Podcast Transcript
Audit of the EPA’s Fiscal Years 2021 and 2020 Toxic Substances Control Act Service Fee Fund Financial Statements


JENNIFER: Hello! My name is Jennifer Kaplan and I’m from the congressional and public affairs unit in the Office of Inspector General at the U.S. Environmental Protection Agency. I’m talking with Shannon Lackey, who worked on the audit that is the subject of this podcast. Welcome, Shannon.

SHANNON: Thank you, Jennifer.

JENNIFER: Around here, we call the Toxic Substances Control Act “TSCA” for short. Shannon, your team just concluded an audit of the 2021 and 2020 financial statements of TSCA’s Service Fee Fund and the report is available on the OIG’s website. I want to discuss the findings in just a moment.
But first things first: For our listeners, what is TSCA?

SHANNON: TSCA has been law for nearly a half century and provides EPA with authority to require reporting, record keeping and testing requirements, along with restrictions, relating to most chemical substances, including man-made organic chemicals, asbestos, radon, and lead-based paint. TSCA addresses the production, importation, use, and disposal of such chemicals.

JENNIFER: Thank you, Shannon. In 2016, amendments to TSCA established the Service Fee Fund. Can you explain more?

SHANNON: Sure – the amendments to TSCA provided EPA with expanded authority to collect fees from chemical manufacturers and importers to help defray up to 25 percent of the costs associated with implementing the act. 

JENNIFER: And EPA is required to prepare financial statements of that fund, which the OIG is required to audit.

SHANNON: Correct.

JENNIFER: Okay, let’s move on to the audit itself. A financial statement audit report, by necessity, is full of accounting terminology. For those of us who aren’t familiar with that subject area, what did your team find?

SHANNON: Well, for the most part, we found that the financial statements and accompanying notes prepared by EPA are fairly presented.  

JENNIFER: Yet you rendered a “qualified” opinion. Usually, the word qualified means something positive in terms of eligibility or competency. But that’s not the case with financial statements, is it? 

SHANNON: No, in this context, “qualified” means that we obtained sufficient, appropriate audit evidence, and found the financial statements were presented fairly but with exceptions.

JENNIFER: What types of exceptions did the team find?

SHANNON: We found material weaknesses and significant deficiencies. A material weakness indicates a reasonable possibility that one or more deficiencies will not be prevented or detected and corrected on a timely basis. A significant deficiency is less severe than a material weakness but important enough that Agency officials should act to correct it. In this audit, the material weaknesses are what led to the qualified opinion.

JENNIFER: What are the material weaknesses applicable to this audit?

SHANNON: There are two, and both are related to “expenses from other appropriations.”
Congress gives EPA special funding to pay for some of the TSCA Service Fee Fund activities. Other funding for TSCA activities comes from the EPA’s regularly appropriated general use funds.
The first material weakness is outstanding from our TSCA audit of fiscal years 2020 and 2019.  During our audit of fiscal years 2020 and 2019, we found that the methodology EPA used to determine the amount of expenses from these other appropriations did not accurately account for those expenses. The Agency agreed to correct that methodology and estimated the correction would be in place for fiscal year 2024. However, for the purposes of our annual audit, that exception will remain until we can confirm it has been corrected.
The other material weakness was a calculation error. When the Agency calculated expenses from other appropriations, it included certain TSCA direct costs in the indirect cost calculation, counting those amounts twice. The double counting overstated that line item by $2.36 million.

JENNIFER: We touched on this point already, but I want to make sure that I understand. If the OIG flagged the problem with methodology during last year’s financial statement audit, why was the EPA still using the same methodology in 2021?

SHANNON: For this latest audit, we tested transactions that occurred in fiscal year 2021. Our prior report, which was published in December 2022, looked at fiscal year 2020 transactions. In that report, we made a single recommendation that the EPA’s chief financial officer correct the methodology you and I are discussing. The Agency agreed and set a deadline of October 1, 2023, which falls in fiscal year 2024. So when we audit the TSCA Service Fee Fund for fiscal years 2022 and 2023, we still won’t expect the methodology to be corrected yet.

JENNIFER: Thank you for explaining, Shannon. Your current report covering fiscal years 2021 and 2020 contains four recommendations. Can you summarize those for us?

SHANNON: Absolutely. The first recommendation addressed one of the material weaknesses we’ve discussed – for the Agency to correct the expenses from other appropriations calculation error. The remaining three recommendations were significant deficiencies. Two pertain to updating procedures related to accounts receivable. The final recommendation relates to separation of duties. For example, the same EPA employee can’t both process a payment and certify that payment. When implemented, all of these will improve the Agency’s financial statement reporting process for the TSCA Service Fee Fund.

JENNIFER: Shannon Lackey, thank you again for taking time to talk with me about your team’s audit of EPA’s TSCA Service Fee Fund financial statements. Once again, for our listeners, the OIG’s full report can be found on our new website at www-DOT-epaoig-DOT-gov.