Environmental Liability Challenges the U.S. Government

Environmental issues continue to grab headlines these days as individuals, organizations, and governments voice growing concerns over protecting our natural resources. The U.S. Government Accountability Office (GAO) acknowledged these concerns by adding “The U.S. Government’s Environmental Liability” to their High Risk List, a registry of federal agencies and programs that are most in need of transformation. More information regarding the GAO’s High Risk List may be found here.

Federal law, agreements with states, and court decisions govern the federal government’s responsibilities for cleaning up areas where its activities have contaminated the environment. According to recent GAO estimates, the federal government's environmental liability has been growing for the past 20 years and is likely to continue to increase in the foreseeable future. For fiscal year 2016, the federal government's estimated environmental liability was $447 billion—up from $212 billion for fiscal year 1997. However, this estimate does not reflect all of the future cleanup responsibilities federal agencies may face due to the lack of complete information and inconsistent approaches to making cleanup decisions.

Federal accounting standards require agencies to estimate and report future cleanup and waste disposal costs in their annual financial statements as environmental liabilities. Environmental liability estimates should include probable and reasonably estimable costs of cleanup work. Unfortunately, federal environmental liability estimates often do not include cost estimates for work because reasonable estimates are not available or cannot be reliably determined. Consequently, the total cost of the U.S. government's environmental cleanup is likely greater than $447 billion and this presents a formidable challenge to accurately report the estimated environmental liability at the end of each reporting period.

The challenges for reporting federal environmental liabilities appear daunting and fraught with numerous site-specific factors, stakeholder agreements, legal provisions, and other factors that impact the final outcome. Nevertheless, the federal government is making incremental progress in addressing, resolving, and reporting environmental liabilities. Since 1994, GAO has made at least 28 recommendations across multiple agencies for improving environmental reporting processes and procedures. 15 recommendations have already been implemented with work continuing on GAO’s remaining unimplemented proposals. Additionally, the Department of Defense’s (DoD) latest version of the Financial Improvement and Audit Readiness (FIAR) Guidance (April 2017) provides new processes and procedures for dealing with reporting environmental liabilities including identification, probability determination, and liability estimations.

St. Michael’s provides a wide array of support services to help government agencies become more successful in achieving compliance with federal-level guidance for financial reporting. You can find out more about our services in back office support, finance & accounting, and audit readiness here.