Commissioner Policy 45: Procedure To Demonstrate Compliance With Financial Test Requirements
Commissioner Policy 45, Procedure to Demonstrate Compliance with Financial Test Requirements of Financial Assurance Regulations for Hazardous Waste Management Facilities
New York State Department of Environmental Conservation
DEC Policy
Issuing Authority: Alexander B. Grannis, Commissioner
Date Issued: April 14, 2010
Effective Date: May 14, 2010
I. Summary:
This Policy provides for the use of enforcement discretion by the New York State Department of Environmental Conservation (Department) to allow facilities subject to the Hazardous Waste Financial Assurance regulations contained in Title 6 New York Codes, Rules and Regulations (6 NYCRR) Sections 373-2.8 and 373-3.8 to utilize the procedure contained in this policy as an alternative to certain Financial Test and Corporate Guarantee requirements of those regulations.
II. Policy:
This Policy authorizes the exercise of the Department's prosecutorial discretion to not enforce certain provisions of 6 NYCRR Sections 373-2.8 and 373-3.8 that require, for the financial test and corporate guarantee, that an independent certified public accountant (CPA) make a statement that "no matters came to the accountant's attention which caused the accountant to believe that the specified data should be adjusted" (hereinafter referred to as a "negative assurance" statement), provided that there is compliance with the procedure contained in this policy.
The Department is responsible to enforce the Financial Assurance regulations (including liability coverage) for Hazardous Waste Management Facilities set forth in 6 NYCRR Subparts 373-2 and 373-3. Subparts 373-2 and 373-3 require facilities using the financial test or corporate guarantee to submit the special report prepared by an independent CPA that contains a "negative assurance" statement as specified in 6 NYCRR Subclauses 373-2.8(d)(5)(iii)('c')('2'), 373-2.8(f)(5)(iii)('c')('2'), 373-2.8(h)(6)(iv)('c')('2'), 373-3.8(d)(5)(iii)('c')('2'), 373-3.8(f)(5)(iii)('c')('2') and/or 373-3.8(h)(6)(iv)('c')('2'). This policy sets forth an alternative procedure to the above cited provisions of the regulations which CPAs may follow in issuing the special report. If a CPA chooses to follow the procedure set forth in paragraph V below, in lieu of the specific citations listed above, the Department may use prosecutorial discretion to not enforce the above-listed citations.
Also, 6 NYCRR Paragraph 373-2.6(l)(3) requires facilities to provide financial assurance for corrective action. The procedures in this policy may also be used by facilities who use the financial test or corporate guarantee to demonstrate compliance with the financial assurance requirements for corrective action.
This policy does not restrict the Department authority to initiate any and all enforcement action deemed appropriate.
III. Purpose and Background:
6 NYCRR Part 373 allows owners and operators of hazardous waste treatment, storage, and disposal (TSD) facilities, other than revenue-oriented facilities, to use a financial test or a corporate guarantee to demonstrate financial assurance and liability coverage. In using the financial test or corporate guarantee, the owner or operator's chief financial officer (CFO) must submit (1) a letter using the language specified in the regulations to report financial information and test results, (2) a copy of the firm's audited year end financial statement, and (3) a copy of a special report from a CPA. The CPA's special report presents the procedures performed and findings based on the CPA's comparison of the data which the CFO's letter specifies as coming from the independently audited year-end financial report with the amounts in the audited financial statements. The regulations also require the CPA's report to state that "In connection with that procedure, no matters came to the accountant's attention which caused the accountant to believe that the specified data should be adjusted." This statement is referred to by the auditing profession as a "negative assurance."
In performing audits and other types of work, CPAs must follow certain professional standards. The American Institute of Certified Public Accountants' (AICPA's) "Statement on Auditing Standards" no longer permits independent auditors to express "negative assurance." The new standards require the auditor to present the results of procedures performed in the form of findings, and explicitly disallow issuing "negative assurance." The regulatory requirement (that the CPA's report provide "negative assurance") has become inconsistent with current professional auditing standards. This has left accountants and hazardous waste TSD facilities uncertain how to fulfill the regulatory requirement for using the financial test and corporate guarantee.
USEPA stated in a memorandum dated February 27, 1997, that it intends to change the regulations so that they conform to the new professional auditing standards. Until that rulemaking is completed, and in lieu of a CPA's report with a "negative assurance" statement, USEPA will accept a CPA's report describing the procedures performed and related findings, including whether or not there were discrepancies found in the comparison, based on an agreed-upon procedures engagement. In an agreed- upon procedures engagement, an accountant is engaged by a client to issue a report of findings based on specific procedures performed on the specific items of a financial statement. USEPA regards this report as satisfying the requirement of the financial test or corporate guarantee for a special report by an independent CPA on the CFO's letter.
In lieu of a "negative assurance" statement, the Department, consistent with the USEPA's guidance, may accept a special report prepared by an independent CPA in accordance with the Department's procedure laid out in paragraph V below.
IV. Responsibility:
The responsibility for the interpretation and update of this document shall reside with the Director of the Division of Solid & Hazardous Materials.
V. Procedure:
Agreed Upon Procedures for the Independent CPA's Review of the CFO's Letter used to Demonstrate Passing of the Financial Test or Corporate Guarantee Pursuant to 6NYCRR 373-2 or 373-3
The report prepared by the independent certified public accountant (CPA) shall follow the agreed-upon procedures described below.
- The agreed-upon procedures shall be performed and the report shall be prepared by a licensed, duly qualified, independent CPA.
- The agreed-upon procedures shall be performed in accordance with the most current attestation standards established by the American Institute of Certified Public Accountants (AICPA).
- The CPA shall compare the financial data specified in the chief financial officer's (CFO) letter (to demonstrate passing of the financial test or corporate guarantee) as being derived from the entity's independently audited financial statements, to the audited financial statements or, for information that does not appear directly in the audited financial statements, to supporting data or schedules that reconcile to the audited financial statements for the most recent fiscal year.
- The CPA's report shall identify, in describing the results of the procedures performed, the financial data in the CFO's letter that fails to agree with the independently audited financial statements. The CPA's report shall also identify the financial data in the CFO's letter, that does not appear directly in the audited financial statements, that was submitted as supporting data or schedules reportedly or presumably to reconcile to the audited financial statements, that fails to agree with or reconcile to the audited financial statements.
- The wording of the CPA's report shall be substantially in the form of the report provided below:
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES
To the Board of Directors
[Insert company name]
[Insert mailing and location address]
[Insert facility USEPA ID #]
We have performed the procedures enumerated below, which were agreed to by the New York State Department of Environmental Conservation (Department) and [insert company name], solely to assist the specified parties in evaluating [insert company name]'s compliance with the financial test option as of [insert company's most-recent fiscal year end date], included in the accompanying letter dated [insert date] from [name of chief financial officer signing the letter and title] of [insert company name].
Management is responsible for [insert company name]'s compliance with those requirements. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose.
The procedures that we performed and related findings are as follows:
[Alternative I pursuant to 6NYCRR 373-2.8(d)(5)(i)('a'); 373-2.8(f)(5)(i)('a'); and/or 373-2.8(h)(6)(i)*]
- We compared the amounts included in [list items**; e.g., items 2, 5, and 6] under the caption Alternative I in the letter referred to above with the corresponding amounts in the independently audited financial statements of [insert company name] as of and for the year ended [insert company's most-recent fiscal year end], on which we have issued our report dated [insert date] and found such amounts to be in agreement [or if not in agreement, note the differences].
- We recomputed from, or reconciled to, the independently audited financial statements, the information included in the letter referred to above in items [list items**; e.g., items 3, 4, and 7-9] under the caption Alternative I using the definitions in 6 NYCRR Paragraph 373-2.8(b)(7) and noted no differences [or if there are differences, note the differences].
- We divided Total Assets in the United States included in item 9 under the caption Alternative I in the letter referred to above by the amount of Total Assets included in the independently audited financial statements and compared such percentage to 90% and found that such percentage was [greater than] [less than] 90%.
[Alternative II pursuant to 6NYCRR 373-2.8(d)(5)(i)('b'); 373-2.8(f)(5)(i)('b'); and/or 373-2.8(h)(6)(ii)*]
- We recomputed from, or reconciled to, the independently audited financial statements of [insert company name] as of and for the year ended [insert company's most-recent fiscal year end], on which we have issued our report dated [insert date] [describe any modifications from the standard auditors' report], the information included in items [list items**; e.g., items 5 and 6] under the caption Alternative II in the letter referred to above using the definitions in 6 NYCRR Paragraph 373-2.8(b)(7) and noted no differences [or if there are differences, note the differences].
- We divided Total Assets in the United States included in item 6 under the caption Alternative II in the letter referred to above by the amount of Total Assets included in the independently audited financial statements and compared such percentage to 90% and found that such percentage was [greater than] [less than] 90%.
We were not engaged to, and did not, perform an examination, the objective of which would be the expression of an opinion on the accompanying letter dated [insert date]. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of the board of directors and management of [insert company name] and the Department, and is not intended to be and should not be used by anyone other than these specified parties.
[Insert firm's signature]
[Insert date]
* Substitute 373-3 for 373-2 when appropriate
** List the appropriate numbered items in the chief financial officer's letter
VI. Related References:
- 6 NYCRR Part 373
- Memorandum dated February 27th, 1997 from Elizabeth A. Cotsworth, Acting Director Office of Solid Waste, USEPA to Senior RCRA Policy Advisers and RCRA Enforcement Managers
DMM, Bureau of Hazardous Waste and Radiation Management
625 Broadway
Albany, NY 12233
