FY22_PCM_43_ELM_01182022.pdf

P_ELM_43 - Environmental Liabilities Management (E2E)

PCM Name: P_ELM_43 - Environmental Liabilities Management (E2E)

Organization Responsible for Process Cycle:

Defense Logistics Agency (DLA)

McNamara Headquarters Building

8725 John J. Kingman Rd.

Ft. Belvoir, VA 22060-6221

Purpose: This Environmental Liabilities Management (ELM) Process Cycle Memorandum (PCM) outlines the business functions and processes necessary to identify, estimate, and report future costs to complete all cleanup, closure and/or disposal actions at known DLA sites with outstanding Environmental Liabilities (EL).

DLA’s ELM process is used to identify and track EL; develop and review Cost to Complete (CTC) estimates;

perform cleanup or remediation actions; and fulfill financial reporting requirements for the EL balances reported on DLA’s General Fund (GF), Defense Working Capital Fund (DWCF), and Transaction Fund (TF) financial statements. The associated Standard Operating Procedures (SOPs) provide in-depth descriptions, process roadmaps and direction for performing the process steps described in this PCM.

PCM Prepared By:

ELM Business Cycle Team DLA Installation Management, Environmental Management (DM-E)

Date Prepared: January 18, 2022

Process Owner Approved: January 31, 2022

PCM Point of Contact (POC):

Bradley J. Clawson Restoration Division Chief DLA Installation Management, Environmental Restoration (DM-ER)

(571) 767-1510 Bradley.Clawson@dla.mil

PCM Process Owner:

Nanette C. Werner Staff Director DLA Installation Management, Environmental Management (DM-E)

(571) 767-6236 Nanette.werner@dla.mil

Signature: __________________________________

PCM Process Cycle Integrator:

Jason R. Buys Staff Director DLA Installation Management, Process Management (DM-A)

(571) 767-0105 Jason.Buys@dla.mil

Signature:__________________________________

Table of Contents

1. ORGANIZATIONS:

2. SYSTEMS, MICRO-APPLICATIONS, AND TOOLS USED BY DM-E:

3. LINKAGE TO OTHER PCMs:

4. REGULATORY GUIDANCE:

Public Law and Regulations:

Federal Accounting Standards Advisory Board (FASAB):

Department of Defense (DoD) Regulations:

Financial Improvement and Audit Readiness (FIAR) Guidance:

DoD Issuance (DoDI) & Directives:

DoD Guidance and Manuals:

DLA Instructions (DLAI):

5. SOP/SYSTEMS DOCUMENTATION:

6. PROCESS OVERVIEW:

ELM Process Step 1: Identify Sites/Assets with EL

ELM Process Step 2: Develop EL CTC Estimates

ELM Process Step 3: Perform EL Budgeting and Execution for Cleanup, Closure, or Disposal Action

ELM Process Step 4: Report EL

7. PROCESS STEPS DESCRIPTION:

7.1 Identify Sites/Assets with EL

7.1.1 Process Participant Roles

7.1.2 Training

7.1.3 Description

7.1.4 Risks

7.1.5 Internal Controls

7.1.6 Process Inputs

7.1.7 Process Outputs

7.2 Develop EL CTC Estimates

7.2.1 Process Participant Roles

7.2.2 Training

7.2.3 Description

7.2.4 Risks

7.2.5 Internal Controls

7.2.6 Process Inputs

7.2.7 Process Outputs

7.3 Perform EL Budgeting and Execution for Cleanup, Closure, or Disposal Action

7.3.1 Process Participant Roles

7.3.2 Training

7.3.3 Description

7.3.4 Risks

7.3.5 Internal Controls

7.3.6 Process Inputs

7.3.7 Process Outputs

7.4 Report EL

7.4.1 Process Participant Roles

7.4.2 Training

7.4.3 Description

7.4.4 Risks

7.4.5 Internal Controls

7.4.6 Process Inputs

7.4.7 Process Outputs

8. Forms and Reports

Supplemental Process Information and Templates: Included in SOPs as Appendices

DLA SOP 4715.07-001, Site Identification (ID) of Environmental Liabilities (EL)

DLA SOP 4715.07-002, Environmental Liabilities (EL) Cost to Complete (CTC)

DLA SOP 4715.07-003, EL Budgeting and Execution

DLA SOP 4715.07-004, EL Reporting

1. ORGANIZATIONS:

DLA Major Subordinate Commands (MSCs) and Field Activities

DLA Installation Management, Process Management (DM-A)

DLA Installation Management, Environmental Management (DM-E)

DLA Installation Management, Facilities and Equipment (DM-I)

DLA Finance Energy (F8FCP)

DLA Acquisition (J7)

DLA Operational Accounting (J81)

DLA Enterprise Accounting (J82)

DLA Financial Reporting (J85)

DLA Enterprise Financial Operations (J862)

DLA Operationalized Activities Division (J864)

Defense Finance and Accounting Services (DFAS)

2. SYSTEMS, MICRO-APPLICATIONS, AND TOOLS USED BY DM-E:

Defense Training Center, Learning Management System (LMS)

Remedial Action Cost Engineering and Requirements (RACER®) Software

Enterprise Business System (EBS)

Fuel Pipeline Cleaning Calculator

Joint Inflation Calculator

Purge Water Calculator

Wash Water Calculator

3. LINKAGE TO OTHER PCMs:

4. P_A2R_34_Real Property – October 6, 2015

5. P_A2R_35_General Equipment – December 1, 2020

6. P_FRR_38_Trial Balance Management – February 21, 2020

7. P_P2P_1_eProcurement Contract Award to Closeout – April 4, 2019

8. P_P2P_21_Outbound Military Interdepartmental Purchase Request (MIPR) – September 9, 2021

Note: Additional relevant PCMs for A2R (e.g., leases), Excess to Disposal, and FRR (e.g., financial reporting) are under development.

4. REGULATORY GUIDANCE:

Public Law and Regulations:

Chief Financial Officer Act (CFO) PL-101-576 (1990)

Title 29, Code of Federal Regulations, Labor

Title 40, Code of Federal Regulations, Protection of Environment

Title 49, Code of Federal Regulations, Transportation

Federal Accounting Standards Advisory Board (FASAB):

Statement of Federal Financial Accounting Standards (SFFAS) Number 1, Accounting for Selected Assets and Liabilities (March 30, 1993)

SFFAS Number 5, Accounting for Liabilities of the Federal Government (September 30, 1996)

SFFAS Number 6, Accounting for Property, Plant, and Equipment (PP&E) (September 30, 1997)

Technical Bulletin 2006-1: Recognition and Measurement of Asbestos-Related Cleanup Costs (September 28, 2006)

Federal Financial Accounting and Auditing Technical Release Number 2: Determining Probable and Reasonably Estimable for Environmental Liabilities in the Federal Government (March 15, 1998)

Federal Financial Accounting Technical Release 10: Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities & Installed Equipment (June 2, 2010)

Federal Financial Accounting Technical Release 11: Implementation Guidance on Clean Up Costs Associated with Equipment (June 2, 2010)

Federal Financial Accounting Technical Release 14: Implementation Guidance on the Accounting for the Disposal of General Property, Plant, & Equipment (October 6, 2011)

Department of Defense (DoD) Regulations:

Financial Management Regulation (FMR) DoD 7000.14-R, Volume 4, Chapter 8, Financial Control of Liabilities (February 2020)

FMR DoD 7000.14-R, Volume 4, Chapter 13, Environmental and Disposal Liabilities (April 2018)

FMR DoD 7000.14-R, Volume 4, Chapter 24, Real Property (October 2019)

FMR DoD 7000.14-R, Volume 6B, Chapter 10, Notes to the Financial Statements (March 2020)

Financial Improvement and Audit Readiness (FIAR) Guidance:

Environmental Liabilities Best Practices Guide, Office of the Under Secretary of Defense (Comptroller) (February 2014)

FIAR Guidance, Office of the Under Secretary of Defense (Comptroller) / Chief Financial Officer (April 2017)

Strategy for Environmental & Disposal Liabilities (E&DL) Audit Readiness, Office of the Under Secretary of Defense (Comptroller) and Office of the Under Secretary of Defense for Acquisition, Technology and Logistics (September 30, 2015)

DoD Issuance (DoDI) & Directives:

DoDI 4715.05, Environmental Compliance at Installations Outside the United States (August 31, 2018)

DoDI 4715.06, Environmental Compliance in the United States (August 31, 2018)

DoDI 4715.07, Defense Environmental Restoration Program (August 31, 2018)

DoDI 4715.08, Remediation of Environmental Contamination Outside the United States (August 31, 2018)

DoDI 4715.18, Emerging Contaminants of Environmental Concern (September 4, 2019)

DoDI 4715.22, Environmental Management Policy for Contingency Locations (August 31, 2018)

DoD Guidance and Manuals:

DoD Guidance for Recognizing, Measuring, and Reporting Environmental Liabilities Not Eligible for Defense Environmental Restoration Programs Funding, (Non-DERP), Office of the Deputy Under Secretary of Defense (October 15, 2005)

DoD Manual 4715.05, Overseas Environmental Baseline Guidance Document (June 29, 2020)

DoD Manual 4715.20, Defense Environmental Restoration Program (DERP) Management, Office of the Deputy Under Secretary of Defense (March 9, 2012, and updated August 31, 2018)

DoD Manual 4160.21, Defense Material Disposition (September 30, 2019)

DoD Manual 4160.28, Defense Demilitarization (July 15, 2019)

DLA Instructions (DLAI):

DLAR 1000.22, Environmental Considerations in DLA Actions (December 2, 2011)

DLAI 4715.03, Environmental Management of Real Property (June 7, 2018)

DLAI 4715.06, Environmental Compliance (September 12, 2017)

DLAI 4715.07, Environmental Liabilities Management and Restoration (May 3, 2019)

DLAI 5010.40, Enterprise Risk Management (ERM) and Managers’ Internal Control Program (MICP) (May 26, 2020)

5. SOP/SYSTEMS DOCUMENTATION:

DLA SOP 4715.07-001, Site Identification (ID) of Environmental Liabilities (EL) (February 28, 2022)

DLA SOP 4715.07-002, Environmental Liabilities (EL) Cost to Complete (CTC) (February 28, 2022)

DLA SOP 4715.07-003, Environmental Liabilities (EL) Budgeting and Funds Execution (February 28, 2022)

DLA SOP 4715.07-004, Environmental Liabilities (EL) Reporting (February 28, 2022)

6. PROCESS OVERVIEW:

Per the DoD FMR Volume 4, Chapter 13, EL is defined as a probable and measurable future outflow or sacrifice of resources that exists as of the financial reporting date for environmental cleanup, closure and/or disposal costs resulting from past transactions or events. DLA uses the ELM process to determine and report DLA’s EL. The ELM process consists of four primary process steps: 1) identifying sites/assets with an EL, 2) developing CTC estimates, 3) performing EL budgeting and funds execution for cleanup, closure, or disposal actions, and 4) reporting EL on the financial statements.

This section provides an overview of the four ELM process steps. The next section (Section 7: Process Steps Description) identifies the individual components of each ELM process step and how those components are documented in the applicable SOPs. The ELM process is repeated on an annual basis as shown in Figure 1, with completion dates for key interim steps identified to ensure that the entire cost estimating process is completed by fiscal year (FY)-end and EL costs are available for inclusion in the end of year financial statement. Figure 2 identifies where in the ELM process cycle key controls are completed.

Figure 1. Annual ELM Process Timeline

Figure 2. Key Controls During Annual ELM Process Timeline

EL Types DLA reports the following types of EL per the DOD FMR: Corrective Action, Asbestos, Closures/Non- EBS Closures, GE, and Program Management Costs. These EL types are grouped into three main categories: corrective action sites, asset-driven EL requirements, and program management costs. A corrective action site is any site for which out-year DLA funding will be required to either (1) investigate to determine if releases of hazardous constituents to the environment have occurred, and/or

(2) cleanup released hazardous constituents to regulatory-approved cleanup levels. Closure, asbestos, and GE-related EL requirements are associated with assets (e.g., fuel storage tanks, buildings/structures, GE) and exist when DLA funding will be required to conduct non-routine environmental-related activities at closure or disposal. These assets are assumed to have been operated in accordance with all applicable regulations and environmental permits with no known releases. Overhead and management costs that cannot be attributed to specific sites are included as program management costs. DLA discloses the reportable EL for corrective action sites, asset-driven requirements, and associated program management costs on the GF, DWCF, and TF financial statements.

ELM Process Step 1: Identify Sites/Assets with EL The purpose of the Site ID process step is to identify all sites and assets with associated out-year EL. Through ongoing implementation of the Site ID process, the agency ensures the completeness of the population of EL reported on the agency’s financial statements. The output of the Site ID process step lays the groundwork for ELM Process Step 2 – Develop EL CTC Estimates.

The Site ID process step consists of three major components: 1) ongoing identification and tracking of environmental events, 2) Site ID data gatherings and preparation of Annual Determination Reports, and 3) collection and analysis of real property asset inventories to identify asset-driven EL.

The execution of each of these three process step components, and their role in identifying potential or out-year EL, will be discussed further in Section 7.1. Site ID of EL SOP (SOP 4715.07-001) outlines the specifics of each Site ID process step component.

ELM Process Step 2: Develop EL CTC Estimates This process step includes the creation and review of CTC estimates for each EL. The CTC estimates are reviewed and updated as necessary prior to calculating and reporting out-year EL on the agency’s financial statements. The output of this process step lays the groundwork for ELM Process Step 4 – Report EL. The EL CTC SOP (SOP 4715.07-002) outlines the necessary procedures to ensure the development of accurate, defensible, and auditable cost estimates. The CTC process step is accomplished via three major sub-components. The execution of these sub-processes, and their role in quantifying out-year EL for each DLA Fund (GF, DWCF, and TF), is discussed further in Section 7.2. The EL CTC SOP (SOP 4715.07-002) outlines the necessary activities and procedures to ensure the development of an accurate, defendable, and auditable CTC.

ELM Process Step 3: Perform EL Budgeting and Execution for Cleanup, Closure, or Disposal Action This ELM process step ensures the cleanup, closure, and disposal actions for each EL are accurately managed by DLA personnel. This includes the execution and management of environmental funding, utilizing execution agents to contract and/or perform the duties necessary to remediate the EL, and management of cleanup. Undelivered Orders (UDO) and Expenses that result from these actions are recorded in EBS and included in the EL calculation that is reported on DLA’s GF, DWCF, and TF financial statements. The methodology and activities that DLA follows to perform budgeting actions, execute and track environmental funding, and record the costs of these actions are documented in the EL Budgeting and Execution SOP (SOP 4715.07-003) as well as other Procure to Pay (P2P) process documentation.

ELM Process Step 4: Report EL The EL Reporting process step refers to the financial reporting of the EL balance on the E&DL Standard Disclosure of DLA’s GF, DWCF, and TF financial statements. This function is performed by DM-ER in coordination with multiple offices. DLA is responsible for the coordination and completion of the Quarterly EL Data Calls that calculate the total EL balance reported in the E&DL disclosure. Additionally, DLA identifies and prepares EL variance analyses explaining the changes in EL balances from the previous year.

The EL variance analyses and E&DL Standard Disclosures are prepared by DM-ER and submitted to J85 for inclusion in the DLA Financial Recording and Reporting (FRR) process. This process step also includes an analysis of Estimates to Actuals completed at the end of the cycle to assess the reliability of the estimating process. Refer to the EL Reporting SOP (SOP 4715.07-004) for more detailed instructions.

7. PROCESS STEPS DESCRIPTION:

Section 7 provides a description of each process step, associated roles and training requirements, risks, internal controls, and process inputs and outputs. This section provides a concise summary of the critical elements of the ELM process and description of how ELM relates to other processes and business cycles. This section also provides the linkages between the internal controls and the SOPs. Figure 3 displays the relationships between the ELM process steps and the associated DLA organizations. Figures 4 through 9 show the key controls and other internal controls for each of the process steps and the associated DLA organizations.

Figure 3. Overall ELM Process Flow Chart

7.1 Identify Sites/Assets with EL

7.1.1 Process Participant Roles

DM-E Staff Director or Designee - Ensures compliance with applicable environmental laws, regulations, and policy for identifying and reporting EL. Approves the ELM Designation Memo identifying key personnel in the ELM process.

DM-ER Division Chief or Designee – Oversees execution of the overall ELM process, to include Site ID, through identification of ELM process participants in the ELM Designation Memo and verification of completion of training. Approves the Annual Site ID Determination Reports as Key Control 1.

DM-I Staff Director - Ensures compliance with applicable laws, regulations, and policy for identifying and reporting accountable property and equipment. Oversees maintenance and updates of the DLA EBS inventory.

DM-I, Property and Real Estate (DM-IP) Division Chief or Designee - Signs the Verification of Information for Use in Preparing CTC Estimates for DLA Asset-Driven EL Memo to confirm the accuracy of EBS reports and information for estimating asset-driven EL.

Major Subordinate Commands and Installation Management Site/Staff Directors – Identifies a PM responsible for the distribution of Site ID documents to all Field Locations within their area of responsibility (AOR). Ensures DLA Field Locations within their AOR comply with DLA’s environmental event reporting procedures.

DLAs PMs – Distributes the Environmental Event Report and other guidance on reportable environmental events to Field Locations within their AOR, as appropriate. Provides status updates and evidential matter to support events in the Environmental Event Repository (EER) and propose an EL determination category during data gathering for each event within the applicable AOR as recorded in the Data Gathering Meeting Minutes. For closures, asbestos, and GE, reviews and approves the Data Analysis and Reconciliation Results Memo (DARRM) as Key Control 2.

Site ID Support Team – For corrective action, monitors the Environmental Event Inbox, compiles and coordinates environmental event data gathering discussions and determinations, and compiles the Annual Site Determination Reports. For closures, asbestos, and GE, analyzes EBS data to determine which assets have associated out-year EL and prepares the DARRM documenting the results. Prepares the annual ELM Site ID Audit File.

7.1.2 Training

Those individuals identified via the ELM Designation Memo, and the Site ID Support Team are required to complete annual ELM training. The training course provides an overview of the ELM process and the roles and responsibilities for process participants. An annual Training Verification Memorandum is prepared to document all required participants’ completion of the training.

7.1.3 Description

The purpose of DLA’s Site ID process is to identify sites or assets with associated out-year EL. DM-E uses the Site ID process to gather information about potential EL in the following categories: corrective action environmental events, Real Property assets with associated closure and asbestos EL, and GE assets with associated EL. The Site ID process (Figure 4) is documented in the Site ID of EL SOP (SOP 4715.07-001).

The Site ID process consists of three major components: 1) ongoing identification and tracking of environmental events, 2) Site ID Determination Events and preparation of Annual Determination Reports, and

3) collection and analysis of real property asset inventories to identify asset-driven EL.

The first component of the Site ID process for potential corrective action EL, ongoing identification and tracking of environmental events, is supported by the one-time Historical Due Care Data Call. This data call was performed to establish a universal historic baseline of DLA’s corrective action (e.g., fuel spills, leaks identified during daily operations) potential and out-year EL in the Environmental Event Repository. Going forward, ongoing Environmental Event reporting, which requires DLA host and tenant locations to report environmental events as they occur, facilitates the continued maintenance of an up-to-date inventory of EL.

DM-E uses the Environmental Event Inbox to collect Environmental Event Reports, or similar documents, from all DLA locations. These reports are reviewed and logged into the EER for tracking by fund (GF, DWCF (Energy Management), DWFC (Non-Energy Management), and TF).

The second component of the Site ID process includes Site ID Data Gathering and culminates with the Annual Determination Reports. Those environmental events reported via the ongoing environmental event reporting process are reviewed and discussed during the 2nd and 4th quarter Site ID Data Gathering. Second quarter Site ID Data Gathering includes events reported to March 31st and concludes no later than April 30th, when the Site ID Support Team provides an updated inventory to the CTC Support Team. Fourth quarter Site ID Data

Gathering includes events reported to August 31st and concludes no later than September 30th, when the Annual Determination Report must be signed by the DM-ER Division Chief.

Site ID Data Gathering facilitates the collection of available updates on reported environmental events and requires PMs to suggest an event determination and provide information to support the suggested determination. While it is the PM’s responsibility to support an event determination, it is the DM-ER Division Chief who approves each environmental event’s determination via signature of the Annual Determination Report Memos in the 4th quarter.

Four determinations can be made for reported environmental events:

Potential Out-Year EL – Out-year requirements may be necessary in future years but are not yet both probable and estimable.

Out-Year EL – Out-year requirements are both probable and estimable. These sites are included for estimating in the CTC.

Non-EL – DLA is not anticipated to incur out-year requirements.

Former EL – Previous out-year EL, but with no additional out-year activities anticipated or required.

At the culmination of the 4th quarter Site ID Data Gathering, the Site ID Support Team prepares an Annual Determination Report for each fund (GF, DWCF [Energy Management], DWCF [Non-Energy Management], and TF), documenting the status of all events tracked and providing the inventory of corrective action Out- Year EL sites for the CTC process. The review and approval of the Annual Determination Report is ELM Key Control 1.

The third component of the Site ID process is the collection and analysis of inventory data for assets with potential closure or disposal related EL. This includes tanks and pipelines with potential closure requirements, buildings and structures with potential asbestos-related cleanup requirements, and GE assets with potential associated end-of-life EL. Asset data for these inventories is obtained from EBS and analyzed to determine the inventory of assets with out-year EL. Note that for specific asset types, this analysis may result in the determination of no EL (e.g., GE). In addition, DM-ER issues an annual data call to CTC and Site ID ELM designees to determine where DLA may have an asset-driven end-of-life EL, but information on the asset(s) is not currently identifiable and/or retrievable from EBS (i.e., non-EBS closures). Note that asset inventory analysis and DARRM is ELM Key Control 2.

Figure 4. Site ID Process Flow Chart

7.1.4 Risks

DLA may be performing control activities using incomplete or inaccurate reports or data. In turn, there is an increased risk that the internal control activities may not prevent or detect misstatements in the EL balances.

As a result, there is an increased risk of material misstatements (ROMMs) in the financial statements as noted below. The use of more than one source of external data helps mitigate that concern but does not eliminate it and the integration of data collection activities requires internal quality controls to mitigate the introduction of internal errors in data handling. Key and internal controls developed to address potential risks are detailed in the next section.

ROMM: DLA's validated E&DL are not recorded or are improperly summarized (FIAR Guidance, April 2015, Wave 4, ROMMs 2, 19, 20, 21, 22, 25, 42, 43, and 44).

7.1.5 Internal Controls

Control Description Process Reference(s) Key Control 1 DM-ER Division Chief’s review and approval of the Annual Determination Reports (for Corrective Action EL only)

Control Activity: Manual, Preventive, Existence or Occurrence, Completeness, Valuation/Accuracy and Approval: The DM-ER Division Chief review and approval of each funds’ (GF, DWCF Energy Management, DWFC Non-Energy Management, and TF) Annual Determination Report identifying the inventory of corrective action sites with out-year EL (after completion of the 4th Quarter Determination

SOP 4715.07-001,

Validation of the Annual Determination Report Memo Template

Documentation is part of the annual audit files prepared for DM-ER after FY end and is retained electronically.

Event) via signature of the Validation of the Annual Determination Report Memos

Key Control 2 Control Activity: Manual, Preventive, Existence or Occurrence, Completeness, Valuation/Accuracy and Approval: The PM review and approval of the DARRMs for closure, asbestos, and GE identifying the inventory of assets with out-year EL via signature of the PM Record of Approval.

SOP 4715.07-001, Data Analysis and Reconciliation Results Memo Templates

SOP 4715.07-001, Record of PM Approval Template

Documentation is part of the annual audit files prepared for DM-ER after FY-end and is retained electronically.

Other Internal Control Review/approval of the updated SOP, if necessary, by DM-ER Division Chief

SOP 4715.07-001, Signature Page

Other Internal Controls Review/approval of ELM Designation Memo annually by DM-E Staff Director

SOP 4715.07-001, ELM

Designation Memo

Other Internal Controls Review/approval of ELM Training Verification Memo annually by DM-ER Division Chief

SOP 4715.07-001, ELM

Training Verification Template

Other Internal Controls Review/approval of the Verification of Information for Use in Preparing CTC Estimates for DLA Asset-Driven EL (Verification Memo) by DM-IP

SOP 4715.07-001,

Verification of Information for Asset-Driven EL Memo Template

Other Internal Control Site ID Support Team review of the initial EER export and draft Site ID Data Gathering meeting minutes via quality assurance (QA) checklist

SOP 4715.07-001,

Enclosure 3, Procedures (3.b.1, 3.c)

SOP 4715.07-001, Review Guide for Data Gathering and Annual Determination Reports

SOP 4715.07-001, Data Gathering Meeting Minute Template

SOP 4715.07-001, Data Gathering and Annual Determination Report QA/QC Checklist Template

Other Internal Control DLA PM review and update of the inventory and status of Site ID events (via the Site ID Data Gathering meeting and/or meeting minutes)

SOP 4715.07-001,

Enclosure 3, Procedures (3.b.(2)-3.b.(3))

SOP 4715.07-001, Review Guide for Site ID Process Participants

Other Internal Control Site ID Support Team review of the final EER export and final Site ID Data Gathering meeting minutes via QA checklist

SOP 4715.07-001,

Enclosure 3, Procedures (3.c)

SOP 4715.07-001, Review Guide for Data Gathering and Annual Determination Reports

SOP 4715.07-001, Data Gathering and Annual Determination Report QA/QC Checklist Template

Other Internal Control The Site ID Support Team review of the DARRMs for closure, asbestos, and GE identifying the inventory of assets with out-year EL, with approval documented via signature of the DARRM Review Checklist

SOP 4715.07-001,

Enclosure 3, Procedures (4.b)

SOP 4715.07-001, Review Guide for Site ID Process Participants

SOP 4715.07-001, DARRM

Templates

SOP 4715.07-001, DARRM

Checklist Template

7.1.6 Process Inputs

Annual ELM Designation Memorandum – Identifies the appropriate designees, their roles, and their AOR for the Site ID process, including Site ID Determination Event Data Gathering.

Annual ELM Training – Provides current process information to all participants, as identified in the Annual ELM Designation Memo. Input includes training materials.

Annual ELM Kick-off Email – This email serves to disseminate the Annual ELM Designation Memo for revalidation, remind designees of the reporting requirements for environmental events, and notify participants of training requirements.

Environmental Event Report – Spill report or similar document which provides data on an environmental event. DM-E distributes a template form with the ELM Kick-off Email.

EBS Asset Reports – Reports from EBS containing the current inventory of DLA’s Real Property (i.e., closures, asbestos-related cleanup) and GE assets.

Annual Non-EBS Closures Data Request – The information obtained from this data request serves to identify assets with potential closure and/or end of life-related EL that are not readily identified in EBS via the existing data fields and current report mechanisms.

7.1.7 Process Outputs

Inventory of Corrective Action Out-Year EL – Annual Determination Reports recording DLA’s inventory of environmental events with current EL determination and status.

Inventory of EBS Asset-Driven Out-Year EL – DARRMs identifying asset-driven Out-Year EL, including DLA’s Real Property (i.e., closures, asbestos-related cleanup) and GE assets.

Inventory of Non-EBS Asset-Driven Out-Year EL – Information identifying locations with asset-driven closure and/or disposal EL that are not readily identified in EBS via the existing data fields and current reports.

Annual ELM Training completion certificates and attendee roster.

Site ID Audit Files.

7.2 Develop EL CTC Estimates

7.2.1 Process Participant Roles

DM-E Staff Director or Designee – Ensures compliance with all applicable environmental laws, regulations, and policy for environmental restoration.

DM-ER Division Chief – Initiates, directs and approves CTC program elements and training. Provides and verifies CTC roles in the ELM Designation Memo.

DLA Fund Level Signatory – Reviews and approves Program Management Cost Assumption and Requirement Documents (ARDs) (SOP 4715.07-002, Appendix A.2.b), Fund Level Executive Summary (SOP 4715.07-002, Appendix A.3.a), and CTC Roll Forward documentation (SOP 4715.07-002, Appendix A.4) for content and costs. Signature of the documents indicating approval completes ELM Key Control 6.

DLA PMs – Provides information, including supporting documentation and out-year requirements, during CTC data gathering efforts. Reviews and approves content of the applicable CTC Data Gathering

Memo(s) (SOP 4715.07-002, Appendix A.5), ARDs (SOP 4715.07-002, Appendix A.6 through Appendix A.9), PM Level Executive Summaries (SOP 4715.07-002, Appendix A.10.a), and Roll Forward Memorandums for Record (MFRs) (SOP 4715.07-002, Appendix A.4.b), as applicable. Review and signature of the documents indicating approval completes ELM Key Controls 4 and 5.

CTC Support Team – Conducts CTC data gathering and prepare CTC documentation. The Senior Estimate Reviewer verifies cost estimates. Signature of the Record of Senior Estimate Review and Quality Assurance Checklist (SOP 4715.07-002, Appendix A.13) indicating approval completes ELM Key Control 3. Prepare the annual ELM CTC Audit File.

7.2.2 Training

DLA CTC process participants identified in the ELM Designation Memo and the CTC Support Team are required to complete annual ELM Training. The CTC Support Team Cost Estimators and Senior Estimate Reviewers are also required to complete annual RACER® Training. An annual Training Verification Memorandum is prepared to document all required participants completion of the training (SOP 4715.07-001, Appendix B.3).

7.2.3 Description

The CTC process step is accomplished via three sub-processes, as detailed below. The EL CTC SOP (SOP 4715.07-002) outlines the necessary activities and procedures to ensure the development of accurate, defensible, and auditable cost estimates, and includes detailed process roadmaps for each EL type (Corrective Action, Asbestos, Closures/Non-EBS Closures, GE, and Program Management Costs) as an enclosure.

1) Requirements Development Process Step Component (Figure 5) – This component is to document site-specific out-year requirements for all EL types. For corrective action sites, this activity consists of multiple steps, including interviews with PMs, reviews of site-specific reports and reference material, and development of documentation to define out-year requirements and relevant sources of information. The methodology used to develop the cost estimate must be specified, and may include use of engineering estimates, application of historical costs, application of estimates from comparable sites, or use of cost-modeling tools. Site-specific requirements are documented in Draft ARDs which are reviewed by the CTC Support Team and applicable DLA PM. Refer to the CTC SOP (SOP 4715.07-002, Enclosure 3, Process 1) for a detailed description of this process step component.

Figure 5. CTC Requirements Development Process Flow Chart

2) Cost Estimating Process Step Component (Figure 6) – This component is to develop, review, and approve cost estimates for all out-year EL, including site-specific and program management costs. This component also includes the development, review, and approval of roll-ups of the cost estimates within PM Level and Fund Level Executive Summaries. The cost estimates are subjected to a detailed QA process to ensure accuracy and auditability. The creation and approval of initial site-level cost estimates is concluded by August 31st of each FY, and the estimates are reevaluated for accuracy at FY-end through the CTC Roll-Forward process. Changes are identified and evaluated for materiality through integrated support with DM-ER, the PMs, and the CTC Support Team. Changes identified during the CTC Roll Forward Process are captured in a CTC Roll Forward Process Results Memorandum with any material cost changes captured in a CTC Roll Forward Adjustment MFR and utilized in financial statement reporting. Refer to the CTC SOP (SOP 4715.07- 002, Enclosure 3, Process 2) for a detailed description of this process step component.

CTC requirements cover the next FY and additional out-years. Cost estimates are based on the remediation plans and post remediation activities. Detailed CTC estimates are developed using the RACER software, with user-defined costs (UDCs) based on historical data, contracts, and outside contractor proposals used, where appropriate. All cost estimates are presented using RACER software to ensure consistency in format and the reported information.

Figure 6. CTC Cost Estimating Process Flow Chart

3) Audit Material Development Process Step Component (Figure 7) – This component is to prepare and gather key supporting documentation for the CTC estimates. The end result of this component is the preparation of comprehensive audit files, including site-specific files, PM level files, and fund level files. The CTC Support Team works with the applicable PMs and fund-level signatories to ensure completeness of documentation in the CTC audit files. Finalization of CTC audit files content is accomplished only after the CTC Support Team verifies that all documents used in the CTC audit files are final versions that have gone through all appropriate technical reviews, peer reviews, and QA reviews. The final audit file is approved by the DM-ER Division Chief. A detailed checklist is critical in accounting for all requirement elements, as are the independent internal review steps utilized by the CTC Support Team throughout the development of the CTC audit files.

Refer to the CTC SOP (SOP 4715.07-002, Enclosure 3, Process 3) for a detailed description of this process step component.

Figure 7. CTC Audit Material Development Process Flow Chart

7.2.4 Risks

DLA may be performing control activities using incomplete or inaccurate reports or data. In turn, there is an increased risk that the internal control activities may not prevent or detect misstatements in the EL balances.

As a result, there is an increased ROMMs in the financial statements. The use of detailed SOPs and situational guidance (referred to as Rules of Thumb) provide for standardized methodologies that ensure data quality reviews are included to address these risks. Key and internal controls developed to address potential risks are detailed in the next section.

ROMM: DLA's E&DL may not be valued appropriately or recorded at the best possible estimated cost in the financial statements (FIAR Guidance, April 2015, Wave 4, ROMM 46, 64, 65, and 66).

7.2.5 Internal Controls

Control Description Process Reference Key Control 3 - CTC estimate review/approval by CTC Support Team Senior Estimate Reviewer (SER)

Control Activity: Manual, Other-Ad-hoc, Preventive, Completeness, Valuation/Accuracy, Presentation & Disclosure, and Management Review/Approval: The CTC Support Team SER conducts a thorough review of the CTC estimate against the information contained in the CTC Data Gathering Memo, DARRM, and/or Draft Final ARD, as applicable, to ensure all inputs (cost assumptions and requirements) are accurately captured. The CTC Support Team SER uses the steps laid out in the SOP as a basis for this review. The SER documents completion of review using the Record of Senior Estimate Review and Quality Assurance Checklist Document (Appendix A.18).

All cost estimates must be approved by the SER by June 30th each year for Corrective Action Sites and August 15th each year for Asset-Driven and Program Management EL. Data collection period is October 1st

- August 15th each FY. Note that cost estimates for Corrective Action Sites are revalidated through the Roll Forward Process to account for any significant changes as of September 30th each FY.

SOP 4715.07-002,

Enclosure 3, Procedures (Steps 2.7 and 2.17)

SOP 4715.07-002,

CTC Support Team Qualifications and Document Review Guide

SOP 4715.07-002,

Record of Senior Estimate Review and Quality Assurance Checklist Document Template

Documentation is part of the annual audit files prepared for DM-ER after FY end and retained electronically.

Key Control 4 - CTC estimate (site level) review/approval by

DLA PM

Presentation & Disclosure, Rights and Obligations, Management Review/Approval: The PM reviews and approves the Draft Final ARD, which includes the CTC estimate, for completeness and accuracy. The PM uses the steps laid out in the SOP as a basis for this review. The PM signs the document evidencing approval.

SOP 4715.07-002,

Enclosure 3, Procedures (Steps 2.9 and 2.19)

SOP 4715.07-002,

DLA CTC Signatory Responsibilities and

All cost estimates must be approved by July 15th each year for Corrective Action Sites and August 31st each year for Asset-Driven and Program Management EL.

Data collection period is October 1st - August 31st each FY. Note that cost estimates for Corrective Action Sites are revalidated through the Roll Forward Process to account for any significant changes as of September 30th each FY.

Document Review Guide

Documentation is part of the annual audit files prepared for DM-ER after FY end and retained electronically.

Key Control 5 - DLA PM Level Executive Summary review/approval of CTC estimates and inventory (PM roll-

up) for Corrective Action EL only

Presentation & Disclosure, Existence or Occurrence, Rights and Obligations, Management Review/Approval: The PM reviews the Draft PM Level Executive Summary for completeness and accuracy. Once any issues have been addressed, the PM signs the PM Level Executive Summary evidencing review and approval and returns the approved Executive Summary to the CTC Support Team for inclusion within the CTC Audit Files. This control applies only to the Corrective Action sites, begins after the completion of Key Control 4 for Corrective Action sites and ends by August 31st of each year. Data collection period is October 1st - August 31th each FY. Note that cost estimates for Corrective Action sites are revalidated through the Roll Forward Process to account for any significant changes as of September 30th each FY.

SOP 4715.07-002,

Enclosure 3, Procedures (Step 2.29)

SOP 4715.07-002,

DLA CTC Signatory Responsibilities and Document Review Guide

Documentation is part of the annual audit files prepared for DM-ER after FY end and retained electronically.

Key Control 6 - DLA Fund Level Executive Summary review/approval of CTC estimates and inventory (fund roll-up)

Presentation & Disclosure, Existence or Occurrence, Rights and Obligations, Management Review/Approval: The Fund Level Signatory reviews each section of the Draft Fund Level Executive Summary including the CTC Inventory of Sites for his/her fund for completeness and accuracy.

If any issues are identified, the CTC Support Team is notified to make any changes before the document is finalized. Once all issues have been addressed, the Fund Level Signatory signs the Fund Level Executive Summary evidencing review and approval and returns the approved Executive Summary to the CTC Support Team for inclusion within the CTC Audit Files. This control is completed by September 30th of each year.

Data collection period is October 1st - September 30th each FY.

SOP 4715.07-002,

Enclosure 3, Procedures (Step 2.47)

SOP 4715.07-002,

DLA CTC Signatory Responsibilities and Document Review Guide

Documentation is part of the annual audit files prepared for DM-ER after FY end and retained electronically.

Other Internal Controls

Review/approval of the updated SOP, as required, by DM-ER Division Chief

SOP 4715.07-002,

Signature Page

Other Internal Controls (RACER Macro and Work Around Calculators Applied)

Review of the Site-Level and Financial Roll-Up Macros that are used to organize financial data and prepare cost tables for the ARD by the CTC Support Team to ensure that Macros function correctly

Review of the calculators, which are used to more accurately project and estimate calculations in RACER, by the CTC Support Team to ensure that the calculators function correctly

Documentation of the reviews by the creator and reviewer using the RACER, Macro, and Calculator Review Guide and Verification form for inclusion in the CTC Audit File

SOP 4715.07-002,

Enclosure 3, Procedures (Step 2.5)

SOP 4715.07-002,

RACER, Macro, and Calculator Review Guide and Verification Document

Other Internal Controls

Review/approval of requirements by PMs prior to estimating (documented via Record of PM Approval memorandum)

SOP 4715.07-002,

Enclosure 3, Procedures (Steps 1.8, 1.12, 1.21, 1.25, and 1.27)

SOP 4715.07-002,

DLA CTC Signatory Responsibilities and Document Review Guide

SOP 4715.07-002,

Record of PM Approval Template

Other Internal Controls (Program Management Costs)

Fund Level Signatory review and approval of Program Management Cost requirements prior to estimating (documented via Record of PM Approval memorandum)

SOP 4715.07-002,

Enclosure 3, Procedures (Step 2.19)

SOP 4715.07-002,

DLA CTC Signatory Responsibilities and Document Review Guide

Other Internal Controls (Corrective Action)

CTC Support Team QA and reconciliation of CTC Corrective Action inventory table in PM Level Executive Summaries to CTC cost estimates for completeness

SOP 4715.07-002,

Enclosure 3, Procedures (Step 2.27)

SOP 4715.07-002,

CTC Support Team Qualifications and

Document Review Guide

Other Internal Controls (CTC Roll Forward)

CTC Support Team review/analysis of all information provided to the Roll Forward Process Data Call Email to evaluate if a material change has occurred

CTC Support Team review of any new sites identified in the Annual Determination Reports provided by the DM-ER Division Chief and evaluation for materiality

CTC Support Team SER review of the PM Level and/or Fund Level Roll Forward Adjustment MFR.

Upon approval, PM review of Roll Forward Adjustment MFR

CTC Support Team QA of PM responses to Roll Forward Data Call to PM Level Roll Forward Adjustment MFR and Fund Level Executive Summary for completeness

Fund Level Signatory Review/Approval of the Fund Level Roll Forward Adjustment MFR

SOP 4715.07-002,

Enclosure 3, Procedures (Steps 2.37-2.43; and 2.53- 2.64)

SOP 4715.07-002,

DLA CTC Signatory Responsibilities and Document Review Guide

SOP 4715.07-002,

CTC Support Team Qualifications and Document Review Guide

Other Internal Controls (CTC Roll Forward)

CTC Support Team QA and reconciliation of corrective action and asset inventory tables in Fund Level Executive Summaries to site-level CTC cost estimates for completeness

SOP 4715.07-002,

Enclosure 3, Procedures (Step 2.45)

SOP 4715.07-002,

CTC Support Team Qualifications and Document Review Guide

Other Internal Controls Audit Files

Review and certification of accuracy/completeness of Site Level Audit Files by CTC Support Team

SOP 4715.07-002,

Enclosure 3, Procedures (Step 3.2)

SOP 4715.07-002, Site Level Audit File Checklist Template

Other Internal Controls Audit Files

Review and certification of accuracy/completeness of PM Level Audit Files annually by CTC Support Team

SOP 4715.07-002,

Enclosure 3, Procedures (Steps 3.4)

SOP 4715.07-002, PM

Level Audit File Checklist Template

Other Internal Controls Audit Files

Review and certification of accuracy/complete Fund Level Audit Files (containing Fund, Site, and PM Level Audit Files) annually by CTC Support Team and DM-ER Division Chief

SOP 4715.07-002

Enclosure 3, Procedures (Steps 3.9 and 3.13)

SOP 4715.07-002,

Fund Level Audit File Checklist Template

7.2.6 Process Inputs

Inventory of Corrective Action Out-Year EL – Site ID Annual Determination Reports documenting EL determinations for DLA’s inventory of environmental events.

Inventory of EBS Asset-Derived Out-Year EL – DARRMs identifying asset-derived Out-Year EL, including DLA’s Real Property (i.e., closures, asbestos-related cleanup) and GE assets.

Inventory of Non-EBS Asset-Derived Out-Year EL – Information identifying locations with assets with closure and/or disposal EL that are not readily identified in EBS via the existing data fields and current reports.

Current Year Funding Requirements – Current year funding requirements for planned and funded activities in the current FY at corrective action sites to support the EL as provided by the PM.

Program Management Cost Request – Anticipated program management requirements and costs by fund for the Future Years Defense Program (FYDP) period, as provided by the applicable DLA Fund-Level Summary signatories.

Current site-specific reference material – Background information on corrective action sites to support the EL. These materials may include:

Technical work plans and reports

Consent decrees and Memorandums of Understanding or Agreement (MOU/MOA) documents

Awarded contracts and Performance Work Statements (PWSs)

Contractor technical and cost proposals

7.2.7 Process Outputs

Approved ARDs describing background information, identifying all site-level and management CTC requirements, and documenting associated cost estimates by site, phase and year

Cost Estimate Reports detailing site-level cost estimates

PM Level and Fund Level Executive Summaries

CTC Roll Forward Adjustment MFRs, if required

CTC Roll Forward Process Results Document

CTC Audit Files

7.3 Perform EL Budgeting and Execution for Cleanup, Closure, or Disposal Action

7.3.1 Process Participant Roles

Environmental Division Chiefs and/or Designated Funds Holders – Conducts management reviews, approves funding requirements, and documents performance of Cleanup, Closure, or Disposal Actions.

Reviews and approves budget submissions, funding documents, and EL Budgeting and Execution Audit Files.

Restoration and EL Finance Teams – Prepares budget submissions, coordinate and compile funding requirements requests, conduct comparative analyses of funding requirements with CTC estimates, prepares funding documentation, track funding obligations, conduct prior year obligation reconciliation efforts, and creates the EL Budgeting and Execution Audit Files.

DLA PMs – Manages clean-up, closure, and disposal activities at the site level and provide technical expertise through reviews and analyses of data. Reviews environmental requirements for accuracy and completeness that are included in budget submissions and EL funding. Develops and submits funding requirements requests and participate in review of funding requirements and CTC comparative analyses.

CTC Support Team – Assists with the annual review and completion of the funding requirements and CTC comparative analyses.

DLA Enterprise Financial Operations (J862) – Reviews and approves budget exhibits. Notifies Restorations Chiefs and Teams when current FY appropriations and obligating authority is received from the Under Secretary of Defense Comptroller (OUSD(C)) and loads the funds to appropriate Environmental Fund Centers.

DLA Operationalized Activities Division (J864) – Reviews and approves completed Funding Document Requests (FDRs) to ensure adequate restoration funding is available in EBS prior to executions of funding by the Restorations Teams.

Execution Agents – Receives EL funding and manage contracts, project orders, or other vehicles that execute restoration projects. Provides oversight of deliverables and payment approvals for services received. Provides documentation for remedial activities and financial transactions.

DLA Business Management Office (BMO) and/or J862 – Sends Monthly unliquidated obligation (ULO)/UDO Report to the Restoration and EL Finance Team for review and update with reconciliation actions and plans to reduce outstanding prior year UDO amounts.

7.3.2 Training

DLA stakeholders and EL Finance team involved in the EL Budgeting and Execution process are required to complete the annual ELM Training. An annual Training Verification Memorandum is prepared to document participant completion of the training (SOP 4715.07-001, Appendix B.2). Personnel executing funds are also trained by J7 on the P2P process (Outbound MIPR or eProcurement) and J8 on the FRR process (Funds Control) that ensure internal controls and data quality reviews.

7.3.3 Description

The DLA budget process…