oversight

Major Management Challenges and Program Risks: Environmental Protection Agency

Published by the Government Accountability Office on 2003-01-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Performance and Accountability Series




January 2003
               Major Management
               Challenges and
               Program Risks
               Environmental
               Protection Agency




GAO-03-112
               a
A Glance at the Agency Covered in This Report
The Environmental Protection Agency has the critical and complex mission of
protecting human health and safeguarding the environment. It works
collaboratively with the states, local governments, tribes, and others on a variety
of efforts, including ensuring that
●       the air in every American community will be safe and healthy to breathe;
●       all Americans will have drinking water that is clean and safe to drink;
● America’s rivers, lakes, wetlands, aquifers, and coastal and ocean waters will be

protected;
●       the foods Americans eat will be free from unsafe pesticide residues;
●       America’s wastes will be stored, treated, and disposed of in ways that prevent
        harm to people and the natural environment; and
●       the United States will lead other nations in reducing significant risks from
        climate change, stratospheric ozone depletion, and other hazards of
        international concern.

The Environmental Protection Agency’s Budgetary and Staff Resources

Budgetary Resources a, b                                              Staff Resources b
Dollars in billions                                                    FTEs in thousands

16                                                                     20
                                                                             18        18        18       18          18
                                                  12
12        11       11       11         11                              15


    8                                                                  10


    4                                                                   5


    0                                                                   0
         1998    1999      2000      2001         2002                      1998      1999     2000      2001         2002
         Fiscal year                                                        Fiscal year
Source: Budget of the United States Government.

a Budgetary resources include new budget authority (BA) and unobligated balances of previous BA.

b Budget and staff resources are actuals for FY 1998-2001. FY 2002 are estimates from the FY 2003 budget, which
    are the latest publicly available figures on a consistent basis as of January 2003. Actuals for FY 2002 will be
    contained in the President’s FY 2004 budget to be released in February 2003.




This Series
This report is part of a special GAO series, first issued in 1999 and updated in
2001, entitled the Performance and Accountability Series: Major Management
Challenges and Program Risks. The 2003 Performance and Accountability Series
contains separate reports covering each cabinet department, most major
independent agencies, and the U.S. Postal Service. The series also includes a
governmentwide perspective on transforming the way the government does
business in order to meet 21st century challenges and address long-term fiscal
needs. The companion 2003 High-Risk Series: An Update identifies areas at high risk
due to either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency, or
effectiveness. A list of all of the reports in this series is included at the end of
this report.
                                                    January 2003


                                                    PERFORMANCE AND ACCOUNTABILITY SERIES

                                                    Environmental Protection Agency
Highlights of GAO-03-112, a report to
Congress included as part of GAO’s
Performance and Accountability Series




In its 2001 performance and                         The Environmental Protection Agency has made progress toward resolving
accountability report on the                        the specific performance and management challenges that GAO previously
Environmental Protection Agency                     identified. However, each of these challenges requires more work and
(EPA), GAO identified important                     vigilance to be overcome. In addition, the agency must face emerging
challenges facing the agency in                     challenges in managing grant resources to better achieve environmental
improving environmental
information, developing a
                                                    results and in correcting weaknesses in controls over its financial reporting.
comprehensive human capital
approach, and strengthening                         •   Improving environmental information. EPA has taken important
working relationships with the                          steps to improve the environmental information it uses to set priorities
states. The information GAO                             and measure progress. For example, EPA has embarked on a major
presents in this report is intended                     effort to determine the overall status of the nation’s environment. EPA
to help to sustain congressional                        has also taken steps to improve the compatibility and security of its data
attention and an agency focus on                        systems. However, EPA must work to further improve its environmental
continuing to make progress in                          information, fill significant data gaps, and incorporate better scientific
addressing these challenges—and                         understanding into its performance measures.
others that have arisen since
2001—and ultimately overcoming
them. This report is part of a                      •   Strengthening human capital management. EPA has conducted a
special series of reports on                            study of its workforce and issued a human capital strategy. However, the
governmentwide and agency-                              agency still must determine the number of employees it needs to
specific issues.                                        accomplish its mission, the technical skills required, and how best to
                                                        allocate employees among EPA’s strategic goals and geographic
                                                        locations. Similarly, EPA needs to fully prepare for the loss of leadership,
                                                        institutional knowledge, and scientific expertise that will likely result
GAO believes that EPA should:                           from upcoming retirements.
•  Ensure that recent steps to
   improve environmental                            •   Making regulatory innovation successful. EPA has invested
   information receive sustained                        considerable time and resources in a variety of initiatives to encourage
   top management support.
                                                        more effective and cost-efficient environmental protection. However,
•  Implement a systematic and
   comprehensive human capital                          these initiatives have yielded limited results. Our work shows that
   approach.                                            current environmental statutes significantly impede regulatory
•  Articulate a clear and specific                      innovation. If the statutory obstacles to innovation are not addressed,
   endorsement of legislation that                      EPA’s future regulatory initiatives may not fare better than past ones.
   would address statutory
   obstacles to the agency’s                        •   Improving grants planning and management. EPA annually spends
   regulatory reinvention efforts.                      over half its budget on grants. However, the agency has often not
•  Strengthen its grants planning                       focused its planning and performance measurement for grants on
   and management to better                             achieving environmental results. In addition, EPA must address
   achieve environmental results.                       persistent problems in its management and oversight of grants.
•  Improve its internal controls
   over financial reporting.
                                                    •   Strengthening controls over financial reporting. EPA’s Inspector
                                                        General issued an unqualified opinion on EPA’s consolidated financial
www.gao.gov/cgi-bin/getrpt?GAO-03-112.                  statements for fiscal year 2001. However, the Inspector General
                                                        identified several internal control weaknesses that EPA needs to address
To view the full report, click on the link above.
For more information, contact Robert A.                 to improve its ability to process, summarize, and report financial data.
Robinson, at (202) 512-3841 or
robinsonr@gao.gov.
Contents



Transmittal Letter                                                                                                1


Major Performance                                                                                                  2

and Accountability
Challenges

GAO Contacts                                                                                                      38


Related GAO Products                                                                                              39


Performance and                                                                                                   42

Accountability and
High-Risk Series




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                        copyrighted materials separately from GAO’s product.




                       Page i                                                         GAO-03-112 EPA Challenges
A
United States General Accounting Office
Washington, D.C. 20548
                                                                                           Comptroller General
                                                                                           of the United States




           January 2003                                                                                           T
                                                                                                                  ransmL
                                                                                                                       ta
                                                                                                                        ileter




           The President of the Senate and the
           Speaker of the House of Representatives

           This report addresses the major management challenges and program risks facing the Environmental
           Protection Agency (EPA) as it works to carry out its complex mission of protecting human health and
           safeguarding the environment. The report discusses the actions that EPA has taken and that are under
           way to address the challenges GAO identified in its Performance and Accountability Series 2 years
           ago. The report also summarizes the challenges that remain, new ones that have emerged, and further
           actions that GAO believes are needed.

           This analysis should help the new Congress and the administration carry out their responsibilities and
           improve government for the benefit of the American people. For additional information about this
           report, please contact Robert A. Robinson, Managing Director, Natural Resources and Environment,
           at (202) 512-3841 or at robinsonr@gao.gov.




           David M. Walker
           Comptroller General
            of the United States




                                     Page 1                                               GAO-03-112 EPA Challenges
Major Performance and Accountability
Challenges

              In January 2001 we reported that EPA faced three performance and
              accountability challenges in fulfilling its mission of protecting
              human health and the environment. First, EPA needed to improve its
              environmental and performance information management to set priorities
              and measure results. Without a comprehensive picture of environmental
              conditions, EPA faces difficulty in setting risk-based priorities for its
              programs, evaluating performance progress and environmental results, and
              reporting on its accomplishments. Second, EPA needed to place greater
              emphasis on developing a comprehensive human capital program. Without
              such a program, EPA faces difficulty in aligning human capital investments
              with strategic goals and objectives, and determining the number of
              employees, the skills, and the deployment of its workforce needed to
              accomplish its mission. Finally, we reported that the nation’s complex
              future environmental challenges require EPA and its stakeholders to adopt
              fundamentally different regulatory approaches that are more flexible and
              less administratively burdensome.

              During the past 2 years, EPA has continued its traditional efforts to protect
              the nation’s air, land, water, and human health, while undertaking new roles
              and responsibilities, such as mitigating the environmental effects of the
              tragic events of 2001. EPA played a major role in responding to the attacks
              at the World Trade Center, assisting in debris removal, air and water quality
              monitoring, worker protection, dust cleanup, and criminal investigation.
              Similarly, EPA worked with the Federal Bureau of Investigation and the
              Department of Defense at the Pentagon crash site to monitor air and
              drinking water quality and to collect forensic evidence for criminal
              investigation. EPA also provided personnel, equipment, and contractors to
              help assess or clean up anthrax contamination at the U.S. Postal Service,
              the Capitol Hill complex, and other government sites. Despite its
              increased responsibilities, EPA has, to its credit, also undertaken some
              major initiatives to improve the overall management of the agency and
              its resources.

              These management initiatives have helped EPA make progress in
              addressing the management challenges we identified in our 2001 report.
              For example, in an effort to improve the quality of the information used
              to set priorities and measure results, EPA plans to issue the first-ever
              State of the Environment Report in early 2003, which will summarize
              available information on the condition of the nation’s environment and
              identify the remaining information needed to complete the picture. In
              addressing its human capital challenges, EPA has begun to develop a
              workforce assessment system that will identify the technical skills and



              Page 2                                               GAO-03-112 EPA Challenges
Major Performance and Accountability
Challenges




number and type of positions required, inventory the skills of the current
workforce, examine attrition rates, and forecast the number of new hires
required. Finally, in an effort to adopt regulatory approaches that are more
flexible and less administratively burdensome, EPA has invested
considerable time and resources in a variety of initiatives to encourage
more effective and cost-efficient ways of protecting the environment.
However, for each of the management challenges we identified in 2001,
more work remains to be done. In addition, we have identified two
other challenges that EPA needs to address. Specifically, EPA needs to
strengthen its grants management and improve internal controls over its
financial management reporting. In sum, the major management challenges
that EPA faces are as follows:




     Performance and
     Accountability Challenges
         Make further progress in filling significant data gaps in environmental
         information and incorporate better scientific understanding into EPA’s
         performance measures

         Determine the number of employees needed to accomplish EPA’s mission,
         the technical skills required, and how best to allocate employees among
         strategic goals and geographic locations; fully prepare for the loss of
         leadership, institutional knowledge, and scientific expertise that will likely
         result from upcoming retirements

         Champion changes to existing environmental statutes that would allow
         regulatory innovation to significantly improve the efficiency and effectiveness
         of environmental protection

         Better focus EPA’s planning and performance measurement for grants on
         achieving environmental results, and address persistent problems in EPA’s
         management and oversight of grants

         Correct several internal control weaknesses to improve EPA’s ability to
         process, summarize, and report financial statement data




Page 3                                                           GAO-03-112 EPA Challenges
                      Major Performance and Accountability
                      Challenges




EPA Needs to Ensure   Information is critical to EPA’s mission of protecting the environment and
                      public health. Information from scientific research, from the monitoring
That Recent Steps     of air and water quality and other environmental parameters, and from
to Improve            epidemiological and other studies of the links between environmental
                      pollutants and human health effects is needed to inform EPA’s policies
Environmental         and to assess the effectiveness of the agency’s policies and programs in
Information Receive   achieving desired results. While the quality of environmental information
Sustained Top         and the scientific understanding of how environmental factors can affect
                      ecological conditions and human health have improved since EPA’s
Management Support    inception, the pace of progress has sometimes been slow. Furthermore,
                      significant gaps in environmental information and scientific knowledge
                      remain. EPA has taken a number of recent actions to implement
                      recommendations that we and others have made to enhance the quality
                      and usefulness of the environmental information that it and its partners
                      generate. These actions include adopting an information strategic plan that
                      envisions managing information as a strategic resource, developing data
                      standards to facilitate efficient reporting, aggregating and integrating
                      environmental data, measures to improve information security, and
                      initiatives to develop a comprehensive set of environmental indicators and
                      use them to provide the public with a baseline report on the current state of
                      the environment.

                      To ensure that these and related actions continue and achieve the
                      desired results, EPA management needs to develop annual or multiyear
                      action plans to translate the “vision” embodied in the strategic information
                      plan into specific actions that will advance the achievement of the plan’s
                      goals. Action plans would, among other things, establish target dates for
                      completing specific actions and identifying the resources required to
                      meet these milestones. Action plans could help ensure that the strategic
                      plan becomes and remains a living document that informs agency
                      decision making; guides investments in information infrastructure,
                      technology, and human capital; and evolves over time to reflect progress,
                      changing circumstances, and new imperatives. Sustained progress in
                      enhancing the agency’s information management will require a long-term
                      commitment of management attention, including appropriate
                      follow-through and resource support.




                      Page 4                                               GAO-03-112 EPA Challenges
                          Major Performance and Accountability
                          Challenges




Significant Gaps Remain   The results of scientific research, and the information and knowledge
in Environmental Data     gained from monitoring the environment and public health, are essential
                          foundations for developing; assessing; and refining environmental policy,
and Science               including developing measures to gauge the effectiveness of that policy
                          in producing the desired outcomes. While EPA, the states, and other
                          environmental partners carry out a considerable amount of research and
                          collect extensive information on environmental parameters, significant
                          gaps and weaknesses remain in the knowledge and understanding of
                          environmental stressors and pollutants and their effects on ecological
                          condition and human health. Information obtained from environmental
                          monitoring is often fragmentary and of varying quality, information on
                          human exposures to toxic pollutants is limited, and the ecological and
                          public health effects of many environmental contaminants are still not well
                          understood. As we have reported in the past, such gaps in the data and in
                          scientific understanding hamper EPA’s efforts to (1) perform critical human
                          exposure and risk assessments, (2) use risk as a basis for setting program
                          priorities, (3) obtain a comprehensive understanding of environmental
                          conditions and changes over time, and (4) assess the agency’s effectiveness
                          in carrying out its mission of protecting the environment and human health.

                          Information on the health risk posed by exposures to toxic chemicals is
                          critical to EPA’s policy decision making. However, the information needed
                          to credibly assess these risks often does not exist. In a May 2000 report
                          on the lack of data regarding human exposures to toxic chemicals in the
                          environment, we reported that exposure data were limited because the
                          data were being collected nationwide for only a small percentage of the
                          nearly 1,500 potentially harmful chemicals we reviewed.1 For the nearly
                          500 chemicals that EPA identified as most in need of testing under the
                          Toxic Substances Control Act, only 2 percent were being tested for
                          human exposure. We recommended that the Secretary of Health and
                          Human Services and the EPA Administrator develop a coordinated federal
                          strategy for the monitoring and reporting of human exposures to
                          potentially toxic chemicals.

                          Progress in this area has been slow, however, and the benefits of initiatives
                          currently in the discussion or planning stages are likely to be years away
                          from realization. For example, EPA’s Office of Research and Development

                          1
                            See U.S. General Accounting Office, Toxic Chemicals: Long-Term Coordinated
                          Strategy Needed to Measure Exposures in Humans, GAO/HEHS-00-80 (Washington, D.C.:
                          May 2, 2000).




                          Page 5                                                   GAO-03-112 EPA Challenges
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is moving to establish a program addressing environmental public health
outcomes as part of its Human Health Research Strategy. This Office
recently held a workshop involving several public health agencies to help
in developing a research framework that would be complementary to
other agencies’ efforts and define opportunities for collaboration. Also,
according to officials of EPA’s Office of Environmental Information, that
Office worked with the Centers for Disease Control and Prevention in 2002
on a potential cross-agency initiative to develop and link environmental
and human health information resources, specifically the Centers’ National
Environmental Public Health Tracking Program network and EPA’s
National Environmental Information Exchange Network. The proposed
linkage holds the potential to enhance information technology tools to
foster the analysis and dissemination of information obtained to a variety
of audiences.

Important data gaps also remain in EPA’s Integrated Risk Information
System, a database containing information on human health effects that
may result from exposure to chemicals in the environment. Specifically,
the database contains no basic data on the toxicity of about two-thirds of
the known hazardous air pollutants and only limited information on
the ecological effects of environmental pollutants. Likewise, there are
significant data gaps and weaknesses in EPA’s National Water Quality
Inventory, the primary report on the condition of the nation’s waters. The
gaps result from the fact that only a small percentage of U.S. waters is
assessed for quality and only a limited number of assessments are based
on current, site-specific monitoring information.2 Incomplete water quality
data make it difficult for EPA to accurately describe the condition of the
nation’s waters and report on the progress being made toward achieving
established water quality goals. The data gaps and weaknesses are also
problematic because agency officials rely on state-reported data in the
inventory when making program management decisions, including
determining how certain Clean Water Act funds will be allocated among
the states.

2
  Pursuant to section 305(b) of the Clean Water Act, states report biennially to EPA on the
quality of their waters. EPA summarizes this information in a biennial report, the National
Water Quality Inventory. The most recent such report is the report for 2000. For that
report, states assessed only 19 percent of the nation’s river and stream miles; 43 percent of
its total acres of lakes, ponds, and reservoirs; 36 percent of its square miles of estuaries; and
6 percent of its ocean shoreline miles. Furthermore, as we reported in March 2000, on the
basis of our survey of 50 states and the District of Columbia, only 3 states indicated that they
had the majority of the data needed to identify and assess nonpoint sources of pollution,
generally considered to be the greatest contributor to water quality impairment at present.




Page 6                                                             GAO-03-112 EPA Challenges
Major Performance and Accountability
Challenges




EPA’s research on the use of biological indicators for environmental
assessments demonstrates the importance and value of research.
Because site-specific water quality monitoring is complex, difficult, and
expensive, for many contaminants (including sediment, toxic chemicals,
pathogens, and invasive species) that are potentially of concern, it is
doubtful that many states, territories, and tribes will ever be able or
willing to devote sufficient resources to monitor their streams and other
water bodies adequately and on a regular basis. Recognizing this, EPA
has conducted research on alternative methodologies for estimating the
environmental conditions of streams, estuaries, and other water bodies.
EPA’s Environmental Monitoring and Assessment Program (EMAP) has
conducted studies that have established that the use of biological
indicators that integrate chemistry, habitat, pathogens, and other
stressors over time lead to less expensive approaches to monitoring the
environmental conditions in streams and other water bodies. According to
EPA, as of May 2002, 20 states had adopted a methodology based on EMAP
to determine the environmental condition of steams and estuaries on a
regional scale. In addition, the agency reports that it has several initiatives
under way for the greater application of this approach to coastal areas and
streams in arid areas of the West and for assessing the nation’s great rivers.

In November 2001, at the direction of its Administrator, EPA embarked
on a major effort that holds the promise of providing, for the first time
ever, an overall picture—albeit less than perfect and complete—of the
nation’s current environmental conditions and trends and, equally
important, of highlighting data gaps and indicating the research and
information collection efforts needed to fill those gaps. The Administrator
directed EPA’s Office of Environmental Information and Office of Research
and Development to lead an agencywide initiative to develop a set of
indicators of environmental quality and use these indicators as a basis for
drafting the State of the Environment Report to be issued in early 2003.
The report is intended to serve as the basis for initiating a broad public
discussion about the environment and environmental protection. As
currently envisioned, it will (1) describe current environmental conditions
and trends using existing data and indicators developed by EPA and others,
(2) identify data gaps and research needs, (3) discuss challenges that
government and other environmental partners face in filling those gaps and
needs, and (4) be accompanied by extensive technical information and
support. The report is to encompass five environmental theme areas:
human health, ecological condition, clean air, pure water, and better
protected land. Under human health, for example, the report will explore




Page 7                                                GAO-03-112 EPA Challenges
                            Major Performance and Accountability
                            Challenges




                            trends in diseases, human exposure to environmental pollutants, and
                            diseases thought to be related to environmental pollution.

                            EPA views the draft State of the Environment Report as the starting
                            point of a public dialogue on environmental protection issues and an
                            important step toward a more comprehensive approach to identifying
                            priorities, focusing resources on areas of greatest concern, and managing
                            its work to achieve measurable results. If successful in its aims, this
                            multiyear undertaking could make a substantial contribution not only
                            to identifying and filling research and data gaps but also to measuring
                            progress within an overall framework of ecological and human health,
                            assisting EPA’s strategic-planning efforts, and facilitating a transition to
                            performance-based management driven by environmental goals. To be
                            successful, however, particularly in identifying and filling research and
                            data gaps, this effort will require sustained cooperation and coordination
                            on the part of EPA, other federal and state partners, academic institutions,
                            and others. It will also require adequate and dependable financing,
                            something that many people—including advocates of strong environmental
                            science in the Congress—may argue has been absent until now.



EPA Has Made Progress       We reported in January 2001 that EPA’s data management system is
in Overcoming Data System   outmoded in numerous respects, including having separately designed,
                            media-specific databases that are generally not technically compatible.3
Weaknesses That Limit
                            This incompatibility is a legacy of the historical “stove-pipe,” or single
the Usefulness of           media, orientation of EPA’s programs and has served as a barrier to the
Environmental Data, but     efficient reporting, aggregation, and integration of data to present
More Needs to Be Done       comprehensive information on pollutants, industrial sectors, localities,
                            and environmental conditions and trends. Despite this historical legacy,
                            however, EPA has recognized the importance of integrated environmental
                            information and the need to make its databases compatible with one
                            another and with those of its state and tribal partners. For example,
                            since our January 2001 report, the agency has made notable progress in
                            implementing an initiative to standardize basic data element definitions
                            and formats to permit the information contained in EPA and state and tribal
                            databases to be combined to present a more comprehensive picture of
                            environmental conditions and results. Agency officials also view data
                            standardization as a way to reduce the reporting burden for states and

                            3
                              See U.S. General Accounting Office, Major Management Challenges and Program Risks:
                            Environmental Protection Agency, GAO-01-257 (Washington, D.C.: January 2001).




                            Page 8                                                     GAO-03-112 EPA Challenges
Major Performance and Accountability
Challenges




industry by allowing more integrated data reporting and facilitating
electronic reporting via the Internet.

Implementing a recommendation that we made in a September 1999 report,
that the agency coordinate its data standardization efforts with the states,
federal agencies, and other organizations, EPA and its state and tribal
partners created the Environmental Data Standards Council to work
cooperatively to develop consensus-based data standards.4 To date, EPA
and its partners on the Council have adopted and begun to implement
seven final data standards that will foster consistently defined and
formatted data elements and sets of data values and facilitate public access
to more meaningful data. The data standards that have been finalized are

• the date,

• the latitude/longitude,

• biological taxonomy,5

• chemical identification,

• facility identification,

• permitting, and

• the Standard Industrial Classification/North American Industrial
  Classification System.

As an example of the function and value of such data standards, the
“chemical identification” standard provides a consistent way to identify
and represent chemical substances across the agency. It provides EPA with
a unique, unambiguous, common name for each chemical substance and
chemical grouping in which the agency has an interest, and provides a
way to reference data about chemical substances across EPA systems
and to search for chemical entries in these systems. By the same token,


4
  See U.S. General Accounting Office, Environmental Information: EPA Is Taking Steps
to Improve Information Management, but Challenges Remain, GAO/RCED-99-261
(Washington, D.C.: Sept. 17, 1999).
5
 This standard refers to the classification of biological organisms in established categories,
such as kingdom, phylum, class, order, family, genus, species, and subspecies.




Page 9                                                           GAO-03-112 EPA Challenges
Major Performance and Accountability
Challenges




the “facility identification” data standard provides, for the first time, a
unique facility identification number for any facility subject to EPA’s
regulatory authority, regardless of the media program(s) involved.
Achieving consensus even on such a seemingly simple and straightforward
matter was by no means an easy task. EPA officials told us that it was
necessary to overcome broad resistance stemming from concerns about
“big brotherism.”

In addition to these final standards, a number of new standards are
currently under development or envisioned by the Council and EPA action
teams. These standards include

• contact,

• enforcement/compliance,

• tribal identifiers,

• reporting water quality results for chemical and microbiological
  analytes,

• geospatial referencing,

• the electronic reporting of environmental laboratory results,

• federal facilities identifiers, and

• the National Pollutant Discharge Elimination System (NPDES).

The NPDES will pick up where the final permitting standard leaves off, by
standardizing data elements related to water pollutant discharge permits.




Page 10                                             GAO-03-112 EPA Challenges
Major Performance and Accountability
Challenges




Other EPA initiatives related to the effort to integrate data within and
across agency programs and with partners and stakeholders include the
cross-agency Information Integration Program, which is intended to foster
the development of an information integration strategy to identify tools and
approaches that can be used across the agency and by states and tribes to
support improved decision making and increase efficiency. This program
culminated in (1) the creation of the Model for Information Integration,
which provides a framework for EPA’s integration efforts and establishes a
vision for its target information architecture; (2) the development of a
system of registries that serve as repositories for commonly used data
element definitions and information about data (metadata); 6 and (3) an
Environmental Information Management System, developed by EPA’s
Office of Research and Development, which provides descriptive
information about various data sets; databases; documents; models; and
multimedia projects, enabling users to identify and use the data that best
meet their needs.

While the measures taken to date represent noteworthy progress
toward the goal of environmental data compatibility and integration,
EPA still has some distance to travel and important challenges to
overcome. For the most part, the agency has focused on the compatibility
of its data with those of state and tribal agencies rather than with the data
of other federal agencies and nongovernmental organizations that share
an interest in environmental protection. Improved collaboration between
federal agencies is essential because (1) individual agencies have different
capacities and skills that are complementary and lend themselves to
fruitful collaboration and (2) separate attempts have fallen short of
supporting the large efforts that are needed to produce high-quality,
comprehensive data on environmental conditions and trends. In this
regard, EPA’s Science Advisory Board, created to provide the agency with
expert and impartial external scientific advice, recommended that EPA do
more to link its databases with external sources. For example, the Board
noted that “answering many health-related questions frequently requires
linking environmental data with census, cancer, birth registry, or other data
systems (such as water distribution maps) to determine whether there is a
relationship between the environmental measures and health.”

6
  One such registry, the Environmental Data Registry, contains descriptive information
about data managed by the agency, with special emphasis on data elements used by EPA’s
national systems. The registry is a single comprehensive source of information about the
definition, origin, source, and location of environmental data and is the primary tool used by
EPA for implementing data standards.




Page 11                                                          GAO-03-112 EPA Challenges
                                Major Performance and Accountability
                                Challenges




                                Although EPA officials do not dispute the value of linking the agency’s
                                databases with those of other federal agencies and nongovernmental
                                organizations, they note that efforts have been limited by resource
                                constraints and a lack of statutory authority to require other agencies to
                                collect and report data using formats compatible with those used by EPA.
                                Acknowledging that EPA may have unduly focused on state and tribal
                                partners, to the exclusion of federal agencies and others when composing
                                the Environmental Data Standards Council, officials of the Office of
                                Environmental Information pointed out that one of the reasons for
                                publishing proposed data standards in the Federal Register for public
                                comment, before making them final, is to solicit the participation and input
                                of other interested and knowledgeable parties, including other federal
                                agencies. They noted that another federal agency, the Department of the
                                Interior’s U.S. Geological Survey (USGS), in conjunction with the National
                                Water Quality Monitoring Council, was instrumental in proposing and
                                initiating the development of the standard for Reporting Water Quality
                                Results for Chemical and Microbiological Analytes. In addition, USGS has
                                taken the lead in developing a geospatial data standard, an e-government
                                initiative that is highly relevant to EPA and on which EPA is collaborating.



Data Limitations Still Hinder   Well before passage of the Government Performance and Results Act of
Development of Results          1993 (Results Act), a number of internal and external studies, including
                                our August 1988 general management review of EPA,7 called on the
Measures, but Groundwork
                                agency to manage for measurable environmental results as a way to
Is Being Laid for More          improve its performance and accountability. As we and others noted,
Effective Performance           developing effective measures of the environmental results of EPA’s
Measurement                     policies and program activities would help the agency’s managers in
                                assessing the extent to which the agency contributes to environmental
                                improvements and in setting priorities, planning, and budgeting. The
                                effective measurement of environmental results would also serve to
                                make the agency more accountable to the Congress and the public for
                                its performance.

                                The Results Act, for the first time, formally required EPA and other federal
                                agencies to prepare performance plans containing annual performance
                                goals and measures to help them move toward managing for results.


                                7
                                  See U.S. General Accounting Office, Environmental Protection Agency: Protecting
                                Human Health and the Environment through Improved Management, GAO/RCED-88-101
                                (Washington, D.C.: Aug. 16, 1988).




                                Page 12                                                 GAO-03-112 EPA Challenges
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Performance goals and measures were to be used to assess an agency’s
progress toward achieving the results expected from its major functions.
Performance goals established under the act’s requirements constitute
target levels of performance expressed as tangible, measurable objectives
against which actual achievement can be compared. Performance
measures constitute the “yardsticks” to assess success in meeting
performance goals.

Notwithstanding EPA’s timely actions to implement the Results Act’s
procedural requirements, the agency’s progress in moving toward
measuring the actual results of its activities has been slow. To a large
extent, EPA’s performance goals and their associated performance
measures continue to be expressed as outputs—environmental
standards established, permits issued, enforcement actions taken—rather
than as end outcomes, measures that directly show how EPA’s work led
to improvements in environmental conditions or public health. For
example, as shown in table 1, for fiscal year 1999, 86 percent of EPA’s
278 performance measures consisted of output measures, while only
14 percent consisted of outcome measures. Three years later, in fiscal year
2002, 71 percent of the agency’s 365 performance measures consisted
of output measures, while the percentage of outcome measures had
moderately increased to 29 percent. For fiscal year 2003, under way since
October 1, 2002, EPA has a total of 284 performance measures of which
60 percent are output measures and the remaining 40 percent,
outcome measures.

Close examination, however, shows that only a portion of EPA’s fiscal year
1999, fiscal year 2002, and fiscal year 2003 outcome measures actually
measured end outcomes, the environmental results of its programs and
activities (7 percent of fiscal year 1999 performance measures, 22 percent
of fiscal year 2002 performance measures, and 27 percent of fiscal year
2003 performance measures).8 The remaining EPA outcome measures
for these 3 fiscal years are more properly classified as measures of
intermediate outcomes rather than end outcomes. Intermediate outcomes
indicate progress or presumed contributions toward achieving end
outcomes. They are used when end outcomes are not immediately clear,
easily delivered, or quickly achieved. For example, inducing local


8
  Examples of end outcomes would include ensuring that drinking water is safe or
maintaining healthy air with respect to levels of pollutants such as carbon monoxide,
sulfur dioxide, nitrogen dioxide, and lead.




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                                         jurisdictions to adopt higher water quality standards is an
                                         intermediate outcome contributing, presumably, to the end outcome
                                         of safe drinking water.



Table 1: Classification of EPA’s Performance Measures

Fiscal year                              Outputs    Intermediate outcomes        End outcomes            Total outcomes
1999                             86% (240 of 278)              7% (18 of 278)     7% (20 of 278)         14% (38 of 278)
2002                             71% (260 of 365)              7% (26 of 365)    22% (79 of 365)        29% (105 of 365)
2003                             60% (170 of 284)             13% (38 of 284)    27% (76 of 284)        40% (114 of 284)
Source: EPA.

                                         Note: GAO’s analysis of EPA’s data.


                                         The relatively low percentage of end outcome measures in EPA’s collection
                                         of performance metrics is largely a reflection of the fact that data and
                                         scientific knowledge essential to permit end outcome measurement are
                                         often lacking, as well as the fact that there is often a significant time lag
                                         between actions taken to protect and improve the environment and
                                         demonstrable effects. In addition, other factors, such as the level of
                                         economic activity, can have confounding effects, obscuring the role played
                                         by EPA programs in environmental change. The data/knowledge problem
                                         is one that EPA is attempting to address through its ongoing indicators
                                         initiative and anticipated State of the Environment Report. While these
                                         efforts are expected to identify important data gaps and point to the
                                         research needed to improve the scientific understanding of the
                                         environment, it may be years before such gaps are filled and research
                                         yields dividends of knowledge and scientific understanding sufficient to
                                         allow for a more reliable measurement of the environmental results of
                                         EPA’s program activities. Hence, the measurement of the environmental
                                         results of EPA’s programs and managing for improved performance are
                                         likely to continue to pose a significant challenge for the agency for some
                                         time to come.

                                         In addition to the environmental indicators and State of the Environment
                                         Report initiatives, the agency has undertaken another related initiative
                                         that has a similar potential over the longer term to enhance its ability to
                                         measure and manage for environmental outcomes. Known as “Managing
                                         for Improved Results,” this project was launched in the summer of 2001 by
                                         EPA’s Deputy Administrator, who charged the Office of the Chief Financial
                                         Officer with the task of examining a mix of near- and long–term reforms to



                                         Page 14                                               GAO-03-112 EPA Challenges
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improve the agency’s ability to manage for results. In response to this
charge, a steering group of senior headquarters and regional staff,
reporting to the Deputy Administrator, was assembled to (1) examine
EPA’s management practices, including priority setting, planning,
budgeting, and performance tracking/reporting, and (2) explore options
both for significant and far-reaching reforms as well as smaller-scale
improvements. Among the more far-reaching recommendations that the
steering group has made is the recommendation that the agency develop a
new strategic-planning architecture with a new goal structure focused on
a reduced number of environmentally focused goals, as few as 5 in
number (compared with the current 10 strategic goals). With respect to
performance measurement, the steering group recommended that EPA’s
program offices develop better performance measures as part of the
strategic plan’s goal revision process. Actions envisioned as part of this
recommendation include (1) program offices responsible for each
strategic objective developing multiyear plans to improve the quality and
outcome-orientation of associated annual performance goals and annual
performance measures, (2) national program managers and lead regions
collaborating to improve measures, (3) goal teams ensuring that data of
adequate quality will be available, (4) the Office of the Chief Financial
Officer’s expansion of its consultation and technical support to the rest
of the agency, and (5) using State of the Environment Report indicators to
guide the development of the next improved generation of outcome-based
performance goals and measures.

All of these initiatives aimed at improving EPA’s ability to manage for
environmental results are, essentially, long-term in nature. They will require
a long-term commitment of management attention, follow-through, and
support—including the dedication of appropriate and sufficient
resources—for their potential to be fully realized. A number of similar
initiatives in the past have been short-lived and disappointing in terms of
lasting contributions to improved performance management. Just as the
forthcoming State of the Environment Report is intended to foster an
ongoing dialogue between the agency and its partners, including the
broader public, both the Environmental Indicators Initiative and the
Managing for Results Initiative represent just the beginnings of long-term
undertakings. These initiatives’ ultimate payoff will depend on how fully
EPA’s organization and management support them and the extent to which
needs identified—for more and better data; for scientific research; for a
restatement of strategic goals; and for a refinement of performance goals,
objectives, and measures—are addressed in a determined, systematic,
and sustained fashion over a period of years. Even the task of revising the



Page 15                                               GAO-03-112 EPA Challenges
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                               agency’s strategic goal structure and reducing the number of goals to a few
                               specifically focused on environmental dimensions will not be an easy
                               matter on which to achieve consensus and, once agreed upon, to
                               implement. As one senior EPA official pointed out, this is particularly true
                               when, as in EPA’s case, budgeting is tied to the agency’s goal structure.



Significant Progress Made in   The security of EPA’s information is critical to its mission of protecting
Enhancing EPA’s                human health and the environment, a fact underscored by the events of
                               September 11, 2001, and their aftermath. Much of the sensitive information
Information Security           contained in EPA’s databases regarding environmental infrastructure, such
                               as municipal drinking water systems and the location of stores of toxic
                               chemicals, could be expected to hold great interest for would-be terrorists
                               and others with criminal intent. In a review of EPA’s information security
                               program issued in July 2000, we found serious and pervasive problems that
                               “essentially rendered [the program] ineffective.”9 Our report characterized
                               the agency’s security practices at the time as weak and largely a paper
                               exercise that did little to mitigate risks to the agency’s data and systems.
                               We recommended that EPA take a number of steps to improve security
                               program management and planning, enhance computer incident
                               management, and strengthen access controls associated with its major
                               computer operating systems and agencywide network.

                               Since the issuance of our report, EPA and the agency’s Office of Inspector
                               General reported that the agency has made substantial improvements to
                               its information security program. The agency has improved its risk
                               assessment and planning processes, implemented major new technical
                               and procedural controls, issued new policies, initiated a regular process
                               of testing and evaluation, and devoted significant attention and resources
                               to improving the technical information infrastructure and building the
                               management framework for an effective security program, as documented
                               by EPA’s Office of Inspector General in September 2002 and by an
                               August 2002 GAO follow-up on the status of agency efforts to implement
                               the recommendations in our July 2000 report. Under the leadership of the
                               Office of Environmental Information (OEI), the agency has been taking
                               steps to ensure appropriate public access to the information in EPA’s
                               computer systems, while protecting the confidentiality and integrity of its


                               9
                                 See U.S. General Accounting Office, Information Security: Fundamental Weaknesses
                               Place EPA Data and Operations at Risk, GAO/AIMD-00-215 (Washington, D.C.:
                               July 6, 2000).




                               Page 16                                                    GAO-03-112 EPA Challenges
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information. According to EPA and the agency’s Office of Inspector
General, specific actions taken to improve information security and to
address problems that we, the Inspector General, and others have cited,
include the following:

• Developing the Information Security Action Plan to guide EPA’s revised
  security program and respond to the findings and recommendations of
  our July 2000 report.

• Establishing the Technical Information Security Staff, within OEI, to
  review EPA’s security accomplishments, manage the agency’s security
  efforts, and evaluate needs for future security governance.

• Designating program and regional Information Security Officers,
  who are responsible for coordinating security activities, providing
  guidance, reviewing security practices, and informing colleagues of
  their information security responsibilities.

• Defining, in consultation with EPA’s state and tribal partners, levels of
  security that must be met for the exchange of information across the
  National Environmental Information Exchange Network. These levels
  range from Level 1 (public information, available to all users without
  authentication) to Level 4 (information requiring the highest levels of
  proof of the integrity and origin of data, along with confidentiality and
  third-party verification).

In an August 2002 follow-up on the status of EPA’s efforts to address
our July 2000 report’s recommendations, we concluded that although
some work remained to be completed to address the problems cited in
the report, EPA had made sufficient progress to justify closing out the
recommendations. However, notwithstanding the progress EPA has made
in this area, EPA’s Inspector General continues to identify EPA’s security
program management as a management challenge (albeit of a lower order
than in years past). As the Inspector General has noted, the dynamic nature
of security threats will require continued attention and vigilance on the part
of EPA management. The agency, moreover, will need to strive to build and
maintain a strong centralized security program with an oversight process
that identifies and adequately addresses vulnerabilities and to ensure that
information resources and environmental data are secure. Given the
agency’s decentralized organizational structure, it is essential for the
success of EPA’s information security program that OEI exercise a strong
leadership and monitoring role. A major continuing challenge will be



Page 17                                               GAO-03-112 EPA Challenges
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                             to provide the public with access to a wide range of environmental
                             information, while also protecting against the use of this information in
                             ways that could harm the environment or public health and safety.



EPA’s Recently Completed     In a September 1999 report, we recommended that EPA develop a
Information Strategy Needs   comprehensive information management strategy that would (1) establish
                             milestones and identify the resources needed to fill key data gaps;
to Be Implemented
                             (2) identify and develop necessary data standards; and (3) coordinate its
Systematically and Revised   data standardization efforts with other federal agencies, the states, and
Periodically in Light of     other entities.10 In our January 2001 report on EPA’s major management
Progress and Changing        challenges and program risks, we reported that, beyond agreeing with our
Circumstances                1999 recommendation, EPA had made limited progress in developing a
                             comprehensive information management strategy to ensure the
                             completeness, compatibility, and accuracy of data.11

                             In July 2002, EPA issued its “Strategic Information Plan: A Framework
                             for the Future,” which largely responds to our 1999 recommendation. The
                             plan, developed by EPA’s Office of Environmental Information, under the
                             direction of the Chief Information Officer, sets a new vision for EPA’s
                             information management, which is to provide government and citizens
                             with fast, relevant, and integrated information about environmental and
                             public health conditions, trends, and potential threats. The plan envisions
                             establishing a system that advances the creation, management, and use
                             of information as a strategic resource at EPA and stresses the need to
                             streamline and strengthen the agency’s information management
                             infrastructure to improve the effectiveness and efficiency of its operations
                             and programs. The plan sets six specific information management goals for
                             the agency: (1) improve the use of environmental information, (2) collect
                             appropriate data, (3) strengthen EPA’s information infrastructure,
                             (4) enhance access to information, (5) adopt an agencywide approach to
                             using information to make management decisions, and (6) invest in human
                             capital for information management.

                             EPA’s Information Plan provides a much needed long-term strategic vision
                             for the information management function. It charts the course the agency
                             will need to pursue in coming years, in consultation and collaboration with


                             10
                                  See GAO/RCED-99-261.
                             11
                                  See GAO-01-257.




                             Page 18                                              GAO-03-112 EPA Challenges
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                      its state and tribal partners and other key stakeholders, to design and
                      implement systems and services that are aimed at streamlining data
                      collection, making the Internet the method of choice for reporting and
                      exchanging information, and making more effective use of the information
                      it collects.

                      As previously noted, a number of initiatives are already under way within
                      the agency to implement aspects of the goals laid out in the strategic plan,
                      including data quality improvement, the development and implementation
                      of data standards, and building networks for data exchange. Missing in
                      EPA’s strategic information plan, however, are indications of priorities,
                      milestones, and estimated resource requirements that could drive forward
                      movement and provide a more detailed road map for goal implementation.
                      We recommended such an “action plan” in our September 1999 report and
                      continue to believe that an annual or multiyear action plan is needed to
                      translate the “vision” embodied in the strategic plan into specific actions
                      that will advance goal achievement. An action plan would lay out in some
                      detail and specificity the discrete goal-related measures that will be taken
                      during the planning period. It would also establish target dates for the
                      completion of action and identify resources required to meet these
                      milestones. Action plans, we believe, could ensure that EPA’s strategic
                      plan becomes and remains a living document that informs agency
                      decision making; guides investments in information infrastructure,
                      technology, and human capital; and evolves over time to reflect
                      achievements, changed circumstances, and new imperatives.



EPA Needs to          High-performing organizations in the private and public sectors have long
                      understood the relationship between effective “people management” and
Implement a           organizational success. An organization’s people—its human capital—are
Systematic and        its most critical asset in managing for results. EPA, like many other federal
                      agencies, has historically given insufficient attention to strategically
Comprehensive Human   managing its human capital. As a result, EPA faces critical agencywide
Capital Approach      human capital challenges that, if not addressed, will limit its ability to
                      achieve its mission. Specifically, the agency has yet to determine the
                      number of employees it needs to accomplish its mission objectives, the
                      technical skills required, and how to best allocate employees among EPA’s
                      strategic goals and geographic locations. Furthermore, with a substantial
                      portion of its workforce nearing retirement age, it is imperative that EPA
                      fully prepare for the resulting loss of leadership, institutional knowledge,
                      and scientific expertise.




                      Page 19                                              GAO-03-112 EPA Challenges
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                         To its credit, EPA has taken some steps in recent years to improve its
                         human capital management. The agency has conducted a workforce study
                         that identifies some of the general skills and abilities that EPA employees
                         need. Furthermore, the agency has developed a human capital strategy
                         that identifies EPA’s vision for its people, its core values, and its major
                         human capital goals. However, EPA is far from being able to implement a
                         systematic and comprehensive human capital approach that will enable the
                         efficient and effective achievement of its mission objectives. Specifically,
                         EPA needs to (1) develop a system for determining the number of
                         employees and skills required to meet its mission objectives and allocating
                         staff according to identified mission needs and (2) recruit, train, and
                         develop employees to ensure that EPA will have the leadership,
                         institutional knowledge, and scientific expertise needed to accomplish
                         its mission, both now and in the future.



EPA Needs to Assess      High-performing organizations identify their current and future human
Workforce Requirements   capital needs, including the appropriate number of employees, the key
                         skills required for mission accomplishment, and the appropriate
and Allocate Staff to
                         deployment of staff across the organization. They then identify and address
Accomplish Mission       any human capital gaps or surpluses. However, EPA, like many other
Objectives               federal agencies, has yet to determine its current or future human capital
                         needs for accomplishing its mission or to fully inventory the skills in the
                         current EPA workforce. EPA’s 1999 workforce study identified general
                         skills needed by EPA employees (such as effective communication and
                         collaboration) but did not identify the scientific or technical skills critical
                         to EPA’s mission. Nor did the study address the number of staff or the skills
                         EPA needs agencywide and by geographic location. In response to a
                         2001 Office of Management and Budget (OMB) request, EPA, along with
                         other federal agencies, prepared a workforce analysis that included
                         information on the number of its supervisors and managers, their grade
                         level, their location, and the number of people they oversee, and an
                         evaluation of the skills of the workforce. However, because EPA has not yet
                         comprehensively assessed its workforce, EPA’s human resource managers
                         told us that the analysis that it submitted to OMB is only a starting point for
                         a systematic workforce analysis.

                         Without reliable and valid workforce information, EPA cannot ensure
                         that it is hiring the right number and type of people or allocating existing
                         staff resources to effectively meet current or future mission needs. During
                         the past 12 years, when the size of the civilian federal workforce was
                         reduced significantly, EPA increased its workforce from 15,277 in



                         Page 20                                                GAO-03-112 EPA Challenges
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fiscal year 1990 to 17,802 in fiscal year 2002. In doing so, EPA hired
thousands of employees without systematically considering the workforce
impact of the changes in environmental laws and regulations, the
technological advances, or the expansion in state environmental staff that
occurred during the 1990s. Similarly, EPA has yet to factor these workforce
changes into its allocation of existing staff resources to its headquarters
and regional offices to meet its strategic goals. Furthermore, if EPA should
need to downsize, as other federal agencies have done, it would not have
the information needed to ensure that staff reductions could be absorbed
with minimal impacts on mission objectives. For example, the Congress
denied EPA’s proposal to downsize its enforcement staff in order to shift
resources to state enforcement grants because EPA had no workforce
information to demonstrate that staff reductions would not jeopardize
environmental enforcement.

In July 2001, we recommended that EPA develop a system for workforce
allocation and deployment that is explicitly linked to the agency’s
strategic-planning efforts and is based on the systematic efforts of each
major program office to accurately identify the size of the workforce, the
deployment of staff geographically and organizationally, and the skills
needed to support EPA’s strategic goals.12 EPA has begun to develop a
system, known as the “national strategic workforce planning system,”
that may substantially implement this recommendation. The system is
to be used by EPA regions and in headquarters offices to assess workforce
needs. According to EPA, the system will, among other things, identify
the technical skills and the number and type of positions required,
inventory the skills of the current workforce, examine attrition rates,
and forecast the number of new hires required. EPA issued a methodology
for the workforce-planning system in September 2002 and has begun
implementing the system in several headquarters offices and in the
Chicago, Kansas City, and Seattle regional offices. EPA expects agencywide
implementation of the workforce-planning system to be under way by
late 2003.

Although EPA’s proposed workforce-planning system appears promising, it
is too early to determine how it will affect EPA’s ability to systematically
allocate staff. As EPA’s Deputy Assistant Administrator, Office of


12
  See U.S. General Accounting Office, Human Capital: Implementing an Effective
Workforce Strategy Would Help EPA to Achieve Its Strategic Goals, GAO-01-812
(Washington, D.C.: July 31, 2001).




Page 21                                                    GAO-03-112 EPA Challenges
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                              Administration and Resources Management, acknowledged, EPA has made
                              progress in workforce planning, but the most difficult challenges remain—
                              such as using workforce data to make difficult staffing decisions. For
                              example, EPA’s workforce planning will need to take into account the
                              agency’s extensive use of grants to states and awards to contractors to
                              perform EPA’s work. The agency estimates that its contracted work alone
                              would require an additional 11,000 to 15,000 employees if contractors
                              were not used. Thus, EPA must plan for a workforce that is adept at both
                              delivering services directly and managing the cost and quality of services
                              delivered by third parties on the government’s behalf. In addition, EPA
                              must work diligently and effectively to gain support for its workforce-
                              planning efforts within both the executive and legislative branches.

                              Moreover, EPA’s workforce-planning system, along with the agency’s other
                              human capital efforts, will need to incorporate the implications of major
                              management initiatives. Specifically, EPA has undertaken a comprehensive
                              effort to assess the state of the environment, identify priorities for
                              environmental and human health improvements, and focus its resources on
                              achieving results in the areas of greatest concern. EPA is currently working
                              to integrate its “state of the environment” effort into its agencywide
                              strategic plan. According to EPA officials, the revised strategic plan will
                              largely determine EPA’s workforce needs, and workforce allocation will be
                              tied to the relative priority assigned to strategic goals. Once the strategic
                              plan is finalized (expected in late 2003), EPA will then need to determine its
                              impact on the agency’s human capital resources and systems.



EPA Needs to Ensure           To ensure a continuing ability to accomplish their mission objectives,
Continuity of Leadership      federal agencies need to aggressively pursue comprehensive succession
                              planning and executive development to address the loss of leadership
and Mission-Critical Skills
                              and institutional knowledge that will result from Senior Executive Service
                              (SES) retirements. At EPA, 162 senior executives, or 60 percent, will
                              become eligible for retirement in the next 5 years. As shown in figure 1,
                              potential retirements may create particularly severe leadership shortages
                              in some EPA units and regions, such as region 7 (Kansas City) and
                              region 10 (Seattle), where about 86 percent of the executives will become
                              eligible to retire over the next 5 years.




                              Page 22                                               GAO-03-112 EPA Challenges
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Figure 1: Percentage of Total SES Staff Eligible to Retire by 2008, by EPA
Unit/Region


Percent


90



80



70



60



50



40



30



20



10



     0




                                                                                                                                                  10
                                1



                                             2



                                                          3



                                                                       4



                                                                                    5



                                                                                                 6



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                  ld



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                                                                                                                                io
             /F




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                       eg



                                    eg



                                                 eg



                                                              eg



                                                                           eg



                                                                                        eg



                                                                                                     eg



                                                                                                                  eg


                                                                                                                               eg
         Q




                                                                                                                                         eg
         H



                       R



                                    R



                                                 R



                                                              R



                                                                           R



                                                                                        R



                                                                                                     R



                                                                                                                  R


                                                                                                                           R




         EPA units                                                                                                                       R



Source: EPA.


Note: GAO’s analysis of EPA’s data.


We reported in July 2001 that EPA did not have succession planning in
place to ensure continuity in the agency’s leadership and to prepare for
the management losses that would likely occur, as many executives
become eligible for retirement.13 We recommended that EPA work toward


13
     See GAO-01-812.




Page 23                                                                                                   GAO-03-112 EPA Challenges
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designing succession plans to maintain leadership continuity that are
based on (1) a review of current and emerging leadership needs and
(2) identifying sources of executive talent within and outside EPA. In
response, EPA reinstated a development program for SES candidates,
which is expected to prepare 51 candidates for leadership positions.
According to EPA, a number of these candidates may be ready in the
summer of 2003 for Office of Personnel Management certification as senior
executives. In addition, EPA has implemented a management training
program for new and current mid-level supervisors. However, it remains to
be seen how successful these programs will be in developing the executive
resources that the agency needs. EPA implemented the management
development programs before assessing how revising its strategic
objectives would affect its current and emergent leadership needs.
Therefore, EPA may need to modify these programs once its strategic plan
is finalized.

EPA also faces challenges in sustaining adequate scientific expertise to
carry out its mission. EPA acknowledges that its efforts to protect human
health and the environment must be based on the best available science.
However, EPA’s scientific performance has been criticized many times in
reports by the National Research Council, EPA’s Science Advisory Board,
and GAO, among other organizations, and in countless complaints and
lawsuits from stakeholders. In the National Research Council’s opinion, the
concerns about EPA’s scientific performance are related to the agency’s
ability to attract and retain first-rate scientific talent, given intense job
market competition from the private sector and academic institutions.
EPA’s challenge to maintain adequate scientific expertise could intensify in
the coming years, as many agency scientists become eligible for retirement.
As shown in figure 2, a significant portion of EPA’s key scientific and
technical staff—environmental protection specialists, biological scientists,
ecologists, toxicologists, environmental engineers, physical scientists, and
health physicists—will become eligible for retirement by the end of 2008.




Page 24                                              GAO-03-112 EPA Challenges
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Figure 2: Percentage of EPA Staff in Key Scientific/Technical Occupations Eligible
for Retirement by 2008


Percent


45


40


35


30


25


20


15


10


 5


 0
     Environmental   Biological   Ecologist   Toxicologist   Environmental   Physical     Health
       Protection    Scientist                                 Engineer      Scientist   Physicist
       Specialist


Source:EPA.


Note: GAO’s analysis of EPA’s data.


EPA can fill the gaps in scientific expertise that may arise from these
retirements through targeted recruitment efforts to hire “outside” expertise
and by training current staff to develop the needed expertise. To improve
its ability to recruit highly qualified scientists, EPA is considering the use
of special hiring authority modeled on a National Institutes of Health
program to select and retain senior scientists. Under this special authority,
EPA would establish competitive, limited-term (although renewable)
appointments for research scientists and engineers. The agency believes
that the special authority would increase EPA’s flexibility to respond to
emerging environmental problems, establish a performance-based career



Page 25                                                             GAO-03-112 EPA Challenges
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                             path for scientists, and reward scientific staff working on high-priority
                             environmental research. While such special authority might hold promise,
                             EPA officials acknowledge that the initiative is still in the developmental
                             stage. Therefore, it is too early to say how well the proposed personnel
                             authority would help EPA select and retain highly qualified scientists. In
                             addition to recruiting outside scientific talent, EPA also needs to help
                             current employees upgrade their scientific expertise through internal or
                             external training opportunities. Thus far, however, EPA’s strategy for
                             developing its workforce has aimed to enhance general competencies, such
                             as communication and collaboration, rather than specific mission-critical
                             scientific or technical skills.



EPA and State Efforts        For some time now, EPA has been counting on its efforts to “reinvent”
                             environmental regulation to improve the efficiency and effectiveness
to Implement                 with which the agency and the states carry out their environmental
Innovative Regulatory        responsibilities. A key agency assumption has been that considerable
                             innovation can take place within the existing statutory environmental
Approaches May Need          framework. However, our work shows that limited progress in regulatory
Legislative Support          innovation has been made to date, and that statutory constraints have
                             served as a major barrier. Although EPA has recently made vague
                             references to the impetus that statutory revisions could provide to
                             regulatory innovation, the agency needs to more clearly state the legislative
                             changes it would endorse to overcome constraints to innovation.



EPA Has Tried a Variety of   Under the existing federal approach to environmental protection, EPA,
Initiatives to “Reinvent”    pursuant to statutes such as the Clean Air Act and Clean Water Act,
                             prescribes regulations with which states, localities, and private companies
Environmental Regulation
                             must comply. But this approach has often been criticized in recent years for
                             being costly, inflexible, and ineffective in addressing some of the nation’s
                             most pressing environmental problems. For example, the National
                             Academy of Public Administration recently reported that although
                             traditional regulatory approaches manage to keep most forms of industrial
                             pollution in check, they are too narrow in scope to affect many other more
                             difficult problems and sources of pollution or environmental degradation,
                             such as diffuse sources of water pollution caused by urban and agricultural
                             runoff. Moreover, even where existing approaches have succeeded in
                             curtailing pollution from major industrial sources, they have often been
                             costly and have provided regulated entities with little incentive to reduce
                             pollution below mandatory compliance levels.



                             Page 26                                              GAO-03-112 EPA Challenges
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EPA responded to such concerns during the 1990s with a variety of
initiatives intended to encourage innovative regulatory strategies that
could streamline environmental requirements while encouraging more
effective means of protecting the environment. Among the agency’s
“flagship” programs was Project XL, which encouraged individual
regulated facilities to propose projects that EPA would test to determine
whether alternative approaches could achieve compliance at lower cost
and produce greater environmental benefits. In addition to pursuing a
number of other “high-priority actions” and a number of “other significant
actions” to encourage innovation, EPA stressed that the agency’s overall
support for the reinvention effort was part of an effort to transform the
agency’s culture to encourage staff to think about and embrace innovative
approaches to environmental regulation.

EPA’s “reinvention” efforts of the 1990s encountered a number of problems
both within and outside the agency. These problems illustrated issues that
needed to be resolved in order for environmental regulation to truly be
“reinvented.” Specific examples follow:

• Key stakeholders in the reinvention process expressed concern over
  the large number of complex and demanding initiatives under way—as
  well as confusion over the underlying purpose of some of the agency’s
  major initiatives.

• EPA had difficulty in achieving “buy-in” among the agency’s rank and
  file, who were accustomed to the long-standing regulatory structure.

• EPA had difficulty in achieving agreement among external stakeholders
  (including federal and state regulators and representatives of industry
  and environmental organizations) in a number of its reinvention efforts,
  particularly when stakeholders perceived that unanimous agreement
  was required before progress could be made.

• EPA had a mixed record in evaluating the success of many of its
  initiatives and was therefore unable to provide convincing evidence
  to external stakeholders of the merits of pursuing an alternative
  regulatory strategy.




Page 27                                             GAO-03-112 EPA Challenges
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                            Of perhaps greatest significance, much of the regulated community—
                            whose participation is crucial for reinvention to succeed—expressed
                            strong reservations about the prospects for reinvention within the
                            current statutory framework. In fact, a study by Resources for the Future
                            concluded that “industry participants in reinvention programs generally
                            steer the programs to peripheral matters because their counsels general
                            caution them against taking any action that might result in litigation.”14
                            Similarly, several of our studies found that states’ experimentation with
                            pollutant trading and other innovative environmental strategies was often
                            constrained by the statutory framework.15



Recent GAO Findings         In January 2002, we issued a report that cast doubt on EPA’s ability to
Confirm Limitations on      achieve significant innovation in the absence of legislative changes.16 The
                            report contained detailed analyses of 20 initiatives that 15 states cited as
Ability to Innovate under
                            being among the key initiatives they had pursued. Specifically, we asked
Current Statutory           state environmental officials to rank, in order, the most serious obstacles
Framework                   that had impeded progress in pursuing these initiatives successfully.
                            Among the most serious impediments identified were federal regulations
                            governing the implementation of specific programs (ranked first or second
                            in 12 of the 20 cases).17 EPA has long maintained that it could address these
                            kinds of impediments through informal mechanisms and administrative
                            actions. However, our report countered this claim, noting that EPA’s ability
                            to inject flexibility into its regulatory programs was limited without clear
                            statutory authorization. Specifically, we concluded that current legislation
                            does not contain explicit language authorizing the use of innovative


                            14
                             See Resources for the Future, Industry Incentives for Environmental Improvement:
                            Evaluation of U.S. Federal Initiatives (Washington, D.C.: September 1996).
                            15
                               See U.S. General Accounting Office, Environmental Protection: Status of EPA’s
                            Initiatives to Create a New Partnership with States, GAO/T-RCED-96-87
                            (Washington, D.C.: Feb. 29, 1996). Also, see U.S. General Accounting Office,
                            Environmental Protection: Challenges Facing EPA’s Efforts to Reinvent
                            Environmental Regulation, GAO/RCED-97-155 (Washington, D.C.: July 2, 1997).
                            16
                              See U.S. General Accounting Office, Environmental Protection: Overcoming Obstacles to
                            Innovative State Regulatory Programs, GAO-02-268 (Washington, D.C.: Jan. 31, 2002).
                            17
                              States also cited as a significant obstacle a cultural resistance among many in EPA toward
                            alternative approaches—a resistance that, they maintained, often manifested itself in a
                            lengthy and costly EPA review of their proposals. But this cultural resistance was often tied
                            to the regulations themselves—participants were often concerned that strict application of
                            the regulations was needed to reduce the risk of lawsuits filed by private interest groups.




                            Page 28                                                         GAO-03-112 EPA Challenges
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environmental approaches in lieu of specific regulatory requirements, and
the absence of this “safe legal harbor” for EPA has been a significant
obstacle to states and others in their efforts to test innovative proposals.
The absence of this “safe harbor” has also tended to reinforce the cultural
resistance to innovation that EPA is seeking to change.

EPA’s key initiatives have achieved varied success, further underscoring
questions about how well EPA’s reinvention efforts will fare without
some kind of legislative support. For example, through the end of 2000,
the agency had invested considerable time and resources in pursuing
innovations under Project XL. The Administrator had set and achieved the
goal of signing agreements for at least 50 XL projects by the end of that
year. However, no new projects have been initiated, and EPA reinvention
officials indicated recently that the program is now changing focus
dramatically. Ongoing projects will continue, but any new projects will
need to meet a more selective test of being “bigger, bolder, and more
strategic.” EPA officials cited Massachusetts’ Environmental Results
Program as an example of a project meeting this test because the
underlying concepts apply broadly to a number of facilities, as opposed
to the single-facility focus of many past XL projects.

EPA has recently taken steps to make its innovation efforts more
systematic and organized. In April 2002, the Administrator released a new
innovation strategy to help the agency strengthen innovation partnerships
with states, focus innovation on priority issues, diversify environmental
approaches, and foster a more innovative EPA culture.18 To support the
implementation of the strategy, EPA has launched a pilot grant program to
fund state innovations that address the environmental priorities
identified in the strategy. EPA also plans to form the National Center
for Environmental Innovation to support implementation of its strategy,
provide leadership on environmental innovation, and manage key
innovation programs. To help assess the results of its efforts, EPA
staff are tracking innovations and reporting on them quarterly to
agency management.

EPA’s latest approach to bolstering environmental innovation is
understandable, given the fundamental barriers to broader regulatory
experimentation posed by the current statutory framework. However,


18
  See Environmental Protection Agency, Innovating for Better Environmental Results
(April 2002).




Page 29                                                    GAO-03-112 EPA Challenges
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                        unless these statutory barriers are addressed more directly, it remains to be
                        seen whether EPA’s recent efforts to promote innovation will fare much
                        better than its past efforts. EPA’s innovation strategy hints at some kind of
                        statutory encouragement of regulatory innovation, noting that the agency
                        plans to “engage in dialogue with parties that are interested in applying the
                        flexibility and multimedia dimensions of these and other innovation
                        programs more broadly through new legislative authority.” Such cryptic
                        endorsement of legislative change appears to be a small step in the right
                        direction, but alone, it will do little to encourage states and the regulated
                        community to participate actively in innovative projects. Nor will it provide
                        tangible assurances for the environmental community and other interest
                        groups that such projects can proceed without damaging the environment.
                        EPA needs to exert leadership in this area by articulating a clearer and
                        more specific endorsement of legislation that would more directly address
                        the root cause of the problems that have, for so many years, impeded its
                        regulatory reinvention efforts.



EPA Needs to Improve    Effective grants management is essential for any federal agency that uses
                        grants as a vehicle to commit taxpayer money toward achieving public
Its Grants Management   purposes. Effective grants management is of particular importance for EPA
to Better Achieve Its   because it typically spends about half of its annual budget on grants. In
                        fiscal year 2002, EPA expended about $4 billion of its $7.8 billion budget19
Mission Objectives      on grants, which it distributed to over 3,300 recipients, including state and
                        local governments, tribes, universities, and nonprofit organizations. EPA
                        awards grants to support its ongoing programs—such as hazardous waste
                        cleanup and wastewater treatment—as well as to fund discretionary
                        short-term projects—such as training and outreach. The wide diversity
                        of grant recipients and wide range of activities that EPA grants support
                        present the agency with a formidable challenge to ensure that all awarded
                        grants are used to achieve the agency’s overall mission of protecting human
                        health and the environment.

                        For many years, our reports and numerous other internal and external
                        agency management studies have called for EPA to manage its resources to
                        achieve environmental results. With such a high percentage of its resources
                        devoted to grants, the agency’s ability to manage for results largely depends
                        on how well it manages its grants. However, in many cases, EPA has

                        19
                          The fiscal year 2002 budget amount does not include unobligated balances from previous
                        budget authority.




                        Page 30                                                      GAO-03-112 EPA Challenges
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                            not managed its grants so that they are effectively used to achieve
                            environmental results. EPA’s project grants have often been awarded
                            without a clear plan for how the project will help achieve EPA’s mission or
                            produce tangible environmental benefits. Furthermore, after years of
                            improvement initiatives, EPA still struggles to efficiently and effectively
                            administer its grant process to ensure that available resources deliver the
                            maximum effect.



EPA Needs to Better Plan    To help federal agencies more effectively use their resources to achieve
and Measure Grant Results   results, the Government Performance and Results Act of 1993 requires
                            federal agencies to prepare strategic plans and goals and to devise
                            measures to gauge progress toward these stated objectives. Since
                            submitting its first strategic plan to the Congress in 1997, EPA has
                            continued to refine its plans, goals, and performance measures to help it
                            focus agency resources on environmental results. However, EPA’s planning
                            and performance measurement for project grants has often been
                            disconnected from EPA’s efforts to manage for an improved environment,
                            as shown below:

                            • EPA selects project grants before considering how the projects would
                              contribute to achieving the agency’s strategic goals. In 2001, we reported
                              that EPA program officials treated EPA’s strategic goals and objectives
                              not as a tool to guide the selection of project grants, but rather as a
                              clerical tool for categorizing grants after the funds were already
                              awarded.20 By assessing the relevance of these grants to EPA’s strategic
                              plan after the selection process, EPA cannot ensure that it is selecting
                              the projects that will best help the agency accomplish its mission.

                            • EPA often does not require grantees to submit work plans to explain
                              how a project would achieve measurable environmental results. In 2002,
                              EPA’s Inspector General reported that EPA approved grantee work plans
                              without determining the projects’ long-term human health and
                              environmental outcomes.21 Instead, EPA funded grants on the basis of



                            20
                              See U.S. General Accounting Office, Environmental Protection: Information on EPA
                            Project Grants and Use of Waiver Authority, GAO-01-359 (Washington, D.C.: Mar. 9, 2001).
                            21
                             See EPA Inspector General, Surveys, Studies, Investigations, and Special Purpose
                            Grants, Report No. 2002-P-00005 (Mar. 21, 2002).




                            Page 31                                                      GAO-03-112 EPA Challenges
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      work plans that focused on short-term, procedural results, such as
      meetings or conferences.

• EPA often does not measure what results are being achieved with
  grants. We reported in September 2000 that EPA did not have criteria
  to measure the effectiveness of its Science to Achieve Results grant
  program.22 Instead, EPA’s management of the program focused on the
  procedures and processes of awarding grants. As a result, EPA was
  uncertain about what the program was achieving. Similarly, the EPA
  Inspector General reported in 2002 that, in many cases, EPA had not
  measured whether the grants it had awarded were achieving meaningful
  environmental benefits.23 In fact, for almost half of the 42 grants
  reviewed, EPA did not even attempt to measure the projects’ outcomes.
  In some cases, the Inspector General concluded that what the grant
  funding had accomplished was unknown or unclear.

EPA has acknowledged that its planning and performance measurement for
grants need to better focus on environmental results, and has promised to
take corrective action. EPA has recently announced that it will upgrade its
training for project officers and managers to emphasize the importance of
planning grants to achieve environmental results. EPA has also announced
that it will issue guidance to help ensure that all grant work plans include a
discussion of how grantees plan to measure and report on environmental
progress. However, the agency has also expressed reservations about the
extent to which grant projects can be planned to achieve environmental
results. The Assistant Administrator for EPA’s Office of Administration and
Resources Management stated that the Paperwork Reduction Act and OMB
regulations may affect EPA’s ability to request that recipients collect
information to measure the results of EPA-funded activities. The Assistant
Administrator also stated that the limitations that currently exist in
environmental outcome measurement could affect the agency’s ability to
measure the results of funded projects.

Planning for grants to achieve environmental results—and measuring
those results—is a difficult challenge, especially for projects such as
outreach or training. However, in view of the fact that EPA spends about

22
   See U.S. General Accounting Office, Environmental Research: STAR Grants Focus
on Agency Priorities, but Management Enhancements Are Possible, GAO-RCED-00-170
(Washington, D.C. Sept. 11, 2000).
23
     See footnote 21.




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                             half of its budget on grants, it is imperative that EPA wholeheartedly
                             accept this challenge. Certain EPA-funded projects have already
                             demonstrated that outcome-based grant planning and measurement are
                             possible. For example, in seeking funding for outreach to local building
                             code officials about indoor air quality issues, a nonprofit organization
                             designed a grant project to deliver tangible environmental results. That is,
                             the project measured results in terms of actions that affect human health—
                             in this case, the construction of homes that resist the release of radon into
                             the indoor air. Regarding the Assistant Administrator’s concerns about the
                             state of environmental outcome measurement, it should be noted that
                             EPA’s Office of Environmental Information and Office of Research and
                             Development are currently collaborating on developing a new generation
                             of outcome-based goals and measures using environmental indicators to
                             help improve performance measurement. As EPA improves its planning
                             and measuring of environmental results, it is important that the agency
                             fully integrate these improvements into its grants planning and
                             performance management.



EPA Needs to Better          Along with improved planning and performance measurement for grants,
Administer Grant Resources   EPA also needs to improve its stewardship of grant funding to maximize
                             the impact of available resources. The effective management and oversight
to Maximize Results
                             of grants helps ensure that the agency funds the best projects at the least
                             cost, that grant money is properly used to accomplish the intended results,
                             and that funded projects are completed in a timely manner. Historically,
                             EPA has experienced various problems in grants management and
                             oversight, and these problems have persisted in recent years, as
                             shown below:




                             Page 33                                              GAO-03-112 EPA Challenges
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• EPA has not ensured that it obtains the best price through competition
  for project grants. EPA’s Inspector General reported in 2001 that EPA
  officials gave grants to the same recipients year after year without
  competition or selected certain grantees without competition on the
  basis of the undocumented belief that the grantee was “uniquely
  qualified.”24 In 2002, the Inspector General reported that grant
  recipients, in turn, awarded contracts for EPA-funded work without
  determining the reasonableness of the contractor’s price, instead
  selecting contractors on the basis of familiarity or in some cases
  awarding contracts to their own subsidiaries without competition.25

• EPA has not provided effective oversight to ensure that grant funds
  are used only for allowable purposes. In 2001, we reported that EPA’s
  oversight of nonprofit grantees was not sufficiently rigorous to uncover
  expenditures for unallowable costs.26 Specifically, we found that EPA
  conducted oversight reviews of only 4 percent of its nonprofit grantees
  and that these reviews were not designed to identify unallowable costs.

• EPA has sometimes not ensured that its grantees have proper financial
  and internal controls in place to ensure that federal funds are properly
  used. For example, the EPA Inspector General found that one grantee
  could not adequately account for over half of its $300,000 in EPA grant
  funding. Another grantee submitted multiple financial status reports
  showing conflicting ending balances for its grant funding.

• EPA has often not ensured that grant projects are completed in a timely
  manner. In September 2000, we reported that EPA had not tracked its
  Science to Achieve Results research grants to ensure their on-time
  completion.27 We found that 144 of the nearly 200 grantees reviewed had
  missed their deadline for submitting final reports, even after extensions
  had been granted.



24
  See EPA’s Competitive Practices for Assistance Awards, Report No. 2001-P-00008
(May 21, 2001).
25
 See Environmental Protection Agency, Procurement Made by Assistance Agreement
Recipients Should Be Competitive, Report No. 2002-P-00009 (Mar. 28, 2002).
26
 See U.S. General Accounting Office, Environmental Protection: EPA’s Oversight of
Nonprofit Grantees’ Costs Is Limited, GAO-01-366 (Washington, D.C.: Apr. 6, 2001).
27
     See footnote 22.




Page 34                                                      GAO-03-112 EPA Challenges
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• EPA does not have an automated data system that it can rely upon to
  provide consistent and accurate information to support grants
  management. EPA’s system does not generate reports needed to
  effectively monitor grants, and individual grantees do not always have
  unique identifiers in the system but may appear under multiple names or
  identification numbers.

EPA has recently taken various actions intended to improve its
management and oversight of the grants it awards, such as (1) issuing an
order to require competition in the award of many grants and to require
detailed justifications for noncompetitive awards; (2) conducting training
sessions about competitive procurement requirements for grant recipients
and EPA personnel; (3) revising agency policy to require EPA staff to
conduct more on-site reviews of grant recipients and to check for
unallowable costs in grantee spending; (4) developing a new data system
to better track funding amounts, project milestones, and agency oversight
activities; and (5) developing a long-term strategic plan for grants
management that is intended to improve accountability, coordination,
and resource management for EPA grants.

Although these actions appear promising, EPA has a long history of
undertaking initiatives to improve grants administration, and, despite
years of corrective actions, problems persist. The EPA Inspector General
recently concluded that some agency actions to address grant weaknesses
have not been effective, and in May 2002 recommended that EPA designate
grants management as a material weakness under the Federal Managers’
Financial Integrity Act. OMB also recommended that EPA identify grants
management as a material weakness. OMB believes that a strong grants
competition policy, along with improved prioritization, oversight, and
enforcement procedures, is needed to improve EPA’s grants management
and will ultimately lead to better environmental outcomes.

Notwithstanding the Inspector General’s and OMB’s recommendations, in
November 2002, the Administrator concurred with the recommendations
of EPA senior managers not to declare the agency’s grants management to
be a material weakness under the Integrity Act. The agency justified its
decision on the basis of the policies it had recently issued to improve
competition in awarding grants and to strengthen the agency’s monitoring
of grant recipients. EPA does, however, consider grants management to be
an “agency level” weakness under the Integrity Act—a weakness that does
not merit the attention of the President or Congress but is significant
enough to require regular reporting to the Administrator. While EPA’s



Page 35                                            GAO-03-112 EPA Challenges
                             Major Performance and Accountability
                             Challenges




                             classification of grants management under the Integrity Act may be the
                             subject of debate, it is clear that improving grants management must be a
                             top priority for the agency. With about half of EPA’s budget devoted to
                             grants, the agency’s ability to efficiently and effectively accomplish its
                             mission largely depends on how well it manages its grant resources.



EPA Needs to Improve         EPA’s Inspector General issued an unqualified opinion on EPA’s
Internal Controls over Its   consolidated financial statements for the fiscal year ended 2001. However,
                             when it considered internal controls over financial reporting, the Inspector
Financial Reporting          General identified three reportable conditions that could adversely affect
                             the agency’s ability to process, summarize, and report financial statement
                             data. Additionally, in its assessment of compliance with laws and
                             regulations that relate to financial statement reporting, the Inspector
                             General identified two instances of noncompliance, only one of which was
                             substantial. While noteworthy, neither instance of noncompliance would
                             result in material misstatements to the audited financial statements.

                             EPA had three reportable conditions in fiscal year 2001. The first was its
                             failure to implement Statement of Federal Financial Accounting Standard
                             (SFFAS) No. 10, Accounting for Internal Use Software, until the end
                             of fiscal year 2001, even though the standard was applicable for the entire
                             fiscal year. SFFAS No. 10 requires the capitalization of the full cost
                             (direct and indirect) of internal use software whether it is commercial
                             off-the-shelf, contractor developed, or internally developed. In addition,
                             some of the supporting documentation used to identify capitalized
                             software cost was insufficient to determine whether such costs exceeded
                             the capitalization threshold. Because EPA issued guidance at the end of
                             fiscal year 2001 for capitalizing internally developed software, the
                             Inspector General did not believe a recommendation was warranted.

                             The second reportable condition concerned the interagency agreement
                             invoice (IAG) approval process. EPA project officers did not fulfill
                             oversight duties related to reviewing and approving interagency agreement
                             invoices. The Inspector General has continued to find instances where
                             program offices did not receive support for IAG invoices paid, did not
                             promptly approve payable IAG invoices, or did not identify the proper
                             account to be charged. EPA agreed with the Inspector General’s findings
                             and, according to the agency’s management, EPA has implemented an
                             automated project officer approval system that addresses this finding.




                             Page 36                                              GAO-03-112 EPA Challenges
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The third reportable condition dealt with automated application processing
controls for EPA’s Integrated Financial Management System (IFMS). The
lack of system documentation made it impossible to assess the adequacy of
the automated internal control structure as it related to automated input,
processing, and output controls for the IFMS system. The Inspector
General found that EPA has taken tangible steps to replace the IFMS with
the Financial Replacement System (FinRS) project. However, the Inspector
General will not be able to sufficiently assess the adequacy of the
automated internal control structure until the new system is in place.

The Inspector General’s tests of compliance with the Federal Financial
Management Improvement Act of 1996 disclosed an instance where EPA’s
financial management systems did not substantially comply 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 described in sufficient detail to be
useful to managers. EPA took exception to these Inspector General
findings, stating that the agency believes it is in compliance with the
managerial cost accounting standard. According to EPA’s management,
cost-per-output information is provided to program managers on a regular
basis. The resolution of this issue will likely be the topic of future
discussions between EPA management and the Inspector General.

EPA was noncompliant 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 might or might not have been
the appropriation that benefited from the work performed. Consequently,
EPA was not in compliance with title 31, U.S. Code, section 1301, which
requires EPA to match disbursements to the benefiting appropriation. In
fiscal year 2001, EPA adopted new procedures for allocating costs on such
grants for new awards. Therefore, it is anticipated that the problem will be
corrected as the remaining obligated balances are liquidated.

Although the Inspector General has identified several internal control
weaknesses, it appears that corrective actions are well under way. The
successful completion of these efforts to correct identified reportable
conditions and compliance issues will assist EPA in providing its managers
and the Congress with more timely and reliable financial information.




Page 37                                              GAO-03-112 EPA Challenges
GAO Contacts




               Subjects covered in this report            Contact person
               Improving environmental information        John B. Stephenson, Director
                                                          Natural Resources and Environment
               Strengthening EPA’s human capital          (202) 512-3841
               management                                 stephensonj@gao.gov

               Making regulatory innovation successful

               Improving EPA’s grants planning and
               management
               Maintaining EPA’s information security     Robert F. Dacey, Director
                                                          Information Technology
                                                          (202) 512-3317
                                                          daceyb@gao.gov
               Accounting for EPA’s financial resources   McCoy Williams, Director
                                                          Financial Management and Assurance
                                                          (202) 512-6906
                                                          williamsm1@gao.gov




               Page 38                                                     GAO-03-112 EPA Challenges
Related GAO Products



Performance and              Major Management Challenges and Program Risks: A Governmentwide
Accountability Series        Perspective (GAO-01-241, January 2001).

                             Major Management Challenges and Program Risks: Environmental
                             Protection Agency (GAO-01-257, January 2001).

                             High-Risk Series: An Update (GAO-01-263, January 2001).



Environmental and            Managing for Results: Agency Progress in Linking Performance Plans
Performance Management       with Budgets and Financial Statements (GAO-02-236, Jan. 4, 2002).
Information                  Environmental Information: EPA Needs Better Information to Manage
                             Risks and Measure Results (GAO-01-97T, Oct. 3, 2000).

                             Toxic Chemicals: Long-Term Coordinated Strategy Needed to Measure
                             Exposures in Humans (GAO/HEHS-00-80, May 2, 2000).

                             Managing for Results: EPA Faces Challenges in Developing
                             Results-Oriented Performance Goals and Measures (GAO/RCED-00-77,
                             Apr. 28, 2000).

                             Water Quality: Key EPA and State Decisions Limited by Inconsistent and
                             Incomplete Data (GAO/RCED-00-54, Mar. 15, 2000).

                             Environmental Information: EPA Is Taking Steps to Improve
                             Information Management, but Challenges Remain (GAO/RCED-99-261,
                             Sept. 17, 1999).



Information Technology and   Computer Security: Progress Made, but Critical Federal Operations and
Security                     Assets Remain at Risk (GAO-03-303T, Nov. 19, 2002).

                             Critical Infrastructure Protection: Significant Challenges Need to Be
                             Addressed (GAO-02-961T, July 24, 2002).

                             Information Technology: Enterprise Architecture Use across the Federal
                             Government Can Be Improved (GAO-02-6, Feb. 19, 2002).

                             Computer Security: Improvements Needed to Reduce Risk to Critical
                             Federal Operations and Assets (GAO-02-231T, Nov. 9, 2001).



                             Page 39                                           GAO-03-112 EPA Challenges
                        Related GAO Products




                        Information Security: Fundamental Weaknesses Place EPA Data and
                        Operations at Risk (GAO/AIMD-00-215, July 6, 2000).



Human Capital           A Model of Strategic Human Capital Management (GAO-02-373SP,
                        Mar. 15, 2002).

                        Human Capital: Attracting and Retaining a High Quality Information
                        Technology Workforce (GAO-02-113T, Oct. 4, 2001).

                        Human Capital: Implementing an Effective Workforce Strategy Would
                        Help EPA to Achieve Its Strategic Goals (GAO-01-812, July 31, 2001).



Innovative Regulatory   Environmental Protection: Overcoming Obstacles to Innovative State
Approaches              Regulatory Programs (GAO-02-268, Jan. 31, 2002).

                        Environmental Protection: Challenges Facing EPA’s Efforts to
                        Reinvent Environmental Regulation (GAO/RCED-97-155, July 2, 1997).

                        Environmental Protection: Status of EPA’s Initiatives to Create a New
                        Partnership with States (GAO/T-RCED-96-87, Feb. 29, 1996).



EPA Grants Management   Environmental Protection: Grants Awarded for
                        Continuing Environmental Programs and Projects (GAO-01-860R,
                        June 29, 2001).

                        Environmental Protection: EPA’s Oversight of Nonprofit Grantees’ Costs
                        Is Limited (GAO-01-366, Apr. 6, 2001).

                        Environmental Protection: Information on EPA Project Grants and Use
                        of Waiver Authority (GAO-01-359, Mar. 9, 2001).

                        Environmental Research: STAR Grants Focus on Agency Priorities,
                        but Management Enhancements Are Possible (GAO/RCED-00-170,
                        Sept. 11, 2000).

                        Environmental Protection: Grants for International Activities and Smart
                        Growth (GAO/RCED-00-145R, May 31, 2000).




                        Page 40                                           GAO-03-112 EPA Challenges
                           Related GAO Products




EPA Financial Management   Debt Collection Improvement Act of 1996: Major Data Sources Inadequate
                           for Implementing the Debtor Bar Provision (GAO-02-462, Mar. 29, 2002).

                           Debt Collection Improvement Act of 1996: Status of Selected Agencies’
                           Implementation of Administrative Wage Garnishment (GAO-02-313,
                           Feb. 28, 2002).

                           Inspectors General: Information on Resources and Selected
                           Accomplishments of 18 Inspectors General (AIMD-00-149R, Apr. 14, 2000).




                           Page 41                                           GAO-03-112 EPA Challenges
Performance and Accountability and
High-Risk Series

              Major Management Challenges and Program Risks: A Governmentwide
              Perspective. GAO-03-95.

              Major Management Challenges and Program Risks: Department of
              Agriculture. GAO-03-96.

              Major Management Challenges and Program Risks: Department of
              Commerce. GAO-03-97.

              Major Management Challenges and Program Risks: Department of
              Defense. GAO-03-98.

              Major Management Challenges and Program Risks: Department of
              Education. GAO-03-99.

              Major Management Challenges and Program Risks: Department of
              Energy. GAO-03-100.

              Major Management Challenges and Program Risks: Department of Health
              and Human Services. GAO-03-101.

              Major Management Challenges and Program Risks: Department of
              Homeland Security. GAO-03-102.

              Major Management Challenges and Program Risks: Department of
              Housing and Urban Development. GAO-03-103.

              Major Management Challenges and Program Risks: Department of the
              Interior. GAO-03-104.

              Major Management Challenges and Program Risks: Department of
              Justice. GAO-03-105.

              Major Management Challenges and Program Risks: Department of Labor.
              GAO-03-106.

              Major Management Challenges and Program Risks: Department of State.
              GAO-03-107.

              Major Management Challenges and Program Risks: Department of
              Transportation. GAO-03-108.




              Page 42                                       GAO-03-112 EPA Challenges
Performance and Accountability and
High-Risk Series




Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of
Veterans Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental
Protection Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National Aeronautics
and Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.

High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the
Federal Government and the Nation’s Critical Infrastructures. GAO-03-
121.

High-Risk Series: Federal Real Property. GAO-03-122.




Page 43                                          GAO-03-112 EPA Challenges
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