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EPA's Changing Budget Process: Opportunity for Improved Financial Management

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EPA's Changing Budget Process: Opportunity for Improved Financial Management

Executive Summary

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EXECUTIVE SUMMARY

PURPOSE

The direction of today's Federal Government is toward improved financial management. The Federal Government is fundamentally changing the way it manages the public's resources. Recent legislation has provided for improved quality of financial information. This legislation will improve the link between budget and accounting information. The chief benefit of improving this linkage will be to increase the reliability of the data on which management and budgetary decisions are made.

The overall purpose of the audit was to determine if the Environmental Protection Agency's (EPA) budget and related cost information for personnel resources represented planned and actual use. This report consolidates the findings of five regional and two program office reviews and incorporates the findings from the report issued July 9, 1996, titled Budget Process: The Activity Structure. (Appendix I lists the reports, report dates, and office locations.)

RESULTS IN BRIEF

EPA's budget practices and procedures were generally effective at the appropriation level and ensured that EPA complied with the statutory requirements for funds control. However, a pattern of errors in EPA's budget practices and procedures indicated that budget and cost information for program level personnel resources was not valued as useful information and did not ensure that EPA complied with congressional intent. As a result, Agency managers relied on inaccurate information in developing budget requests. Given the change in focus of the financial environment in the Federal Government, EPA has an opportunity to make needed improvements in its budget practices and procedures.

EPA has recognized this opportunity and launched a new initiative to develop a Planning, Budgeting, and Accountability (PBA) system. The PBA system is being developed to better link long-term environmental planning with budget and accountability systems. This initiative presents the Agency with an opportunity to fundamentally change the way it plans, budgets, accounts for, and manages activities performed. The Agency has recognized that two critical elements for the PBA system's success are delegating performance and accountability throughout all levels of the Agency and obtaining employee buy-in.

PRINCIPAL FINDINGS

Regional Personnel Resource Budgets Did Not Always Reflect Planned Use

EPA's regional personnel resources in the Agency's approved budget did not always reflect planned use. Regions did not reprogram personnel resources in their portion of the Agency's budget. Further, EPA used outdated workload models to allocate personnel resources to the regions. As a result, the regional workyears and personnel funds were misstated in the Agency's budget approved by Congress. National Program Managers (NPM) then used the misstated budget information to develop future budget requests.

Reprogramming Errors Diminished the Usefulness of Program Information

The Budget Division had comprehensive reprogramming procedures. However, EPA's reprogramming procedures did not require NPM notification for changes to program budgets for which the NPM had overall responsibility. Further, we noted several errors in implementing the 1994 and 1995 reprogrammings. Reprogramming justifications did not consistently identify the program impact on the losing program. Regions monitored personnel resources at the appropriation level rather than the program level. EPA did not obtain required congressional approval of one fiscal 1994 reprogramming. These errors diminished the usefulness of the related program information.

Regional Personnel Costs Were Inaccurately Accumulated and Reported

The Agency's implementation of recent Integrated Financial Management System updates and changes in Agency directives increased the accuracy of personnel resource costs. However, we noted significant errors in two of five regions' charging of personnel costs which caused the misstatement of reported program level personnel costs. The misstated program cost information was used to develop subsequent program budgets.

Inconsistently Defined Program Elements Hampered the Usefulness of EPA's Budget Structure

EPA attempts to provide program cost information through the budget structure. However, the realities of the budget process led to inconsistencies in the budget structure and diminished the comparability of program budget and cost information. The budget structure is complex and has been hampered by the inconsistent creation of program elements. Further, the current budget structure cannot efficiently capture the information required to implement the Government Performance and Results Act of 1993 as the activities, for which goals and related measures are being proposed, are not always equivalent to existing program elements. The Agency recognized this and is working on plans to restructure the program elements. EPA plans to accomplish this restructuring as a part of the new PBA system.

The Budget Division Lacked Documentation To Support Congressional Notification of Agency Reserve for Contingencies

EPA held $53 million in reserve for contingencies and as fiduciary reserves in the initial fiscal 1995 operating plan. Of this amount, $28 million, in 11 accounts ranging from $71,000 to $6.6 million, remained in reserve at the end of fiscal 1995. The Budget Division was unable to provide support that Congress was notified of the contingency reserve as required by the Impoundment Control Act. The Budget Division, also, was not able to provide support for the rationale and methodology for specific reserve calculations.

RECOMMENDATIONS

As a part of EPA's PBA initiative, the Acting Chief Financial Officer (CFO) needs to ensure that the program budget and cost information used for budgeting and performance measurement is accurate, timely, and useful. The Acting CFO needs to ensure EPA's budget practices and procedures address the need for accurate and reliable program information, are consistently implemented, and include controls to identify procedures not followed.

AGENCY COMMENTS AND OIG EVALUATION

The Acting CFO generally agreed with the findings and provided comments to clarify some issues. The Acting CFO agreed in part to timely notify NPMs of reprogrammings for programmatic reasons. We disagreed on the timing and method of this notification. The Acting CFO also agreed with the recommendation to document the rationale and related calculation of all funds held in reserve and provided information to clarify the finding. However, the Acting CFO did not provide information which disproved our position that funds held in reserve for contingencies constitutes a deferral and require congressional notification. Thus, we recommend the Agency obtain an Office of General Counsel written opinion why such a notification is not required.

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Created January 31, 1997

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