total 

statements Restated statements Restated Difference 

Statement of Net Cost: 

Costs: Intragovernmental $ 373,311 $ 353,782 $ 19,529 $ 787,415 $ 689,140 $ 98,275 $117,804 

Total Costs $1,664,045 $1,644,516 $ 19,529 $6,223,482 $6,125,207 $ 98,275 $117,804 

Net Cost of Operations $1,356,845 $1,337,316 $ 19,529 $6,131,604 $6,033,329 $ 98,275 $117,804 

Statement of Changes in 

Net Position: 

Net Cost of Operations $1,356,845 $1,337,316 $ 19,529 $6,131,604 $6,033,329 $ 98,275 $117,804 

Imputed Financing $ 32,063 $ 12,534 $ 19,529 $ 168,659 $ 70,384 $ 98,275 $117,804 

Statement ofFinancing: 

Imputed Financing for 

Cost Subsidies $ 32,063 $ 12,534 $ 19,529 $ 168,659 $ 70,384 $ 98,275 $117,804 

Net Cost of Operations $1,356,845 $1,337,316 $ 19,529 $6,131,604 $6,033,329 $ 98,275 $117,804 

The amounts reduced (in thousands) on the restated Statement of Net Costs by Goal for FY 2000 

are: 

Intragovernmental 

Costs 

Clean Air $ 11,793 

Clean and Safe Water 18,672 

Safe Food 4,914 

Prevent Pollution 7,862 

Better Waste management 27,209 

Global Risks 3,931 

Right to Know 5,109 

Sound Science 6,879 

Credible Deterrent 17,292 

Effective Management 14,143 

Management Cost Net Cost of 

Allocation Operations 

$ 1,633 $ 13,426 

2,245 20,917 

665 5,579 

1,061 8,923 

4,127 31,336 

481 4,412 

695 5,804 

937 7,816 

2,299 19,591 

(14,143) 0 

Total Reduction $ 117,804 $ 0 $ 117,804 

Page 78 Audit Report 2002-1-00082 
Note 35. Change in Accounting for Trust Funds in FY 2000 

During FY 2000, in compliance with Statement of Federal Financial Accounting Standard No. 7 

(Accounting for Revenue and Other Financing Sources), the U. S. Standard General Ledger Board 

issued definitive guidance for trust fund accounting and added new Standard General Ledger 

accounts to further distinguish trust fund transactions from other funds. As of FY 2000, the EPA 

implemented these changes for all trust funds. These changes eliminate the use of Unexpended 

Appropriations and Appropriations Used for trust funds, and indicate the inclusion of only the 

Cumulative Results of Operations account in Net Position for trust funds. 

The changes affected transactions in this manner: In lieu of increases to Unexpended 

Appropriations, amounts appropriated or transferred to the trust funds are recorded in new 

accounts as Trust Fund Financing Sources-Transfers In. Amounts transferred out no longer 

decrease Unexpended Appropriations, but are recorded in new accounts as Trust Fund Financing 

Sources -Transfers Out. These new accounts are reported on the Statement of Changes in Net 

Position as Other Financing Sources, and are closed out at year end to Cumulative Results of 

Operations. Expenditures from trust funds are still reported as expenses or purchases of capital 

assets and reflected in budgetary expenditures, but are no longer reported as increases to 

Appropriations Used and decreases to Unexpended Appropriations. 

The cumulative effect of these changes on the accounts was to move all balances as of October 1, 

1999 in Unexpended Appropriations for trust funds into Cumulative Results of Operations. This 

cumulative effect is reported on a separate line on the Statement of Changes in Net Position for 

fiscal year 2000. The decreases to Unexpended Appropriations for trust funds are detailed below: 

Superfund All Other 

Hazardous Substance Superfund No-Year Trust Fund $ 2,607,783 $ 0 

Superfund Annual Funds 49,048 0 

Leaking Underground Storage Tank Trust Fund 0 81,830 

Oil Spill Response Trust Fund 0 9,690 

Miscellaneous Contributed Funds Trust Fund 0 76 

Totals $2,656,831 $91,596 

Note 36. Change in Accounting for Cashout Interest, Superfund for FY 2000 

Per an agreement dated October 3, 1996 between the Office of Management and Budget (OMB) 

and the EPA, the EPA is allowed additional budget authority for interest earnings on Cashout 

(Special Account) collections for Superfund. Prior to FY 2000, the authority for interest earnings 

had previously been classified as Cashout Advances and Deferrals, Superfund, on the 

Consolidating Balance Sheet and as Spending Authority from Offsetting Collections on the 

Combined Statement of Budgetary Resources . In FY 2000, the beginning balance for interest 

earnings on Special Accounts was reclassified from Cashout Advances and Deferrals, Superfund to 

Net Position on the Consolidating Balance Sheet for Superfund. The change is consistent with 

guidance from OMB to treat the interest as permanently appropriated and is consistent with 

definitive guidance for trust fund accounting issued by the U. S. Standard General Ledger Board. 

This change is also in compliance with Statement of Federal Financial Accounting Standard No. 7 

(Accounting for Revenue and Other Financing Sources). 

Audit Report 2002-1-00082 Page 79 
For FY 2000 and 2001, interest earnings that became available during the fiscal years are recorded 

in Trust Fund Financing Sources - Transfers In for EPA, and are then eliminated against 

Treasury’s Transfers-Out in the consolidation of the Treasury and EPA funds. Current year’s 

earnings are included as Budget Authority on the Combined Statement of Budgetary Resources for 

Superfund. 

Note 37. Change in Accounting for Expenditure Transfers 

In fiscal year 2000, Treasury implemented changes in accounting for expenditure transfers from 

trust funds to eligible fund symbols. These changes allowed the transfers to be recorded as 

financing sources rather than unexpended or expended appropriations. In addition, new receivable 

and payable accounts provided the mechanism to record invested financing sources available to 

cover expenditures until the actual transfers could be completed at a later date. 

In accordance with this change, in FY 2001 EPA established new intra-agency accounts receivable 

and payable accounts for transfers between Superfund and the IG and Science & Technology 

funds. For comparative purposes, the FY 2000 Balance Sheet and Statement of Changes in Net 

Position are restated to show $46.5 million of activity that reflects the cumulative effect of these 

new accounts. Specifically, the All Others intragovernmental receivables and the Superfund 

intragovernmental accounts payable were both increased by $46.5 million for FY 2000, with 

offsetting amounts reported in the respective cumulative results of operations on the Balance 

Sheet. On the Statement of Changes in Net Position, an accounting change for FY 2000 was 

reported which restated ending net position for Superfund and All Others for FY 2000. Of this 

change, $45.2 million represents the beginning balance changes for FY 2000 and $1.3 million was 

added to All Others transfers-in and Superfund transfers-out to reflect the changes in activity 

relating solely to FY 2000. 

Page 80 Audit Report 2002-1-00082 
Environmental Protection Agency

Required Supplemental Information 

As of September 30, 2001

(Dollars in Thousands)

(Unaudited)

Deferred Maintenance 

The EPA classifies tangible 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. No deferred maintenance was 

reported for any of the four categories. 

Intragovernmental Assets 

Intragovernmental amounts represent transactions between all federal departments and agencies and are 

reported by trading partner (entities that EPA did business with during FY 2001). 

EPA confirmed its investment balances with the Bureau of the Public Debt, Department of the Treasury. In 

addition, EPA sent out requests to trading partners to reconcile and confirm intragovernmental receivables 

and transfers. Responses or inquiries were received from the Department of Defense, Department of the 

Interior, Department of Commerce, Department of the Treasury, Nuclear Regulatory Commission and the 

National Science Foundation. 

Trading Investments Accounts Receivable Other 

Partner 

Code Agency Superfund All Other Superfund All Other Superfund All Other 

04 Government Printing Office $ 0 $ 0 $ 0$ 0 $ 56 $ 1,529 

11 Executive Office of the 

President 

12 Department of Agriculture 

13 Department of Commerce 

14 Department of Interior 

15 Department of Justice 

17 Department of the Navy 

18 U. S. Postal Service 

19 Department of State 

20 Department of the Treasury 

21 Department of the Army 

45 Equal Employment 

Opportunity Commission 

47 General Services 

Administration 

11 

425 97 

17 96 2 27 

13,539 794 

81 

111 810 

16 122 

154 2,418 

75 104 

8,806 127 

121 

175 36 

Audit Report 2002-1-00082 Page 81 
Trading Investments 

Partner 

Code Agency Superfund All Other 

49 National Science 

Foundation 

57 Department of the Air Force 

58 Federal Emergency 

Management Agency 

61 Consumer Product Safety 

Commission 

64 Tennessee Valley Authority 

68 EPA (between Superfund 

and All Other) 

69 Department of 

Transportation 

72 Agency for International 

Development 

75 Department of Health and 

Human Services 

80 National Aeronautics and 

Space Administration 

86 Department of Housing and 

Urban Development 

89 Department of Energy 

96 US Army Corps of 

Engineers 

97 US Department of Defense 

99 Treasury Managed Trust 

Accounts Receivable Other 

Superfund All Other Superfund All Other 

14 

604 110 

957 

1 

15 

48,128 5,448 

8,927 

1,937 

245 868 

39 

149 

85 469 

87 4,460 

6,912 219 

Funds 3,724,044 1,778,818 1,313 

00 Unassigned 0 0 0 21 15 (1) 

Total $3,724,044$1,778,818 $31,178 $69,977 $5,521 $4,386 

Intragovernmental Liabilities 

EPA received a few requests for intragovernmental liabilities reconciliation from trading partners. EPA was 

able to confirm balances with the National Science Foundation (49), the Department of Commerce (13), 

Tennessee Valley Authority (64), the Office of Personnel Management (24), the Department of the Treasury 

(20), and the Department of Labor (16). 

Page 82 Audit Report 2002-1-00082 

291 
Trading Accounts Payable 

Partner 

Code Agency Superfund All Other 

03 Library of Congress $ 0 $ 0 

04 Government Printing Office 

11 Executive Office of the 

President 

12 Department of Agriculture 

13 Department of Commerce 1,035 

14 Department of Interior 901 

15 Department of Justice 617 

16 Department of Labor 2,258 

17 Department of the Navy 

18 United States Postal Service 

19 Department of State 

20 Department of the Treasury 

21 Department of the Army 

24 Office of Personnel 

Management 

31 US Nuclear Regulatory 

Commission 

33 Smithsonian Institution 

45 EEOC 

47 General Services 

Administration 

49 National Science 

Foundation 

56 Central Intelligence Agency 

57 Department of the Air Force 

58 Federal Emergency 

Management Agency 15,317 

64 Tennessee Valley Authority 

68 EPA (between Superfund 

and All Others) 44,759 512 

69 Department of 

Transportation 

73 Small Business 

Administration 

Accrued Liabilities Other Liabilities 

Superfund All Other Superfund All Other 

$ $ $ 0 $ 0 

6 157 

45 1,146 (6) 

26 

68 1,199 2,085 48 

699 2,071 140 

4,611 2,593 81 

3,418 50 1,067 

53 43 1,426 6,341 

218 440 102 24 

7 14 

628 

41 226 

3,258 

45 426 1,964 8,742 

6 20 

6 31 

20 

3,619 17,258 6,875 (87) 

7 241 

21 

2,760 45 

16 

1 198 16 

3,241 5,355 

6,287 141 

10 

Audit Report 2002-1-00082 Page 83 
Trading Accounts Payable Accrued Liabilities Other Liabilities 

Partner 

Code Agency Superfund All Other Superfund All Other Superfund All Other 

75 Department of Health and 

Human Services 16 12,793 6,639 

80 National Aeronautics and 

Space Administration 212 

86 Department of Housing and 

Urban Development 4 1,849 

88 National Archives & 

Records Administration 1 

89 Department of Energy 392 4,537 47 

91 Department of Education 4 

95 Independent Agencies 11 8 

96 US Army Corps of 

Engineers 881 422 21,381 1,287 331 

97 Office of the Secretary of 

Defense 3 125 174 1,044 56 

99 Treasury General Fund 690 4,507 

00 Unassigned 22 59 770 737 23 (2) 

Total $65,809 $1,118 $57,728 $40,541 $21,308 $27,507 

For All Other Funds’ remaining intragovernmental liabilities, $31,124 thousand in Debt is assigned 

to the Department of the Treasury (trading partner Code 20), and $77,778 thousand in Custodial 

Liability is assigned to the Treasury General Fund (trading partner Code 99). 

Intragovernmental Revenues and Costs 

EPA’s intragovernmental earned revenues are not reported by trading partners because they are 

below OMB’s threshold of $500 million. 

Superfund All Others 

Intragovernmental Earned Revenue $37,241 $57,444 

Associated Costs to generate Above

Revenue (Budget Functional 37,241 57,444 Classification 304)

Page 84 Audit Report 2002-1-00082 
Environmental Protection Agency

Required Supplemental Information

Supplemental Statement of Budgetary Resources 

As of September 30, 2001

(Dollars in Thousands)

Unaudited 

Environ- Miscellaneous Consolidated 

mental Science & LUST All All 

STAG Programs & Technology FIFRA Trust Fund Other Other 

Management 

Budgetary Resources: 

Budget Authority $ 3,649,325 $ 2,091,490 $ 697,000 $ 0 $ 71,795 $ 736,268 $ 7,245,878 

Unobligated Balances - Beginning of 

the Period 1,218,633 270,917 180,150 4,596 4,331 95,531 1,774,158 

Net Transfers, Prior Year Balance 0 1,107 0 0 0 (104) 1,003 

Spending Authority from Offsetting 

Collections 29,855 51,154 37,592 15,701 40 169,630 303,972 

Adjustments 27,154 (14,349) 844 196 2,290 1,960 18,095 

Total Budgetary Resources $ 4,924,967 $ 2,400,319 $ 915,586 $ 20,493 $ 78,456 $ 1,003,285 $ 9,343,106 

Status of Budgetary Resources: 

Obligations Incurred $ 3,625,653 $ 2,093,381 $ 714,645 $ 18,576 $ 72,236 $ 907,311 $ 7,431,802 

Unobligated Balances - Available 1,299,314 214,529 175,274 1,917 6,134 94,307 1,791,475 

Unobligated Balances-Not Available 0 92,409 25,667 0 86 1,667 119,829 

Total Status of Budgetary Resources $ 4,924,967 $ 2,400,319 $ 915,586 $ 20,493 $ 78,456 $ 1,003,285 $ 9,343,106 

Outlays: 

Obligations Incurred $ 3,625,653 $ 2,093,381 $ 714,645 $ 18,576 $ 72,236 $ 907,311 $ 7,431,802 

Less: Spending Authority from 

Offsetting Collections and 64,992 70,515 46,657 15,897 2,330 180,395 380,786 

Obligated Balance, Net - Beginning 

of the Period 7,874,156 750,109 500,950 1,544 83,976 78,709 9,289,444 

Less: Obligated Balance, Net - End 

of the Period 7,917,132 783,265 492,591 1,547 83,186 47,134 9,324,855 

Total Outlays $ 3,517,68 $ 1,989,71 $676,347 $ 2,676 $ 70,696 $ 758,491 $ 7,015,605 

5 0 

Audit Report 2002-1-00082 Page 85 
Environmental Protection Agency

Required Supplemental Information

Working Capital Fund 

Supplemental Balance Sheet

As of September 30, 2001

(Dollars in Thousands)

ASSETS Unaudited 

Intragovernmental: 

Fund Balance With Treasury $ 51,267 

Accounts Receivable, Net 20,332 

Other 121 

Total Intragovernmental 71,720 

Inventory and Related Property, Net 14 

General Property, Plant and Equipment, Net 14,353 

Other 

Total Assets $ 86,089 

LIABILITIES 

Intragovernmental: 

Accrued Liabilities $ 1,987 

Advances from Other EPA Funds 37,422 

Other 94 

Total Intragovernmental 39,503 

Accounts Payable 2,746 

Accrued Liabilities 13,287 

Other 1,845 

Total Liabilities $ 57,381 

NET POSITION 

Cumulative Results of Operations 28,708 

Total Net Position 28,708 

Total Liabilities and Net Position $ 86,089 

Page 86 Audit Report 2002-1-00082 

2 
Environmental Protection Agency

Required Supplemental Information

Working Capital Fund 

Supplemental Statement of Net Cost

For the Year Ended September 30, 2001

(Dollars in Thousands)

Unaudited 

COSTS:

Intragovernmental $ 15,409

With the Public 104,190

Total Costs 119,599

Less:

Earned Revenues (124,819)

Net Cost of Operations $ (5,220) 

Audit Report 2002-1-00082 Page 87 
Environmental Protection Agency

Required Supplemental Information

Working Capital Fund 

Supplemental Statement of Changes in Net Position

For the Year Ended September 30, 2001

(Dollars in Thousands)

Unaudited 

Net Cost of Operations $ 5,220 

Financing Sources (Other Than Exchange Revenues): 

Imputed Financing 1,704 

Transfers-In 0 

Transfers-Out 0 

Net Results of Operations $ 6,924 

Prior-Period Adjustments 0 

Net Change in Cumulative Results of Operations $ 6,924 

Net Position - Beginning of the Period 21,784 

Net Position - End of the Period $ 28,708 

Page 88 Audit Report 2002-1-00082 
Environmental Protection Agency

Required Supplemental Information

Working Capital Fund 

Supplemental Statement of Budgetary Resources

For the Year Ended September 30, 2001 

(Dollars in Thousands)

Budgetary Resources 

Unobligated Balances, Beginning of the Period 

Spending Authority from Offsetting Collections 

Adjustments 

Total Budgetary Resources 

Status of Budgetary Resources 

Obligations Incurred

Unobligated Balances Available

Total, Status of Budgetary Resources

Outlays 

Obligations Incurred 

Unaudited 

$ 21,820 

125,706 

2,990 

$ 150,516 

$ 127,482 

23,034 

$ 150,516 

$ 127,482 

Less: Spending Authority from Offsetting Collections and

Adjustments (128,696)

Subtotal (1,214) 

Obligated Balance, Net - Beginning of the Period 30,688 

Less: Obligated Balance, Net - End of the Period (28,232) 

Total Outlays $ 1,242 

Audit Report 2002-1-00082 Page 89 
Environmental Protection Agency

Required Supplemental Information

Working Capital Fund

Supplemental Statement of Financing

For the Year Ended September 30, 2001

(Dollars in Thousands)

Obligations and Nonbudgetary Resources Unaudited 

Obligations Incurred $ 127,482 

Less: Spending Authority for Offsetting Collections and Adjustments 

Earned Reimbursements 

Collected (125,394) 

Receivable from Federal Sources 498 

Change in Unfilled Orders - (Decreases)/Increases (810) 

Recoveries from Prior Year Obligations (2,990) 

Financing Imputed for Cost Subsidies 1,704 

Total Obligations as Adjusted and Nonbudgetary Resources $ 490 

Resources that Do Not Fund Net Cost of Operations 

Change in Amount of Goods, Services and Benefits Ordered but 

Yet Received or Provided - (Increases)/Decreases (2,256) 

Change in Unfilled Customers Orders, etc. - Increases/(Decreases) 810 

Costs Capitalized on the Balance Sheet 

General Plant, Property and Equipment (9,227) 

Purchases of Inventory 

Total Resources that Do Not Fund Net Costs of Operations $ (10,641) 

Components of Costs of Operations that Do Not Require 

or Generate Resources 

Depreciation and Amortization 4,396 

Loss on Disposition of Assets 124 

Total Costs That Do Not Require Resources 4,520 

Financing Sources Yet to be Provided 411 

Net Costs of Operations $ (5,220) 

Page 90 Audit Report 2002-1-00082 

32 
Environmental Protection Agency

Required Supplemental Stewardship Information

For the Year Ended September 30, 2001

(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 priorities are research programs that address the effects of the 

environment on children’s health, the potential risks of unregulated contaminants in drinking 

water, the health effects of air pollutants such as particulate matter, and the protection of the 

Nation’s ecosystems. For FY 2001, the full cost of the Agency’s Research and Development 

activities totaled almost $646 million. Below is a breakout of the expenses (dollars in 

thousands): 

FY 1998 FY 1999 FY 2000 FY 2001 

Programmatic Expenses 507,828 543,777 541,117 555,794 

Allocated Expenses 53,322 58,728 59,523 90,039 

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 

Audit Report 2002-1-00082 Page 91 
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 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 (dollars in thousands): 

Construction Grants 

Clean Water SRF 

Safe Drinking Water SRF 

Other Infrastructure 

Grants 

Allocated Expenses 

FY 1998 

444,817 

1,109,017 

94,936 

138,363 

187,649 

FY 1999 FY 2000 FY 2001 

414,528 55,766 63,344 

925,744 1,564,894 1,548,270 

387,429 588,116 728,921 

245,606 212,124 282,914 

213,117 266,299 424,999 

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. A site with “land acquired” may have more than one acquisition 

property. Sites are not counted as a withdrawal until all acquired properties have been 

transferred. 

As of September 30, 2001, the Agency possesses the following land and land rights: 

Superfund Sites with Easements

Beginning Balance

Additions

Withdrawals

Ending Balance

Superfund Sites with Land

Acquired

Beginning Balance

Additions

Withdrawals

25 

4 

0 

29 

23 

2 

0 

Page 92 Audit Report 2002-1-00082 
Ending Balance 25 

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. 

The Agency’s expenses related to investments in the Human Capital are outlined below (dollars 

in thousands): 

FY 1998 FY 1999 FY 2000 FY 2001 

Training and Awareness Grants 39,131 46,630 49,265 48,697 

Fellowships 11,084 10,239 9,570 11,451 

Allocated Expenses 5,273 6,142 6,472 9,744 

Audit Report 2002-1-00082 Page 93 
Appendix II 

Agency’s Response to Draft Report 

____________________________________________ 

Page 94 Audit Report 2002-1-00082 
This page intentionally left blank 

Audit Report 2002-1-00082 Page 95
Page 96 Audit Report 2002-1-00082 
Attachment 

RESPONSE TO DRAFT AUDIT REPORT ON EPA’S FISCAL 2001 AND 2000 

FINANCIAL STATEMENTS 

REPORTABLE CONDITIONS 

1 -- EPA Did Not Implement Accounting for Internal Use Software Standard Timely 

Agency Comments: 

Comments will be forthcoming after we meet. 

2 -- Additional Improvements Needed in EPA’s Interagency Agreement Invoice Approval 

Process 

Agency Comments: 

The Draft Audit report acknowledged corrective actions that we have underway in 

response to the OIG’s earlier recommendations and did not make new 

recommendations. Our remaining corrective action is to implement an automated 

project officer notification system to replace our current manual system. We plan to 

complete that action by April 30, 2002, which will close out the earlier 

recommendations. 

3 -- Automated Application Processing Controls for Integrated Financial Management 

System could not be assessed. 

Agency Comments: 

The Draft Audit stated that the steps EPA is taking indicate that the Agency is 

moving in a credible fashion towards replacing IFMS. The report did note that “until 

the new system is in place and [the OIG has] a chance to audit it, [the OIG] cannot 

assess the adequacy of the automated internal control structure.” We appreciate the 

OIG’s recognition of our progress on the IFMS replacement project. 

Audit Report 2002-1-00082 Page 97 
COMPLIANCE WITH LAWS AND LAWS AND REGULATIONS 

Substantial Noncompliance with Federal Financial Management Improvement Act 

4 -- EPA Did Not Comply with Managerial Cost Accounting Standard 

Agency Comments: 

As we stated in earlier communications, we believe we are complying with the 

Managerial Cost Accounting Standards. Currently, we are preparing a response to 

the points raised in the Inspector General’s December 12, 2001, memorandum to the 

Administrator regarding the impasse over FFMIA compliance. Because the issues 

stated in the Draft Audit are essentially the same as in your letter to the 

Administrator, we will address those issues in our response to the December 12 

memorandum. 

Other Noncompliance Issue with Federal Financial Management Improvement Act 

5 -- EPA Continues to Experience Difficulties in Reconciling Intra-Governmental 

Transactions. 

Agency Comment: 

The OIG suggested that EPA continue its proactive efforts in reconciling the 

Agency’s intra-governmental transactions to comply with Federal financial reporting 

requirements. We appreciate the OIG’s acknowledgment of our efforts and of our 

dependency on other agencies’ actions to enable us to fully comply. 

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Audit Report 2002-1-00082 Page 99
Page 100 Audit Report 2002-1-00082 
Attachment 

DRAFT AUDIT REPORT ON EPA’S FISCAL 2001 AND 2000 FINANCIAL

STATEMENTS--RESPONSE TO REPORTABLE CONDITION NO. 1

“EPA Did Not Implement Accounting for Internal Use Software Standard Timely”

OCFO acknowledges that SFFAS No. 10 was implemented at the end of the fiscal year. 

However, by doing so, EPA was able to use the most recent guidance on this subject and develop 

more accurate and complete costs. For example, EPA was able to: 1) take advantage of 

“Implementation Guidance on SFFAS No. 10,” issued in May 2001; 2) utilize the most recent (late 

fiscal year 2001) OMB Information Technology Exhibit 53 and Exhibit 300b issuances; and 3) 

capture actual FY 2001 contracts costs rather than relying solely on end of fiscal year cost estimates 

provided by system owners. 

OCFO undertook a comprehensive review to identify all internal use software subject to the 

standard. This included briefings and interviews with EPA systems owners, as well as a review of 

software project plans, purchase requisitions, invoices, and payments. The ensuing amount for 

capitalized software systems costs of $10.8 million, and the related depreciation, reflect verifiable 

and compliant software balances. For those systems not capitalized, we determined that the cost 

either did not meet the $500,000 dollar threshold or did not meet the capitalization criteria 

established by SFFAS No. 10. 

Finally, the OCFO review provided for a consistent application of the requirements of SFFAS 

No.10 and we are confident that the resultant amounts are accurate and reliable. Our detailed and 

complete documentation has been provided to your office. 

Audit Report 2002-1-00082 Page 101 
Appendix III 

Report Distribution List 

Administrator (1101A)

Deputy Administrator (1101A)

Chief Financial Officer (2710A)

Inspector General (2410)

Assistant Inspectors General 

Assistant Administrator for Administration and Resources Management (3101A)

Assistant Administrator for Solid Waste and Emergency Response (5101)

Assistant Administrator for Enforcement and Compliance Assurance (2201A)

General Counsel (2310A)

Comptroller (2731A)

Associate Administrator for Congressional and Intergovernmental Relations (1301A)

Associate Administrator for Communications, Education, and Media Relations (1703A)

Deputy Assistant Administrator for Environmental Information (2810A)

Director, Office of Policy and Resources Management, OARM (3102A)

Director, Office of Administration (3201A)

Director, Office of Acquisition Management (3801R)

Director, Office of Grants and Debarment (3901R)

Director, Office of Administration and Resources Management, Cincinnati, OH

Director, Office of Administration and Resources Management, RTP, NC

Director, Office of Technology Operations and Planning (2810A)

Director, Office of Site Remediation Enforcement (2271A)

Director, Office of Emergency and Remedial Response (5201G)

Director, Annual Planning and Budget Division (2732A)

Director, Grants Administration Division (3903R)

Director, HQ and Desktop Services Division, OTOP (2832)

Director, Facilities Management and Services Division (3204R)

Director, Financial Management Division (2733R)

Director, Financial Services Division (2734R)

Director, National Technology and Services Division, OTOP, RTP, NC

Financial Management Officers at Regions 1 through 10, Cincinnati, Las Vegas, 

and Research Triangle Park 

Divisional Inspectors General for Audit 

Chief, Financial Reports and Analysis Branch (2733R) 

Chief, Program and Cost Accounting Branch (2733R) 

Chief, Financial Systems Branch (2733R) 

Chief, Financial Policies, Procedures and Compliance Branch (2733R) 

Chief, Washington Financial Management Center (2734R) 

Agency Audit Follow-up Coordinator (2724A) [Bernie Davis] 

Audit Report 2002-1-00082 
Agency Follow-up Official (2710A) 

Audit Liaison for the Office of Financial Officer [Brigid Rapp]

Audit Liaison for the Office of Administration and Resources Management (3102A) 

[Sandra Womack-Butler] 

Audit Liaison for the Office of Solid Waste and Emergency Response (5103) 

[Johnsie Webster] 

Audit Liaison for the Office of Administration (3201A) [Tom Pastore] 

Audit Liaison for the Office of Environmental Information (2812A) [Jeff Worthington] 

Audit Liaison for the Office of Environmental Information (2812A) [Maria Rost Rublee] 

Audit Liaison for the Office of Enforcement and Compliance [Greg Marion] 

Audit Liaison for the Grants Administration Division (3910R) [John Nolan] 

Audit Liaison for the Administrator’s Office (1104A) [Pat Gilchriest] 

Audit Liaison for the Financial Management and the Financial Services Division (2733R) 

[Al Demarcki] 

Audit Liaison for the Office of General Counsel (2311A) [William Stewart] 

Audit Report 2002-1-00082 
Please visit our web site to view and download this audit report at: 

http://www.epa.gov/oigearth 

To obtain a copy of this report, please contact: 

U.S. Environmental Protection Agency

Office of Inspector General

Financial Audit Division

Mail Code 2422

1200 Pennsylvania Avenue, NW

Washington, DC 20460

Telephone: 202-260-1397

FAX: 202-260-1398