Drinking Water:

Key Aspects of EPA's Revolving Fund Program Needed to Be Strengthened

GAO-02-135: Published: Jan 24, 2002. Publicly Released: Feb 25, 2002.

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The Environmental Protection Agency (EPA) estimates that $150 billion will be needed during the next 20 years to repair, replace, and upgrade the nation's 55,000 community water systems. Congress established the Drinking Water State Revolving Fund (DWSRF) program in 1996 to help communities finance the infrastructure projects needed to comply with federal drinking water regulations. EPA has developed a survey to collect data on the nature and cost of infrastructure improvements needed at local water systems. EPA has taken several steps to validate the data included in its $150 billion estimate, including visits to selected sites. However the agency has yet to calculate and report on the estimate's precision. GAO found that EPA is not taking full advantage of oversight tools to monitor states' implementation of the DWSRF. First, EPA is developing financial management and other measures to monitor state progress and support agency's review of state programs. Until these draft measures are finalized and applied consistently, their usefulness as an oversight tool will be limited. Second, the untimely and inconsistent preparation of program evaluation report reviews--one of EPA's primary oversight tools--has hampered the agency's ability to identify common or recurring problems. Third, gaps in the financial audit coverage and a limited review of the completed audits undermine EPA's ability to fully assess the financial conditions of the state's DWSRF programs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In 2002, EPA released an audit strategy for the clean water and drinking water state revolving fund (SRF) programs stating that the Office of the Inspector General (OIG) will conduct a financial audit at least once every 3 years in any state that does not conduct its own independent audit. In addition, the OIG now conducts internal control reviews of SRF programs selected by EPA regional office and headquarters staff based on issues identified during annual state program reviews or routine oversight. EPA designated a National SRF Audit Manager who receives copies of all independent financial audits, Single Audits, and OIG reviews, and maintains an audit tracking data base that includes the findings extracted from the audit reports. Audit findings are also sent to the responsible clean water and drinking water SRF Regional Coordinators, who work with state program officials to develop corrective action plans. The Regional Coordinators monitor the completion of the corrective actions and report the status to the National SRF Audit Manager. Finally, EPA issued a financial statement audit guide for the clean water and drinking water SRF programs in September 2002.

    Recommendation: To improve EPA's oversight of the DWSRF program and its ability to assess overall program effectiveness, the Administrator, EPA, should conduct independent audits in the states where no audits have been done, track and evaluate the quality of audits performed by others, and complete financial audit guidelines for the DWSRF program.

    Agency Affected: Environmental Protection Agency

  2. Status: Closed - Implemented

    Comments: In March 2004, EPA issued guidance for the conduct of annual reviews of states' clean water and drinking water revolving fund programs. The guidance lays out a standardized approach to developing the program evaluation reports to ensure consistency in report content and to ensure that the annual findings are fully documented. Among other things, the guidance requires regional and state officials to discuss DWSRF financial indicators as part of the state performance review. To ensure consistency in the scope and documentation of the reviews, the guidance requires the regions to complete a checklist that addresses all of the financial and programmatic elements that should be covered in the reviews. The checklists must be attached to program evaluation reports, which must be issued within 90 days of the annual review.

    Recommendation: To improve EPA's oversight of the DWSRF program and its ability to assess overall program effectiveness, the Administrator, EPA, should improve the timeliness of and require greater consistency in the scope and documentation of the annual program evaluations, so that the results of the evaluations can be systematically reviewed to identify broad-based problems that may require national solutions.

    Agency Affected: Environmental Protection Agency

  3. Status: Closed - Implemented

    Comments: EPA finalized seven financial indicators and released them to its regional offices and the states in February 2003. Beginning with state fiscal year 2002, EPA regional offices started to include a discussion of financial indicators as part of their annual state program reviews. EPA's 2004 budget and strategic plan includes two financial indicators and two program measures.

    Recommendation: To improve EPA's oversight of the DWSRF program and its ability to assess overall program effectiveness, the Administrator, EPA should finalize and consistently apply financial management and other program measures to assist in the annual review of state performance and make them available outside EPA, so that others can assess the overall effectiveness of the program.

    Agency Affected: Environmental Protection Agency

  4. Status: Closed - Implemented

    Comments: Based on GAO's work, EPA's most recent needs assessment, published in June 2005, includes more information on the underlying methodology and the quality assurance procedures used to ensure data quality. Specifically, EPA's report on the needs assessment cites GAO as one of the sources that critically reviewed earlier assessments. EPA's report acknowledged the need for greater transparency regarding its data and methods, saying that a weakness in prior reports was the lack of sufficient details on methodology. The report states that external reviews by GAO and others have been instrumental in the changes to the study design and provide a continuous source of ideas for improving the quality of each assessment.

    Recommendation: To get a better sense of the accuracy of EPA's estimate, EPA should calculate and report the level of precision actually achieved in its recent needs assessment, and determine what implications, if any, its findings have on the way future needs assessment surveys are conducted.

    Agency Affected: Environmental Protection Agency

  5. Status: Closed - Implemented

    Comments: In addition to implementing a new audit tracking data base that contains findings of all SRF audits, the clean water and drinking water SRF programs participate in annual meetings with the OIG to discuss (1) the audits and quality control reviews performed in the previous year and (2) plans for audit coverage in the upcoming year.

    Recommendation: To improve EPA's oversight of the DWSRF program and its ability to assess overall program effectiveness, the Administrator, EPA, should facilitate the exchange of audit findings and program evaluation results between DWSRF program and Office of Inspector General officials.

    Agency Affected: Environmental Protection Agency

 

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