STATEMENT OF SALLYANNE HARPER
September 30, 1999

STATEMENT OF
SALLYANNE HARPER
CHIEF FINANCIAL OFFICER
U.S. ENVIRONMENTAL PROTECTION AGENCY
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT, INVESTIGATIONS,
AND EMERGENCY MANAGEMENT
OF THE
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
U.S. HOUSE OF REPRESENTATIVES

September 30, 1999

Madam Chairman and Members of the Subcommittee:

I am Sallyanne Harper, Chief Financial Officer of the Environmental Protection Agency (EPA). Let me begin by thanking you for the opportunity to appear before the Subcommittee to discuss EPA's work in support of financial data quality. I appreciate the Subcommittee's interest in this issue, and I share your concern for the accuracy, completeness, and timeliness of financial data across the government. We were late this year with completing the Agency's annual audited financial statements. I can report to you today that the extra work we did resulted in an unqualified opinion. In addition, the lessons we learned will improve our financial statement preparation process and position us to prepare timely financial statements in the future.

Background

Over the past ten years, Congress has passed a series of laws aimed at improving Federal financial management. As a result of those acts, financial management underwent a series of changes. One of the changes was that the Federal government issued accounting standards which established requirements for recording and presenting financial data. A marker of success for an organization in achieving these standards is obtaining an unqualified audit opinion on its financial statements. Unqualified audit opinions are important to EPA because they help to establish confidence with the Congress, the taxpayers, and our stakeholders that we can effectively manage taxpayer dollars. For EPA, incorporating the many new Federal accounting standards into our financial processes and preparing Agency-level financial statements has been challenging. While difficulties arose in preparing our FY 1998 financial statement, the lessons learned have instilled a greater level of discipline in our financial processes.

Overall, I am pleased with the financial improvements that we have made at EPA. We achieved an unqualified audit opinion on our FY 1997 audited financial statements, which were issued on time, and an unqualified opinion on our FY 1998 statements. Unfortunately, we did not issue our FY 1998 financial statements in a timely manner. The FY 1998 financial statements included, for the first time, the Statements of Budgetary Resources and Financing. We underestimated the amount of time necessary to perform all the account analyses and reconciliations necessary to complete these new financial statements. For FY 1999, EPA has instituted a number of steps to ensure our financial statements are issued on time.

Financial Data Quality

Because we were late with our financial statements, questions may arise regarding the reliability of our financial data. I want to assure you that we do have reliable data. The financial statements are one of many reports we issue. We have been timely in our reports to the Department of the Treasury and the Office of Management and Budget. We want to support our environmental programs and their managers. Agency managers are expected to make greater use of financial information in their decision-making process. Financial data is to be used as a means to understand and compare the difference between alternatives and provide a basis for expected results. In this regard, Agency managers need to have confidence in the financial data they use. It is therefore very important that we maintain a high level of financial data quality and reliability.

An unqualified audit opinion on financial statements provides a universally understood level of acceptance and is one way EPA can demonstrate to Agency managers, the Congress, and the American public that EPA can produce reliable financial information. An unqualified audit opinion does not represent an end unto itself. But an unqualified audit opinion, coupled with providing financial information on a continuous basis, becomes the foundation for good financial management data. Preparing for audited financial statements provides for an additional level of precision in Agency financial transactions and processes. This precision translates into improved data quality. Decision makers can be confident in EPA's financial information they use for decision making.

Audited financial statements are significant in providing Agency managers, the Congress, and our stakeholders with an organization's results of operations over a period of time at an aggregate level. However, in the day-to-day management of EPA, what is most important to managers is not the summary statements and the information they contain, but the accessibility and reliability of the financial systems and processes that provide the relevant, underlying information to managers on a recurring, timely basis.

We made great strides in providing Agency managers with recurring, timely data with our implementation of the Government Performance and Results Act (GPRA). EPA has fully integrated our planning, budgeting, and accountability processes so that we can manage for good environmental results. We have benefitted substantially from the structure, visibility, and credibility provided by GPRA, as it supports the integration of management processes in ways that are complementary to some of the Agency's own approaches.

The accounting for GPRA enables Agency managers, as well as senior policy makers, to identify the dollars spent on, for example, restoring and protecting watersheds or reducing the number of children exposed to lead poisoning. I'm encouraged by our progress to date but this first year's results will be instructive to all of us. As we move farther into the GPRA era, our challenge is to continuously improve our means to capture both cost data and performance information in order to measure the true return on our financial investments in terms of public health and environmental results and outcomes. Decision makers need to know the cost of programs and their activities in order to make informed decisions. The data must be accurate, timely, and reliable, which we believe it is, but the data must also be of a nature that is relevant to the decision maker. The process we have implemented to account for the results of our environmental programs is a significant step in providing relevant financial information to managers.

Our accounting under GPRA is recent; however, we have been successfully providing recurring financial information to the Superfund program for a number of years. Within the Agency's Superfund program, there is an absolute need for detailed, recurring, timely data. Cost recovery, a major activity under the Superfund program, is dependent upon timely, recurring financial data. The cost recovery process is the means by which the Agency recovers (receives payment for) its expenditures from responsible parties for cleaning up a Superfund site. The cost recovery process is a judicial process that sets very specific time frames for presenting information and very specific guidelines for documenting and supporting Agency costs. We have worked very hard to ensure our financial processes meet Superfund program needs and have been very successful in meeting those needs. One measure of success is the level of our Superfund cost recovery collections; over $ 1 billion has been collected in the last four years alone. With our ability to produce accurate, timely financial information, we have contributed to the program's success.

Automation is one area where we can take advantage of new technologies to improve the timely preparation and reporting of financial data. EPA provides a number of standard reports to the Department of the Treasury and the Office of Management and Budget on the status of our spending. These reports are used in the overall management of Federal financial resources, and they also serve as a basis for our financial statements. The information contained in the reports are drawn from our financial management system, and some of these reports are manually prepared. We are aggressively pursuing the automation and streamlining of our reporting processes wherever possible. By automating these processes, we can prepare more timely reports and reduce the chance of human error. In addition, automation will allow us to shift our focus from merely processing financial information to analyzing financial information for the decision- making process. Automation is one of the steps we will take to ensure we continue to provide accurate, reliable, timely data.

Challenges

EPA faces many challenges in its efforts to maintain and produce reliable financial data. Many of these challenges are identified and highlighted in audits performed by the Inspector General or the General Accounting Office. These audits serve as a means to validate or identify where financial information is accurate and where data improvement is needed.

Recent financial statement audit reports have noted that some receivables are not being recorded in a timely manner. These receivables, which are generally in the Superfund program, have a greater level of complexity than most Agency receivables. These receivables are based upon enforcement decisions or court orders and can require clarification or interpretation of receivable terms. Managing our accounts receivable is an area on which we will continue to focus. Two steps we have taken to address accounts receivables are: (1) the establishment of a financial performance measure for Agency managers to record the receivable in a timely manner; and, (2) our work with the Department of Justice (DOJ) on electronic notification of debts and collections. This primarily affects the Superfund program where DOJ is responsible for following up on overdue receivables. Since Superfund receivables represent the majority of our debt portfolio, DOJ's role is crucial to our success. These actions are just two of the steps we have taken in our efforts to ensure our data is accurate and reliable.

In FY 1999, we want to ensure that our financial statements are issued in a timely manner. The lessons learned in preparing our financial statements for FY 1998 have been incorporated into our FY 1999 financial statement preparation process. We have taken positive steps to identify those issues surrounding the preparation of our statements. We have consulted with the Inspector General on our approach and we have prepared a trial run of some of our statements. We have undertaken these activities to ensure that the data in our system is accurate and that we can prepare the financial statements in a timely manner.

Creating and maintaining the appropriate knowledge base for financial management personnel is one of the challenges to maintaining reliable, timely data. We are addressing this area by providing on-going training to Agency finance personnel. Providing training on new financial management procedures serves to update the level of knowledge and understanding on Agency finance procedures. In the past year we have provided financial training on areas such as accounts receivable management and analysis, certification and approval of payments, use of the Standard General Ledger (the accounting books in which we record our financial transactions), operation of the Agency's accounting system, and preparation of reports from our accounting system. The ultimate purpose of this training is to ensure that our financial transactions are prepared correctly and our financial data is reliable. Throughout all the challenges we face, we will continue to record and maintain accurate reliable data.

Summary

This year we were late in completing our financial statements. We learned from this process and have taken corrective action to ensure that next year's statements are completed on time. I believe the steps we are taking in financial management at EPA will continue to ensure good quality financial management data and allow us to routinely prepare timely, accurate reports for Agency decision makers. There will be challenges ahead and, in partnership with our Inspector General, we will meet those challenges. Thank you again for the opportunity to appear here today and to discuss these important issues. I will be happy to answer any questions.

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