Superfund: System Enhancements Could Improve the Efficiency of Cost
Recovery (Letter Report, 08/25/95, GAO/AIMD-95-177).
Under the Superfund program, the Environmental Protection Agency (EPA)
is responsible for recovering from responsible parties billions in costs
associated with cleaning up the worst hazardous waste sites. In 1992 and
again in 1995, GAO cited the Superfund as a "high-risk" government
program and noted that EPA lacked the information needed to adequately
management and support is cost recovery efforts. EPA's cost recovery
effort is supported by several financial and records management systems.
Because of limitations in these systems, cost recovery staff cannot
fully depend on the system to provide all the information needed for
cost recovery. Instead, staff must do excessive manual searches and
reconciliations to ensure that the information supporting cost recovery
cases is accurate, reliable, and complete. EPA is aware of these
limitations and has taken steps to address them. For example, planned
modifications to the financial systems should produce more detailed cost
data, thus reducing manual reconciliation efforts. GAO notes additional
measures that EPA could take to ensure that its systems provide the best
possible support for its cost recovery efforts.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-95-177
TITLE: Superfund: System Enhancements Could Improve the Efficiency
of Cost Recovery
DATE: 08/25/95
SUBJECT: Environmental monitoring
Reimbursements to government
Government collections
Systems conversions
Pollution control
Liability (legal)
Financial management systems
Internal controls
Data integrity
Accounts receivable
IDENTIFIER: Superfund Program
EPA Financial Management System
EPA Integrated Financial Management System
Superfund Cost Recovery Image Processing System
Superfund Cost Organization and Recovery Enhancement System
Joint Financial Management Improvement Program
Superfund Document Management System
EPA Cost Recovery Collection Tracking System
Superfund Trust Fund
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Cover
================================================================ COVER
Report to the Ranking Minority Member, Committee on Governmental
Affairs, U.S. Senate
August 1995
SUPERFUND - SYSTEM ENHANCEMENTS
COULD IMPROVE THE EFFICIENCY OF
COST RECOVERY
GAO/AIMD-95-177
Superfund Cost Recovery
Abbreviations
=============================================================== ABBREV
CERCLA - Comprehensive Environmental Response, Compensation, and
Liability Act
CTS - Cost Recovery Collection Tracking System
EPA - Environmental Protection Agency
FMS - Financial Management System
GAO - General Accounting Office
IFMS - Integrated Financial Management System
OIG - Office of Inspector General
OMB - Office of Management and Budget
PRP - Potentially Responsible Party
SCRIPS - Superfund Cost Recovery Image Processing System
SDMS - Superfund Document Management System
Letter
=============================================================== LETTER
B-261778
August 25, 1995
The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate
Dear Senator Glenn:
Under the Superfund program, the Environmental Protection Agency
(EPA) is responsible for recovering billions of dollars in costs
associated with the cleanup of the nation's worst hazardous waste
sites from responsible parties. Through EPA, the federal government
has expended over $10.1 billion cleaning up nonfederal Superfund
sites and collected nearly $1 billion of this amount through fiscal
year 1994. In 1992, and again in 1995, we reported the Superfund
program as a "high risk" area in the federal government, and that EPA
lacked the information needed to adequately manage and support its
cost recovery efforts.\1
In response to your request, we are reporting to you the results of
our review of the adequacy of EPA's information systems to support
the agency's Superfund cost recovery work. Specifically, our
objectives were to determine (1) how well EPA's information systems
support the Superfund cost recovery process and (2) the extent to
which EPA's planned modifications to its information systems could
improve the efficiency of cost recovery efforts.
--------------------
\1 High-Risk Series: Superfund Program Management (GAO/HR-93-10,
December 1992); and High-Risk Series: Superfund Program Management
(GAO/HR-95-12, February 1995).
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
EPA's cost recovery for Superfund is supported by several financial
and records management systems. Because of limitations in these
systems, cost recovery staff cannot fully rely on the systems to
provide all the information needed for cost recovery. Instead, staff
must perform excessive manual searches and reconciliations to ensure
that the information supporting cost recovery cases is accurate,
reliable, and complete.
EPA is aware of these limitations and has initiated efforts to
address them. For example, planned modifications to the financial
systems should result in more detailed cost data, thus reducing
manual reconciliation efforts. However, additional actions could
further ensure that EPA's systems provide the best possible support
for its cost recovery efforts. Specifically, EPA needs to implement
its planned statistical testing of the reliability of cost recovery
financial data, improve the documentation of its financial systems'
controls, assess how to best use technology to efficiently meet the
records management needs of its cost recovery staff, and ensure that
all risks associated with the collection and management of Superfund
cost recovery receivables have been addressed.
BACKGROUND
------------------------------------------------------------ Letter :2
In 1980, Congress enacted the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA). This act, which created
the Superfund program, was intended primarily to clean up those sites
considered to be the most serious of the hazardous waste sites
identified in the United States. As of March 7, 1995, EPA reported
15,723 sites in its inventory, of which 1,363 are considered the most
hazardous.
EPA is authorized to compel parties responsible for causing the
hazardous waste pollution, such as waste generators or haulers and
site owners or operators, to clean up the sites. If these parties,
known as potentially responsible parties (PRPs), cannot be found, or
if a settlement cannot be reached, EPA can conduct the cleanup.
EPA uses funds from a trust fund established by CERCLA when it
performs such cleanups. This trust fund, currently authorized at
$15.2 billion, is financed primarily by a tax on crude oil and
certain chemicals and by an environmental tax on corporations.
After completing a cleanup, EPA can take action against the
responsible parties to recover costs and replenish the fund. These
costs can cover such items as EPA cleanup studies, removal actions,
and program administration, as well as costs incurred by other
agencies, such as the Department of Justice, in helping to administer
the Superfund program.
The process of recovering costs includes (1) conducting searches to
identify the PRP(s) and assessing their liability and financial
viability, (2) issuing both notice and demand letters to the PRP(s)
for the recovery of costs, and (3) if warranted, initiating judicial
action with the assistance of the Department of Justice, if the
PRP(s) decide not to participate in negotiations to settle the case
or if negotiations are unsuccessful. These steps must be completed
within specified time periods that are cited in CERCLA.\2
--------------------
\2 Under CERCLA's statute of limitations provisions, EPA must
generally file suit to recover costs within 3 years after it
completes a removal action, a short-term cleanup action requiring an
immediate response; or within 6 years after it starts a remedial
action, a long-term action to remove threats to public health,
welfare, or the environment.
SITE CLEANUP COSTS AND
WORKLOAD ARE SUBSTANTIAL
---------------------------------------------------------- Letter :2.1
EPA has reported expenditures of over $10.1 billion for cleaning up
nonfederal Superfund sites through fiscal year 1994. Barring major
changes to the program, we estimate that such sites may cost the
federal government about $37 billion more between 1995 and 2019 (in
1993 discounted present-value dollars).\3
EPA's cost recovery workload has grown substantially over the years
as cleanups have been completed and recoveries of costs have been
sought from responsible parties. As of January 1995, EPA reported it
had pursued actions to recover costs for 1,625 sites. Through the
end of fiscal year 1994, EPA reported that the Superfund program had
about $1.4 billion in binding agreements from responsible parties to
reimburse the federal government. About $934 million of this amount
had actually been collected, including about $9 million in fines and
penalties. The remaining $8.7 billion of Superfund past costs
include costs such as those not pursued, unrecoverable costs, and
costs currently being sought through litigation.
Although Superfund was enacted 15 years ago, the bulk of EPA's cost
recovery settlements has occurred in the last 7 years. For example,
during the first 8 years of the program, cost recovery activities
resulted in binding cost recovery agreements totaling about $104
million. In contrast, such binding agreements in fiscal year 1994
alone totaled about $207 million.
EPA's cost recovery workload to recover cleanup costs is likely to
increase because the number of Superfund sites is expected to grow.
In November 1994, we reported that between 2,500 and 2,800 nonfederal
sites could be added to the then inventory of about 1,200 sites that
were considered to be the most serious.\4
--------------------
\3 Our estimate was based on Congressional Budget Office data used in
preparing its January 1994 report entitled The Total Costs of
Cleaning Up Nonfederal Superfund Sites.
\4 Superfund: Estimates of Number of Future Sites Vary
(GAO/RCED-95-18, Nov. 29, 1994).
EPA'S AUTOMATED INFORMATION
SYSTEMS ARE VITAL TO
EFFECTIVE COST RECOVERY
---------------------------------------------------------- Letter :2.2
After EPA has identified PRPs that are liable and able to pay, the
success of EPA's cost recovery efforts depends in large part on the
ability of staff to access accurate and complete cost data and
related supporting documentation. For a typical cost recovery case,
EPA may amass thousands of pages of (1) documents identifying work
that was authorized and performed, referred to as work-performed
documents and (2) financial documents, including travel vouchers and
contract-related documents, showing site costs that were invoiced,
approved, and paid.
EPA has a number of financial and records management information
systems to help support its cost recovery efforts. For instance, EPA
operates two financial information systems to maintain Superfund cost
data and two more to generate reports:
the Integrated Financial Management System (IFMS), the agency's
official financial information system, which contains all of the
agency's core financial data since March 1989;
the Financial Management System (FMS), the predecessor system to
IFMS, which contains financial data both before and after the
implementation of IFMS in March 1989.
the Management and Accounting Reporting System, which is used to
produce reports from IFMS data; and
the Software Program for Unique Reports, the reporting system for
FMS, which generates reports containing both IFMS and FMS data.
According to EPA officials, the functionality of the Financial
Management System and the Software Program for Unique Reports will be
completely replaced by IFMS and the Management and Accounting
Reporting System as of October 1, 1995.
EPA also has two information management systems developed
specifically to support Superfund cost recovery:
the Superfund Cost Recovery Image Processing System (SCRIPS), which
allows cost recovery staff to electronically capture, store,
display, and print images of original Superfund financial
documents, such as contract invoices, travel vouchers, and
payroll records; and
the Superfund Cost Organization and Recovery Enhancement System,
which is designed to organize and edit financial information
into easy-to-read cost summaries.
PAST CONCERNS WITH
MANAGEMENT OF SUPERFUND COST
RECOVERY
---------------------------------------------------------- Letter :2.3
EPA's Office of Solid Waste and Emergency Response has overall
responsibility for the Superfund program. Other key EPA
organizations with Superfund responsibilities include (1) the Office
of Enforcement and Compliance Assurance, which is responsible for
enforcement actions, and (2) the Office of Administration and
Resources Management, which is responsible for financial management
activities and the development of supporting information systems.
EPA also has ten regional offices that have lead responsibility for
carrying out the program within their geographical jurisdiction.
These responsibilities include conducting or overseeing cleanup
activities and pursuing cost recovery, including assembly of
supporting documentation; negotiating settlements with PRPs; and
collecting amounts owed the government.
In December 1992, and again in February 1995, we reported that EPA's
management of the Superfund program was a high-risk area and noted
that EPA had recovered only a fraction of the cleanup costs from
responsible parties. We have also previously reported that the low
priority EPA has given to the cost recovery program had resulted in a
backlog of cost recovery cases.\5 EPA also recognizes its problems
with Superfund cost recovery, having reported it as a material
weakness in its fiscal year 1994 Federal Managers' Financial
Integrity Act Report to the President and Congress.\6
Concerning IFMS, EPA's Office of Inspector General (OIG) reported in
1991 and 1994 deficiencies with the agency's development and
implementation of the system, such as problems with the integrity of
payroll data and inadequate system development and user
documentation. Also, IFMS has been on the Office of Management and
Budget's (OMB) high-risk list since 1990.
--------------------
\5 Superfund: EPA Has Opportunities to Increase Recoveries of Costs
(GAO/RCED-94-196,
Sept. 28, 1994); Superfund: More Settlement Authority and EPA
Controls Could Increase Cost Recovery (GAO/RCED-91-144, July 18,
1991); and Superfund: A More Vigorous and Better Managed Enforcement
Program Is Needed (GAO/RCED-90-22, Dec. 14, 1989).
\6 1994 Integrity Act Report to the President and Congress, EPA
205-R-94-005, December 30, 1994.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
Our work was performed at several offices at EPA headquarters
including the Office of Solid Waste and Emergency Response; Office of
Enforcement and Compliance Assurance; Office of Inspector General;
and the Financial Management Division in the Office of Administration
and Resources Management. These offices are located in Washington,
D.C., and Arlington, Virginia. We also performed work at (1) EPA
regional offices in New York, New York; Philadelphia, Pennsylvania;
Chicago, Illinois; and San Francisco, California; (2) the Department
of Justice in Washington, D.C.; and (3) the office of Leonard G.
Birnbaum and Company in Springfield, Virginia.
We conducted our review from January 1994 to July 1995, in accordance
with generally accepted government auditing standards. We requested
comments on a draft of this report from the Administrator,
Environmental Protection Agency. In August 1995, we received the
agency's response from the Comptroller, the Director of the Financial
Management Division, and the Director of the Policy and Program
Evaluation Division. We have incorporated their comments where
appropriate. Additional details on our scope and methodology are
provided in appendix I.
INFORMATION SYSTEM LIMITATIONS
MAKE COST RECOVERY
TIME-CONSUMING AND
LABOR-INTENSIVE
------------------------------------------------------------ Letter :4
The automated information systems that EPA has in place fall short of
providing the information and support that staff need to efficiently
perform Superfund cost recovery work. Data in the central financial
systems are insufficiently detailed, and are sometimes inaccurate or
incomplete. Further, the records management systems do not provide
for the efficient retrieval of supporting cost and work-performed
documentation, which, if not located, can result in unrecovered
costs. In addition, efforts to collect costs from responsible
parties is more difficult, in part because the agency's financial
system, IFMS, is not sufficiently sophisticated to address the
complexity of the repayment agreements. As a result of these
limitations, the cost recovery process is often longer and more
tedious than necessary and must be supported by manual searches and
ad hoc information systems.
DATA IN FINANCIAL SYSTEMS
MUST BE AUGMENTED BY MANUAL
EFFORTS
---------------------------------------------------------- Letter :4.1
Having sufficiently detailed financial information is essential for
preparing and supporting cost recovery actions. The Chief Financial
Officers Act of 1990 requires that an agency's Chief Financial
Officer develop and maintain an integrated agency accounting and
financial management system that provides for (1) complete, reliable,
consistent, and timely information that is responsive to the
financial information needs of agency management and (2) the
development and reporting of cost information. Further, the Joint
Financial Management Improvement Program states that financial data
reporting should be of proper scope, level of detail, timing,
content, and presentation format to provide information of real value
to users.\7
EPA currently operates two financial management systems for
maintaining Superfund cost data, IFMS and FMS. However, neither
system currently records cost information at a level of detail that
is often needed by EPA staff to prepare cost recovery packages.
Specifically, EPA regions divide large or complex cleanup sites into
smaller components called operable units.\8 Cost recovery staff said
that in order to properly assign the correct amount of costs to the
appropriate PRP they need to be able to trace\9 detailed costs to
these operable units.
Because EPA systems do not currently record costs at the operable
unit level, identifying which costs were incurred at different
operable units becomes a time-consuming and tedious task. During the
course of a cleanup, which often lasts for years, thousands of
individual transactions are processed and stored, including payroll
and travel costs for EPA employees, as well as contractor cleanup
costs and costs incurred by other agencies, such as the Department of
Justice and the U.S. Army Corps of Engineers. To trace these costs
to individual operable units, EPA staff must identify all costs that
have been recorded and accumulated by site, and then manually
segregate the costs by operable unit.
Staff in EPA's regions told us that this data limitation has resulted
in wasted staff resources. For example, one region we contacted was
managing a site with 18 operable units, involving $2.8 million in
cost recovery. In order to identify costs at the operable unit
level, three staff had to work full time for over 4 months to
manually allocate the costs. This required them to go through
numerous records, including individual time sheets and travel
records. Similarly, a staff person in another region estimated that
about 10 percent of his time was spent manually allocating costs,
which he believed could be avoided if costs were recorded in greater
detail. The independent public accounting firm's report on EPA's
fiscal year 1993 financial statements for the Superfund Trust Fund
stated that the system limitation may adversely impact EPA's ability
to account for costs at Superfund sites and projects. The report
noted that this could result in the failure to identify and recover
these costs in cost recovery actions.
--------------------
\7 Framework for Federal Financial Management Systems, Joint
Financial Management Improvement Program, FFMSR-O, January 1995.
\8 EPA data show that, as of April 7, 1995, of 1,363 sites considered
the most hazardous, 670 had two or more operable units.
\9 Tracing is a process that assigns direct costs to a designated
cost object, such as an operable unit.
DATA PROBLEMS IMPEDE THE
EFFICIENCY OF COST RECOVERY
---------------------------------------------------------- Letter :4.2
EPA staff need accurate and complete financial data to efficiently
and effectively pursue cost recovery actions. OMB Circular A-127
specifies that federal agencies should have financial management
systems in place to process and record financial events effectively
and efficiently and to provide complete, timely, and consistent
information. It also states that these systems should have
consistent internal controls over data entry, transaction processing,
and reporting to ensure the validity of information and protection of
federal government resources.
Concerns exist about the integrity of data in IFMS. For example, in
its 1994 report on IFMS, the OIG raised concerns about data
integrity, including inaccuracies and omissions in the data.\10
In our discussions with cost recovery staff, they too stated that
they had encountered instances of inaccurate and incomplete data,
including critical cost and site identification information, in the
agency's financial information systems. Several of the examples
cited by these staff are described below.
Staff in three regions stated that they had identified instances of
duplicative data. For example, during initial negotiations, one
region initially overstated costs for a PRP by about $822,000.
While staff identified and corrected this overstatement prior to
final negotiations, they determined that the error was largely
due to a cost figure that had been duplicated in the financial
system. EPA staff were unsure whether this was a random problem
or a systemic one.
One region discovered, while attempting to support a cost summary
it had provided to a PRP, that approximately $23,000 had been
erroneously charged to a site. The overcharge occurred because
contract lab costs that should have been charged to a site in
another EPA region had instead been charged to this site,
possibly due to a data entry error.
Five regions expressed concerns that certain costs associated with
work performed at individual sites, under national contracts,
were not being recorded by site in the agency's financial
management systems. For example, one EPA region reported in
1994 that about $90 million in technical assistance team
contract charges associated with one of two national contracts
could not be traced to specific sites through the agency's
financial systems. According to EPA, most of these costs were
incurred for non site-specific activities and are recovered from
responsible parties as indirect costs through the annual
allocation process. However, the regional analysis concluded
that some of the costs that were site-specific in nature were
not reflected in individual site accounts in IFMS.
Two regions provided examples of missing or invalid data in the
site/project identification field. This was corroborated by a
report generated by EPA's Financial Management Division showing
about 10,500 transactions, totaling about $129 million in
expenditures, for which, according to EPA officials, the
site/project identification field was missing.\11
These examples are not intended to be representative of the overall
integrity of data in the financial systems. However, EPA staff told
us that as a result of these types of problems, they have to spend
excessive time and effort in researching, reconciling, and correcting
financial data needed to support cost recovery actions.
EPA has no assurance that its application controls are sufficient to
prevent these data quality problems. Such controls are critical for
ensuring accurate data input, processing, and output. The
independent public accounting firm that reviewed EPA's financial
statements for the Superfund Trust Fund for fiscal year 1993 noted
that weaknesses with the internal controls governing data entry made
it possible for inaccurate or incomplete account numbers to be
entered into IFMS. For example, they found there was no error check
control of the site/project code portion of IFMS' account code.
EPA officials believe IFMS contains adequate application controls.
However, because these controls are not documented in accordance with
federal policies, such as OMB Circular No. A-127 and the Joint
Financial Management Improvement Program, we could not assess these
controls to determine if they are sufficient to prevent data
integrity problems. The lack of documentation for application
controls was identified in the OIG's February 1995 report,\12 in
which the OIG stated that it could not assess application processing
controls due to a lack of technical system documentation. The OIG
reported that such an internal control weakness could adversely
affect EPA's ability to ensure that (1) obligations and costs were in
compliance with applicable laws, (2) funds, property, and other
assets were safeguarded against unauthorized use or disposition, and
(3) transactions were properly recorded to permit the preparation of
reliable financial statements.
The previously mentioned example of missing site identification data
for technical assistance team costs could have been prevented had
additional controls been in place. Such controls would have alerted
senior financial managers that these costs had been approved and
paid, but were at risk of being excluded from cost recovery actions
because they had not been allocated, where possible, to a specific
Superfund site.
Until EPA addresses the need for documented controls, data integrity
problems could continue to adversely affect the efficiency of
performing cost recovery. In addition, when site/project codes are
missing, EPA may lose the opportunity to recover related costs in
specific cost recovery actions.
--------------------
\10 EPA's Integrated Financial Management System (IFMS), U.S.
Environmental Protection Agency, Audit Report EINMF3-15-0073-4100561,
September 28, 1994.
\11 We could not determine the accuracy of the information contained
in the report provided by EPA.
\12 Fiscal 1994 Financial Statement Audit of EPA's Trust Funds,
Revolving Funds and Commercial Activity, U.S. Environmental
Protection Agency, Audit Report E1SFL4-20-8001-5100192, February 28,
1995.
COST RECOVERY DOCUMENTATION
NOT READILY ACCESSIBLE
---------------------------------------------------------- Letter :4.3
To successfully defend its claims for cost recovery, EPA must be able
to substantiate each cost item. To do this, the agency locates and
provides a wide-range of supporting financial documents, such as
invoices and travel vouchers, and supporting work-performed
documents, such as contracts, contractor work assignments, and
progress reports pertaining to a site. Such documents are needed to
provide proof to PRPs and the courts that Superfund-led work to clean
up hazardous waste sites was authorized, performed, invoiced, and
paid.
Despite the importance of these documents, EPA staff in regional
offices believe that the difficulty in locating and retrieving
supporting documents was a major contributor to the amount of time
and effort required to assemble the packages detailing costs to be
recovered. According to these staff, almost all financial documents
generated since 1991 are available through the SCRIPS imaging system.
However, most of the contract-related financial documents created
prior to this time are not available from SCRIPS because the system
was not operational until 1991. Pre-1991 contract-related financial
documents are stored in EPA's financial management center in Research
Triangle Park, North Carolina, and must be manually retrieved for
inclusion in the cost recovery packages. Cost recovery staff said
that it usually takes about 20 working days to retrieve these
documents once identified, and that the time required to assemble the
requisite financial documents could be substantially decreased if
these documents could also be retrieved using SCRIPS.
Staff also noted that the situation is worse for work-performed
documents. There are estimated to be over 11 million pages of
work-performed documents occupying about 6,000 linear feet of shelf
space in EPA's ten regional offices.\13 The regional offices maintain
these work-performed documents as hard copy in various
locations--some in off-site storage, some in records management
centers, and some in working files maintained by EPA staff
responsible for managing or overseeing the cleanup process. In many
cases, cost recovery staff have to rely on their memories to identify
which contractors were used at a site and where relevant documents
might be located. Cost recovery staff also noted that if the
documents cannot be found in EPA's offices, they must then try to
obtain replacements from the contractors' files. Staff in several
regions said that assembling work-performed documents from various
locations inside and outside of the agency is a time-consuming or
labor-intensive process. For example, in one region it typically
takes 2 months to assemble such documents. Another region said it
takes about 4 months to identify, retrieve, and review work-performed
documents.
Although locating supporting documentation can be labor- intensive,
the effect of not locating needed documentation can be worse.
According to cost recovery staff, if supporting documents cannot be
located or otherwise supported, the corresponding cost items are
removed from the cost recovery summary, even though these costs may
be recoverable. We could not determine the amount that EPA has lost
because of such missing documentation because EPA does not track this
information. While EPA maintains a record showing the reasons why
costs are excluded from final settlements with PRPs, costs excluded
from initial negotiations due to missing documentation are not a part
of this record.
--------------------
\13 These figures, provided by EPA, do not include (1) the entire
holdings of one EPA region or (2) the work-performed documentation
from four regions that is maintained in active site files.
FINANCIAL SYSTEM DOES NOT
EFFICIENTLY SUPPORT
MANAGEMENT OF SUPERFUND COST
RECOVERY RECEIVABLES
---------------------------------------------------------- Letter :4.4
EPA regional offices are primarily responsible for managing accounts
receivable after the government reaches cost recovery settlements
with responsible parties. This requires EPA to establish accounts
receivable in a timely manner, collect interest, accurately record
collections, and identify and take action on delinquencies.
OMB Circular A-127 requires that an agency's financial management
systems provide reliable and timely information on amounts owed the
government. It also requires that agency financial systems satisfy
the core financial system requirements developed by the Joint
Financial Management Improvement Program, including a variety of
functions to support the establishment, management, and collection of
accounts receivable. These functions include calculating and
generating customer bills, tracking receivables to be paid for under
an installment plan, and accurately identifying receivables that are
past due.
IFMS does not meet these requirements. Although IFMS includes an
accounts receivable module, which EPA began using in 1989, the module
does not meet the special requirements needed to manage the
settlement agreements reached with PRPs. It lacks the capabilities
to compute compound interest and manage installment payments. This
module also lacks the ability to produce accurate aging reports for
Treasury and EPA management.
EPA has recognized that it has a receivables problem. It has
reported this problem as a material weakness in its fiscal year 1994
Federal Managers' Financial Integrity Act Report. This weakness is
very significant, especially given that EPA data show that
uncollected Superfund cost recovery receivables totalled about $498
million at the end of fiscal year 1994.
Because EPA has not yet resolved its problem with receivables, some
regional offices have developed their own automated systems or manual
procedures to overcome these limitations. For example, four regional
offices have developed local PC-based systems to provide some of
these accounts receivable capabilities, while another region uses a
combination of manual procedures and IFMS capabilities. Staff in
these regions pointed out that the locally developed systems or
procedures give them the capability to perform basic debt-servicing
functions that IFMS does not support.
PLANNED CHANGES TO INFORMATION
SYSTEMS COULD BE ENHANCED
------------------------------------------------------------ Letter :5
EPA has initiated efforts to address its information system
limitations. These efforts include (1) reporting cost data in
greater detail, (2) using a statistical tool to test the integrity of
financial data, and developing a capability to require that the
site/project field is complete and valid, (3) implementing and
testing an imaging system to improve the agency's identification and
retrieval of Superfund work-performed documentation, and (4)
developing a PC-based information system to better manage accounts
receivable. However, additional actions are needed to fully address
the limitations and ensure that the agency obtains the best possible
systems support for its cost recovery efforts.
EXPANSION OF ACCOUNT CODE
STRUCTURE SHOULD RESULT IN
MORE DETAILED COST DATA
---------------------------------------------------------- Letter :5.1
To address the need for more detailed cost data, in October 1995, EPA
plans to begin using an expanded 41-digit account code structure in
IFMS. This expanded structure should provide the capability to
record costs in greater detail, such as by site operable unit, and
thus better support EPA's cost recovery efforts.
STATISTICAL TESTING AND
IMPROVED DOCUMENTATION OF
APPLICATION CONTROLS SHOULD
HELP TO IMPROVE DATA
INTEGRITY
---------------------------------------------------------- Letter :5.2
To assess financial data reliability, EPA's Financial Management
Division has recently developed an automated statistical sampling
tool. The Division instructed the regions and finance centers in
March 1995 to begin using this statistical tool as part of the
agency's internal control evaluations. In August 1995, EPA officials
stated that the results of the initial testing are currently being
reviewed. In response to our concerns, EPA officials told us they
intend to issue guidance for automated statistical testing of the
integrity of financial data needed for cost recovery.
Regarding application controls, EPA officials acknowledged that the
capability to require that the site/project field be completed when
financial transactions are entered into IFMS would be beneficial.
They said that a new project cost accounting subsystem of IFMS,
scheduled for implementation by October 1995, should provide this
capability. With respect to the requirement that financial systems
be documented in accordance with federal policies, EPA officials also
reported that they intend to work with the OIG in improving the
documentation of application controls in IFMS.
ADDITIONAL USE OF TECHNOLOGY
COULD ENHANCE RECORDS
MANAGEMENT SYSTEMS USED FOR
COST RECOVERY
---------------------------------------------------------- Letter :5.3
As noted earlier, difficulties in locating and retrieving financial
and work-performed documentation has been a major contributor to the
amount of time and effort required to assemble cost recovery
packages. Although EPA has two efforts underway that may improve
certain aspects of its records management capabilities, neither
project, as currently planned, will address the agency's difficulties
in locating pre-1991 financial documents, or millions of
work-performed documents that occupy growing amounts of space in EPA
locations nationwide.
One project involves the development of an imaging system, called the
Superfund Document Management System (SDMS). SDMS is intended to
provide a number of advanced capabilities, such as full-text
indexing, electronic redaction, and security controls. The system is
being tested in EPA's regional office in San Francisco, California,
using documents related to its largest Superfund site. This site
accounts for about 25 percent of the region's Superfund documents.
Although SDMS may provide an effective means for locating
Superfund-related program documentation, EPA has not assessed the use
of SDMS for cost recovery in other regions.
A second project, initiated in 1993, involves microfilming over a
million pages of documentation pertaining to 60 expired
nationally-managed contracts and creating an automated index of these
documents. The project, which is being funded by EPA and implemented
by the Department of Justice, is intended to overcome difficulties
that EPA regions and Justice have experienced in obtaining copies of
this documentation. This effort may substantially improve the
accessibility and retrievability of work-performed documents related
to the expired national contracts. However, EPA has no plans to
assess whether this effort should be expanded to include other
region-specific work-performed documents that are used extensively in
cost recovery, such as documents pertaining to contracts managed by
EPA regions.
Although SCRIPS provides electronic access to financial documents
generated since 1991, an EPA official in the Financial Management
Division told us that the agency had not evaluated the costs or
benefits of expanding this system to include pre-1991 financial
documents, or included such a project in the agency's Five-Year Plan.
Agency officials explained that this has not been a high priority.
EVIDENCE LACKING TO SUPPORT
EPA ASSESSMENT OF RISKS AND
CONTROLS FOR ACCOUNTS
RECEIVABLE SYSTEM
---------------------------------------------------------- Letter :5.4
Recognizing that IFMS' accounts receivable management capabilities
needed improvement, EPA has initiated plans to strengthen these
capabilities beginning in early fiscal year 1996. The agency plans
to implement a Cost Recovery Collection Tracking System (CTS), which
is being developed in EPA's Chicago, Illinois, regional office. CTS
will run on personal computers that are connected to a local area
network in the region. The system is intended to provide (1) a
demand letter billing capability for actions initiated subsequent to
an administrative or judicial order, (2) timely collection
information to EPA managers, (3) tracking reports concerning cost
recovery collections, and (4) direct uploading of collections data to
IFMS. EPA's Financial Management Division plans to have CTS
designed, developed, and tested in the Chicago regional office by
September 30, 1995, and plans to distribute CTS to all of its
regional offices by December 31, 1995.
Given that the development of receivables management capabilities
could affect the collection of and accounting for billions of
dollars, it is critical that EPA implement a system that effectively
safeguards these public assets. As outlined in OMB Circulars A-123,
A-127, and A-130, agencies are required to (1) perform an assessment
of the potential risks associated with the operation of a system and
(2) provide some assurance that appropriate controls are in place to
reduce risks such as data entry errors and fraudulent manipulation of
accounts receivable data. Although EPA officials told us that risk
assessment was an inherent part of the development of CTS, they could
not provide us with documentation demonstrating that the agency had
performed a risk assessment or ensured that necessary controls will
be in place.
CONCLUSIONS
------------------------------------------------------------ Letter :6
EPA's financial and records management systems do not efficiently
support cost recovery, a critical business process that is vital to
the continued existence of the Superfund program. Because of
limitations in these systems, cost recovery staff cannot fully rely
on them to provide the information needed for cost recovery.
Instead, they laboriously search and reconcile paper records to
ensure that the information supporting cost recovery cases is
accurate, reliable, and complete.
Aware of these limitations, EPA is taking steps to improve support
for cost recovery. However, the agency could further ensure that it
is obtaining the best possible support for cost recovery by (1)
implementing its planned automated statistical testing of the
integrity of financial data needed for cost recovery and developing a
baseline on the extent of any integrity problems; (2) improving the
documentation of its financial systems' application controls; (3)
assessing how best to use records management systems to meet cost
recovery users' needs; and (4) ensuring that all risks associated
with the collection and management of receivables have been
addressed. These additional actions could further improve EPA's
efforts to recover billions of Superfund dollars through cost
recovery actions, make cost recovery more efficient, and lower the
risks of losing recoverable dollars.
RECOMMENDATIONS
------------------------------------------------------------ Letter :7
To improve EPA's ability to recover costs associated with cleaning up
hazardous waste sites, we recommend that the Administrator of the
Environmental Protection Agency take steps to ensure that cost
recovery data and supporting documentation are complete and accurate
by
implementing planned automated statistical testing of the integrity
of financial data needed for cost recovery and developing a
baseline on the extent of any integrity problems identified,
improving the documentation of financial systems' application
controls to help ensure accurate data input, processing, and
output,
assessing whether efforts to improve records management systems for
cost recovery should be expanded, including evaluating how best
to improve the retrieval of pre-1991 financial documents, and
performing a risk assessment and determining if additional controls
are needed for accounts receivable.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :8
EPA officials, including the Comptroller, the Director of the
Financial Management Division, and the Director of the Policy and
Program Evaluation Division, provided comments on a draft of this
report. Overall, the officials agreed with our recommendations and
with our conclusions that the agency's systems supporting cost
recovery needed improvement. The agency provided additional
information on the status of its improvement activities, which we
have incorporated where appropriate.
---------------------------------------------------------- Letter :8.1
As arranged with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
until 30 days from the date of this letter. At that time, we will
send copies to the Administrator of the Environmental Protection
Agency, Director, Office of Management and Budget, and interested
congressional committees. Copies will also be made available to
others upon request.
Please call me at (202) 512-6253 if you or your staff have any
questions concerning this report. Other major contributors are
listed in appendix II.
Sincerely yours,
Joel C. Willemssen
Director, Information Resources
Management/Resources, Community
and Economic Development
SCOPE AND METHODOLOGY
=========================================================== Appendix I
To evaluate how well EPA's information systems support the Superfund
cost recovery process, we used a structured interview document to
discuss cost recovery efforts with staff from five of EPA's ten
regional offices: Region 2 (New York), Region 3 (Philadelphia),
Region 5 (Chicago), Region 7 (Kansas City); and Region 10 (Seattle).
We chose regions 2, 3, and 5 because they had the highest levels of
direct expenditures on cleanups. We chose regions 7 and 10 because
they provided geographical diversity. We analyzed numerous documents
related to cost recovery from each of these regions. Because
integrity of data in EPA's financial systems has a direct impact on
how well these systems support cost recovery, we sought information
from cost recovery staff on the extent of problems with the financial
data. However, because these staff were unable to provide quantified
information on the extent of such problems, we relied on their oral
responses and some documented instances in reaching our conclusions.
We also contacted by phone records management officials in all ten
EPA regions concerning the volume of documentation maintained and
researched for supporting cost recovery.
We met with representatives and analyzed workpapers and documents
from the three firms involved in the audit of EPA's fiscal year 1993
financial statements for the Superfund Trust Fund. These firms were
Leonard G. Birnbaum and Company; KPMG Peat Marwick; and American
Power Jet Company. We met with officials from EPA's OIG and reviewed
its past and current reports related to Superfund and cost recovery.
We also met with officials in the Department of Justice's Environment
and Natural Resources Division concerning the quality of the cost
recovery documentation that it receives from EPA and uses to pursue
cost recovery actions.
To evaluate the extent to which EPA's planned information systems
modifications could improve the efficiency of cost recovery efforts,
we (1) applied relevant segments of the information systems audit
methodology published by the EDP Auditors Foundation,\1 (2)
interviewed officials from several EPA headquarters offices in
Washington, D.C., and from EPA regional offices involved in
developing new information systems or modifications to existing
systems, and (3) reviewed and analyzed documents on EPA's actions,
including documentation on users' requirements, feasibility, costs,
benefits, and detailed specifications pertaining to the agency's
efforts to enhance and develop system capabilities to support cost
recovery. We also reviewed EPA planning documents, including the
agency's Five-Year Plan, and Strategy and Master Work Plan for IFMS.
Our work was performed at several offices at EPA headquarters
including the Office of Solid Waste and Emergency Response, Office of
Enforcement and Compliance Assurance, Office of Inspector General,
and the Financial Management Division in the Office of Administration
and Resources Management. These offices were located in Washington,
D.C., and Arlington, Virginia. We also worked at (1) EPA regional
offices in New York, New York; Philadelphia, Pennsylvania; Chicago,
Illinois; and San Francisco, California; (2) the Department of
Justice in Washington, D.C.; and (3) the office of Leonard G.
Birnbaum and Company in Springfield, Virginia.
We conducted our review from January 1994 to July 1995, in accordance
with generally accepted government auditing standards. We requested
comments on a draft of this report from the Administrator,
Environmental Protection Agency. In August 1995, we received the
agency's response from the Comptroller, the Director for the
Financial Management Division, and the Director for the Policy and
Program Evaluation Division. We have incorporated these comments
where appropriate.
--------------------
\1 Computerized Information Systems Audit Manual, EDP Auditors
Foundation, Inc., 1992.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C.
Ronald W. Beers, Assistant Director
William G. Barrick, Project Manager
Robert C. Reining, Deputy Project Manager
James V. Rinaldi, Senior Evaluator
*** End of document. ***