Audit Report on Deferred Maintenance, U.S. Fish and Wildlife Service

[Audit Report on Deferred Maintenance, U.S. Fish and Wildlife Service]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 00-I-226

Title: Audit Report on Deferred Maintenance, U.S. Fish and Wildlife
Service

Date: March 10, 2000

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March 10, 2000

Memorandum

To: Assistant Secretary for Fish and Wildlife and Parks

From: Robert J. Williams
Assistant Inspector General for Audits

Subject: Audit Report on Deferred Maintenance, U.S. Fish and Wildlife Service
(No. 00-I-226)

This report presents the results of our audit of the U.S. Fish and Wildlife Service's deferred
maintenance.

In accordance with the Departmental Manual (360 DM 5.3), we are requesting a written
response to this report by March 13, 2000. The response should provide the information
requested in Appendix 3.

Section 5(a) of the Inspector General Act (Public Law 95-452, as amended) requires the
Office of Inspector General to list this report in its semiannual report to the Congress. In
addition, the Office of Inspector General provides audit reports to the Congress. U.S. Department of the Interior
Office of Inspector General

EXECUTIVE SUMMARY

Deferred Maintenance,
U.S. Fish and Wildlife Service
Report (No. 00-I-226)
March 2000

BACKGROUND

The mission of the U.S. Fish and Wildlife Service (FWS) is "to work with others to conserve,
protect, and enhance fish and wildlife and their habitats for the continuing benefit of the
American people." FWS accomplishes this mission through the management of 516 national
wildlife refuges, 79 ecological services field stations, 66 national fish hatcheries, 48 wetland
management districts with waterfowl production areas, and 50 coordination areas. FWS also
operates 56 fishery resource offices, 9 fish health centers, and 7 fish technology centers. At
these sites and facilities, FWS maintains buildings, roads, dikes, water control structures, and
the equipment to support its wildlife management and fishery programs. In support of its
maintenance program, FWS operates two types of automated systems, one of which is used
to manage routine maintenance activities. The other system, established in 1982 "to enhance
the Service-wide efforts in planning and budgeting for maintenance activities" (as stated in
"Refuge Management Information System - MMS [maintenance management system]
instructions") provides information on FWS's deferred maintenance. In fiscal years 1996
through 1998, FWS received total maintenance funding of $93.2 million for deferred
maintenance, of which $72.9 million was for refuges and $20.3 million was for hatcheries.

OBJECTIVE

The objective of the audit was to determine whether FWS (1) managed its deferred
maintenance program in accordance with laws, regulations, and guidance and (2) maintained
and used a maintenance management system that provided useful and reliable data.

RESULTS IN BRIEF

We found that FWS did not spend deferred maintenance funding solely on deferred
maintenance projects and did not allocate deferred maintenance funds in accordance with its
Maintenance Management System Handbook, which states that FWS should establish
priorities for projects to "optimize" the use of funds made available to correct maintenance
deficiencies. Instead, FWS allocated $9.6 million of $33.4 million of fiscal year 1998
deferred maintenance funding for costs that were not directly related to the priority of
deferred maintenance projects, including expenses such as regional administrative and
engineering (unrelated to deferred maintenance projects) support, small maintenance
projects, and contingencies such as cost overruns. Also, FWS spent $4.8 million of its
deferred maintenance funding for fiscal years 1996 through 1998 on nonmaintenance
expenses such as equipment replacement, administrative functions, and routine maintenance
work.

We also found that FWS's information on its deferred maintenance needs and its estimates
of its deferred maintenance costs were not reliable and/or prepared in accordance with
Federal accounting standards and Department of Interior (DOI) guidance. Deferred
maintenance information was not reliable because FWS had not (1) fully surveyed its assets
to identify asset condition and thereby determine its deferred maintenance needs; (2) fully
documented its estimated deferred maintenance costs; (3) established adequate controls to
ensure compliance with Federal, DOI, and FWS deferred maintenance guidance; and (4)
implemented adequate controls to ensure the reliability of deferred maintenance data. As a
result, FWS may be unable to support its budget requests for deferred maintenance funding
with reliable data.

RECOMMENDATIONS

We recommended that FWS establish a process for allocating deferred maintenance funds
to field offices on the basis of national priorities and that the field offices discontinue the
practice of allocating a fixed amount or percentage of funds for regional and engineering
support, small deferred maintenance projects, and contingencies unless these projects can
be justified on the basis of their relative contribution to deferred maintenance activities. In
addition, we recommended that FWS establish and implement controls to ensure that
deferred maintenance funding is used for its intended purpose. We also recommended that
FWS implement controls to ensure that (1) condition assessments and deferred maintenance
cost estimates are documented; (2) FWS complies with Federal, DOI, and its own guidance
on the identification of deferred maintenance needs and the estimation of deferred
maintenance costs; and (3) deferred maintenance data entered into FWS's maintenance
management system are complete, current, and accurate.

AUDITEE COMMENTS AND OFFICE OF INSPECTOR GENERAL EVALUATION

In its response to the draft report, FWS concurred with five of the report's six
recommendations. Based on the response, we considered Recommendation A.1 resolved and
implemented and Recommendations A.3, B.1, B.2, and B.3 resolved but not implemented.
Accordingly, the four unimplemented recommendations will be referred to the Assistant
Secretary for Policy, Management and Budget for tracking of implementation.

In its response, FWS did not concur with Recommendation A.2. Specifically, FWS agreed
to use or allocate deferred maintenance funds for activities such as regional and engineering
support on a project-specific basis and not to allocate a fixed amount of deferred
maintenance funding to these activities. FWS, however, did not agree to discontinue
allocating a fixed amount to the regions to finance small deferred maintenance projects, as
we had recommended. In our comments on FWS's response to the draft report, we said that
FWS needs to ensure that the highest priority deferred maintenance projects are funded
before it finances less expensive and possibly lower priority projects. We requested that
FWS reconsider its response to this recommendation, which is unresolved.

CONTENTS

Page

EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . .1

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . .5

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . .5
OBJECTIVE AND SCOPE. . . . . . . . . . . . . . . . . . . . .5
PRIOR AUDIT COVERAGE . . . . . . . . . . . . . . . . . . . .6

FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . .8

A ALLOCATION AND USE OF DEFERRED MAINTENANCE FUNDS . . . .8
B. DEFERRED MAINTENANCE DATA. . . . . . . . . . . . . . . 15

APPENDICES

1. REFUGES AND HATCHERIES VISITED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
2. U.S. FISH AND WILDLIFE SERVICE RESPONSE . . . . . . . . . . . . . . . . . . . . . . . 25
3. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . . . . . . . . . . . . . .32

INTRODUCTION

BACKGROUND

FWS officials at headquarters, regional, and field locations are responsible for
maintaining FWS's structures and equipment. In support of its maintenance program,
FWS operates two types of automated systems, one of which is used to manage routine
maintenance activities. The other system, established in 1982 "to enhance Service-wide
efforts in planning and budgeting for maintenance activities" (as stated in "Refuge
Management Information System - MMS [maintenance management system]
Instructions") provides information on FWS's deferred maintenance. According to
Statement of Federal Financial Accounting Standards No. 6, "Accounting for Property,
Plant, and Equipment," deferred maintenance is "maintenance that was not performed
when it should have been or was scheduled to be and which, therefore, is put off or
delayed for a future period."

In fiscal years 1996 through 1998, FWS received total maintenance funding of $93.2
million for deferred maintenance, of which $72.9 million was for refuges and $20.3
million was for hatcheries. In addition, during this 3-year period, FWS received total
construction funding of $20.9 million for specific deferred maintenance projects. In its
financial statements for fiscal year 1998, FWS reported a deferred maintenance backlog
of about $750 million as of September 30, 1998, with a range of plus or minus 15 percent
of this amount. This estimate excluded equipment replacements.

OBJECTIVE AND SCOPE

The objective of the audit was to determine whether FWS (1) managed its deferred
maintenance program in accordance with established laws, regulations, and guidance and
(2) maintained and used a maintenance management system that provided useful and
reliable data. The scope of our audit generally included the deferred maintenance
activities of FWS that occurred during fiscal years 1996 through 1999.

Our scope included deferred maintenance projects that were reported in FWS's
maintenance management system in fiscal years 1996 through 1999. To accomplish our
objective, we reviewed applicable Department of the Interior (DOI) and FWS guidance,
policies, and procedures; planning, budget and expenditure documents; and maintenance
management system reports. We also interviewed FWS personnel responsible for
deferred maintenance activities and conducted sites visits to the FWS locations and sites
identified in Appendix 1. At 25 refuge complexes and 9 hatchery complexes, which we
selected primarily on the basis of the relative number and dollar value of deferred
maintenance projects, we reviewed all deferred maintenance projects (1,965 refuge and
262 hatchery deferred maintenance projects), which had an estimated cost of $198.7
million.

We conducted our audit in accordance with the "Government Auditing Standards," issued
by the Comptroller General of the United States. Accordingly, we included such tests of
records and other auditing procedures that were considered necessary under the
circumstances. We also evaluated the systems of internal controls over deferred
maintenance to the extent we considered necessary to accomplish our audit objective.
We found internal control weaknesses in the procedures and systems for identifying,
estimating the costs of, and documenting deferred maintenance projects and project costs.
Our recommendations, if implemented, should improve the internal controls in these
areas.

We also reviewed the Departmental Reports on Accountability for fiscal years 1997 and
1998, which include information required by the Federal Managers' Financial Integrity
Act of 1982, and FWS's annual assurance statement on management controls for fiscal
year 1998 and determined that no reported weaknesses were within the objective and
scope of our audit. Although FWS reported no weaknesses related to deferred
maintenance, DOI reported for fiscal year 1998 that inadequate maintenance management
capability was a material weakness which impacted "most bureaus" and was a "mission
critical weakness."

PRIOR AUDIT COVERAGE

During the past 5 years, the Office of Inspector General (OIG) has issued two reports and
the General Accounting Office has issued one report on FWS's maintenance activities as
follows:

- The OIG report "Deferred Maintenance, National Park Service, U.S. Fish and Wildlife
Service, U.S. Geological Survey, Bureau of Indian Affairs, Bureau of Land Management,
and Bureau of Reclamation" (No. 99-I-874), issued in September 1999, stated that the
National Park Service, the U.S. Fish and Wildlife Service, the U.S. Geological Survey,
the Bureau of Indian Affairs, the Bureau of Land Management, and the Bureau of
Reclamation needed to implement actions to ensure that deferred maintenance
information was reliable for budgetary and accounting purposes and that neither DOI nor
any of the bureaus could adequately support their fiscal year 1998 deferred maintenance
cost estimates (based on our review of $542.5 million of estimated deferred maintenance
costs).

- The OIG's "Testimony of Robert J. Williams, Acting Inspector General, U.S.
Department of the Interior, on Facilities Maintenance at the Bureau of Land Management
and the U.S. Fish and Wildlife Service Before the Subcommittee on Interior and Related
Agencies, Committee on Appropriations, U.S. House of Representatives" (No. 98-T-350),
dated February 1998, presented OIG's review of the two bureaus' maintenance backlogs.
The testimony specifically discussed (1) estimated deferred maintenance costs and the
composition of maintenance backlogs, (2) procedures used to develop backlog estimates,
(3) the reliability of the backlog data, and (4) procedures used to manage backlogs. The
testimony stated that both bureaus needed to take actions to improve the reliability of
their backlog data.

- The General Accounting Office's report "Deferred Maintenance Reporting, Challenges
to Implementation" (No. GAO/AIMD-98-42), dated January 1998, discussed deferred
maintenance activities at 11 Governmental agencies, including DOI, and the
implementation of the requirements for reporting on deferred maintenance in agency
financial statements. The report stated that "most agencies do not have experience
generating agencywide estimates of deferred maintenance because historically they have
not been required to do so." The report also stated that at the 11 agencies reviewed, some
"initial steps have been taken, [but] significant work remains to be done for all agencies
to effectively implement the deferred maintenance requirements promptly."
FINDINGS AND RECOMMENDATIONS

A. ALLOCATION AND USE OF DEFERRED MAINTENANCE
FUNDS

FWS did not allocate or use deferred maintenance funds in accordance with FWS
guidance. FWS's Maintenance Management System Handbook states that FWS should
establish priorities for projects included in its maintenance management system and that it
should "optimize" the use of funds made available for the correction of maintenance
deficiencies. The FWS Handbook also states that deferred maintenance funds should be
used only for maintenance related to existing facilities and should not be used for routine
maintenance activities or for work or projects that are funded from operations or
construction appropriations. However, FWS did not allocate all funding for deferred
maintenance projects on the basis of project priorities and did not ensure that available
funding for deferred maintenance projects was used for its designated purposes. As a
result, FWS's most critical deferred maintenance projects may not have been funded, and
available deferred maintenance funding may not have been used to reduce the backlog.
Of $93.2 million of maintenance funding made available for FWS's deferred maintenance
projects in fiscal years 1996 through 1998, we identified funding of $14.4 million that
was allocated for or spent on nonmaintenance items or activities such as equipment
replacement, administrative functions, or routine maintenance work that should have been
funded by other appropriations.

Allocation of Resource Management Funds

Chapter 1, Section 1.2, of the FWS Handbook states that the primary objectives of FWS's
maintenance management system are to (1) optimize the use of available funds,
personnel, and facilities through effective maintenance management methods; (2) provide
accurate data for maintenance program decision-making; (3) identify maintenance
needs/deficiencies at all field stations; and (4) establish regional and national
maintenance project priorities. Although FWS's maintenance management system
enabled personnel to record the priority of maintenance projects, we found that the
priority ranking of all maintenance projects had not been entered into the system.
Moreover, FWS generally allocated funding on the basis of each region's relative
deferred maintenance backlog rather than on the priority ranking of each region's deferred
maintenance projects.

FWS also did not allocate deferred maintenance funds in a manner that, in our opinion,
would ensure that the highest priority deferred maintenance projects were funded.
Specifically, of $33.4 million of fiscal year 1998 maintenance appropriations allocated to
the regions for deferred maintenance that was included in our review, we found that
funds of $9.6 million were provided for (1) regional administrative costs, (2) engineering
support that was not based on services rendered on deferred maintenance projects, (3)
small deferred maintenance projects, and (4) contingencies. These four areas of
allocation are discussed in the paragraphs that follow.

Regional Administrative Costs. The five regions reviewed allocated $2.2 million of
their deferred maintenance funding to support regional operational activities. For
example, Region 1 retained 8 percent of the Region's deferred maintenance funding
allocation in fiscal years 1997 and 1998 to pay administrative, public relations, and
contracting expenses. Thus, in fiscal year 1997, the Region retained $271,000 of the
deferred maintenance funding allocation, and in fiscal year 1998, when the funding
allocation doubled, the Region retained $565,000. The other four regional offices
retained deferred maintenance funding allocations to pay for "shared costs" ($1.1 million)
such as administrative expenses or for specific equipment replacement items ($415,500)
such as computers and vehicles for regional office activities. In two regions, deferred
maintenance funds were retained and used for expenses that were not related to deferred
maintenance. For example, in fiscal year 1998, Region 4 retained deferred maintenance
funds of $128,800 to pay part of the routine operational costs of the Region's Youth
Conservation Corps Program at its field stations.

Engineering Support. A portion of FWS's deferred maintenance funding was allocated
to regional engineering offices that provided support for deferred maintenance projects.
Specifically, in fiscal year 1998, the engineering offices were allocated $2.9 million of the
deferred maintenance funding for refuges and hatcheries. However, the allocation of
deferred maintenance funds for regional engineering support was not based on the level
of effort or the amount of time spent on deferred maintenance projects. Instead, deferred
maintenance funds were allocated on the basis of the construction costs of projects
assigned to the engineers during the previous fiscal year. Thus, if regional engineers
worked on the same construction project during 2 consecutive fiscal years, the
engineering offices would receive deferred maintenance funding for that project in both
years regardless of the amount of engineering work on the project.

"Small" Deferred Maintenance Projects. In fiscal year 1998, Region 3
allocated 52 percent of its deferred maintenance funding allocation ($2.7 million) to
refuges for small deferred maintenance projects, and Region 5 allocated 27 percent of its
funding allocation ($1.2 million) to refuges so that station managers could "select small
[maintenance] projects to accomplish from the backlog list." In providing funds for small
deferred maintenance projects, FWS did not ensure that the highest priority projects
received funding. For example, Region 5 calculated each station's percentage of the
Region's total backlog in determining the amount of deferred maintenance funds that
would be allocated to each station. However, in calculating the funding distribution, the
Region established a minimum amount, $7,500 for a staffed field station and $5,000 for
field biologists, that would be distributed to each refuge. By establishing this minimum
amount of funds for distribution, FWS provided some refuges with greater or lesser
amounts of funding in relation to their share of the total deferred maintenance backlogs.
For example, FWS officials at the Silvio O. Conte National Fish and Wildlife Refuge in
Massachusetts reported that they did not have a backlog. However, under the Region's
funding distribution plan, the Refuge received the minimum funding allocation of $7,500.

Under the regional plan to distribute funds for small deferred maintenance projects, FWS
also provided for a funding allocation to "minimize extra large increases for big stations
to accommodate small stations." As such, some refuges with relatively large deferred
maintenance backlogs did not receive funding commensurate with their needs. For
example, the Patuxent National Research Wildlife Refuge in Maryland reported a
deferred maintenance backlog of $6.6 million, which, as a percentage of the Region's
total funding allocation, would have resulted in a deferred maintenance funding allocation
of $108,100. However, because the Region limited the amount of funding provided to
"big stations," the Refuge was allocated only $40,000. In total, we found that 10 stations
received $126,800 less than their relative share of the total deferred maintenance backlog
and that 21 stations received $161,900 more than their relative share of the backlog. We
also found that at eight refuges visited in Regions 3 and 5, where funding of $373,100
was provided for small deferred maintenance projects, five refuges did not complete their
highest priority maintenance projects. For example, one refuge in Region 5 listed a
$67,000 project to rehabilitate work space as its fiscal year 1998 highest priority deferred
maintenance project. The project was not completed, even though the refuge received
$85,000 in fiscal year 1998 to finance small deferred maintenance projects.

Contingency and Routine Maintenance Costs. At three of the regions reviewed, FWS
reserved deferred maintenance funds of $395,700 for contingencies such as cost overruns
and/or emergency use and for annual and/or routine maintenance. We found that these
funds generally were used to pay expenses other than those related to deferred
maintenance projects. For example, Region 5 allocated deferred maintenance funds of
$134,000 to pay for recurring or annual maintenance costs at several of its fish hatcheries
such as rehabilitating generators and wells, and Region 3 used deferred maintenance
funds of $249,600 for items such as astroturf, microscopes, and test tubes, which, in our
opinion, do not represent deferred maintenance costs.

Use of Deferred Maintenance Funds

Chapter 1 (Sections 1.3, 1.6, and 1.7) of the FWS Handbook states that deferred
maintenance funds should be used only on maintenance related to existing facilities and
should not be used for routine maintenance activities or for projects or work that are
funded from operations or construction appropriations. Also, Statement of Federal
Accounting Standards No. 6 states that deferred maintenance does not include "activities
aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs
different from, or significantly greater than, those originally intended."

However, we found that deferred maintenance funding in some cases was not spent on
activities associated with deferred maintenance projects. Instead, the funds were used to
finance routine maintenance activities, to acquire needed physical assets, and to
supplement operating budgets. We also found that deferred maintenance funding was
allocated and spent on projects which, in our opinion, did not qualify as deferred
maintenance items. For example:

- One station spent deferred maintenance funds of $3,158 for brochures for the refuge,
and another station used $1,471 to make office repairs that had not been identified as
deferred maintenance needs.

- During fiscal year 1996, FWS allocated $300,000 to the Warm Springs National Fish
Hatchery in Georgia for the rehabilitation of its administration building. The original
intent, according to the station manager, was to add office space to the existing laboratory
building and to convert the existing office space to laboratory facilities. The station
manager stated that the plan was rejected by the Region's engineering division. However,
the Region did not revoke the deferred maintenance funds that had been provided to the
Hatchery for this project. In June 1997, Regional officials approved the use of the
deferred maintenance funds to finance a new office building that was to be situated across
the street from the existing structure, and in September 1997, a contract was awarded to
construct the new building.

- Region 4 officials funded two projects, at a cost of $52,391, from the Region's deferred
maintenance allotment to replace furniture, "outfit" a new office building, and
replace/upgrade various equipment items.

- FWS used deferred maintenance funds to acquire replacement equipment such as
computers and vehicles totaling $2.1 million. Because the replaced items had exceeded
their useful lives, these expenditures did not qualify as deferred maintenance needs.

We also found that at 17 of the 34 field stations reviewed, managers did not use the funds
remaining after a deferred maintenance project was completed to pay for other deferred
maintenance projects. Instead, they used the surplus funds to pay for operational and/or
routine maintenance expenses such as salaries of permanent employees; materials and
supplies; and transportation equipment repairs, fuel, and parts. For example:

- The station manager at the White River National Wildlife Refuge in Arkansas used the
funds remaining after completion of a bridge replacement project to purchase equipment,
including a circular saw, a drill, a jigsaw, and a utility trailer. The station manager also
used $27,218 of surplus funds from a $45,000 project to purchase a new pickup truck,
which was an "addition to fleet" and not a replacement for an existing vehicle.

- The station manager at the Wheeler National Wildlife Refuge in Alabama used deferred
maintenance funds remaining after completion of a $25,000 road repair project to pay for
part of the cost of a used tractor trailer vehicle.

We also found that eight station managers used deferred maintenance funds to pay the
salaries of permanent employees who worked on deferred maintenance projects, even
though FWS officials stated that it was FWS policy to pay managers salaries from
operating rather than from deferred maintenance funds. In addition, in 325 cases, FWS
provided deferred maintenance funds of $8.6 million to refuges and hatcheries based on
station managers' requests for funding. Because the station managers did not specify
which deferred maintenance projects were to be funded, we could not determine whether
the allocated funds were spent on deferred maintenance work, particularly at the 97
locations at which the funds were commingled with operating funds.

Field personnel were able to use the deferred maintenance funds for other purposes
because FWS did not have specific reporting requirements and did not conduct
management control reviews to detect and prevent the improper use of deferred
maintenance funds. As a result, we found that of the $9.7 million of deferred
maintenance funds obligated during fiscal years 1996 through 1998 by the 34 stations
reviewed, $4.8 million was spent as follows: (1) $2.3 million for nonmaintenance
activities such as the purchase of a fee collection unit, exhibit replacements, and Youth
Conservation Corps activities; (2) $2.1 million for equipment replacement; and (3)
$351,935 for operational or routine maintenance work.

Recommendations

We recommend that the Director, FWS :

1. Establish a process for allocating deferred maintenance funds to field offices on the
basis of national project priorities.

2. Discontinue the practice of allocating a fixed amount or percentage of deferred
maintenance funds for regional management, engineering support, small deferred
maintenance projects, and contingencies unless such expenses can be justified on the
basis of their relative contribution to deferred maintenance activities.

3. Establish and implement controls to ensure that deferred maintenance funding is used
for its designated purpose.

FWS Response and OIG Reply

In the December 17, 1999, response (Appendix 2) to the draft report from the Deputy
Director, FWS concurred with Recommendations 1 and 3 and did not concur with
Recommendation 2. Based on the response, we consider Recommendation 1 resolved
and implemented, Recommendation 2 unresolved, and Recommendation 3 resolved but
not implemented (see Appendix 3). Accordingly, Recommendation 3 will be referred to
the Assistant Secretary for Policy, Management and Budget for tracking of
implementation.

Regarding Recommendation 2, FWS stated that beginning in fiscal year 2000, "annual
maintenance funding will be allocated to the regions to provide needed funds for small
maintenance projects" and that it would issue instructions stating that "any funds needed
for activities such as regional support, engineering support, or IRM [information
resources management] support are to be funded and managed on a project by project
basis." FWS further said that regional offices "are not authorized to use deferred
maintenance funds for general overhead or contingencies."

We consider Recommendation 2 unresolved because FWS indicated that it would
continue the practice of allocating a fixed amount or a percentage of deferred
maintenance funding for small deferred maintenance projects. In our opinion, to achieve
the most cost-effective use of funds, FWS needs to ensure that the highest priority
deferred maintenance projects are funded before funds are provided for less expensive
and possibly lower priority projects. Therefore, we request that FWS reconsider its
response to Recommendation 2 (see Appendix 3).

General Comments on Finding

FWS also provided additional comments on the finding. FWS's comments and our
replies are as follows:

Objectives and Scope

FWS Comments. FWS said that our statement that "inadequate maintenance
management capability was a 'mission critical weakness' which impacted 'most bureaus'
implies that FWS was among those critically impacted bureaus." FWS further noted that
neither the OIG nor the General Accounting Office had identified FWS as one of the
bureaus having such a "mission critical" weakness.

OIG Reply. We revised the report to state that FWS was not reported to have a mission
critical weakness in its maintenance management capability. However, deficiencies
identified in our audit of FWS's deferred maintenance were the same as those that
contributed to mission-critical maintenance weaknesses in other bureaus.

Allocation and Use of Deferred Maintenance Funds

FWS Comments. FWS said that without information on the specific projects on which
deferred maintenance funds of $14.4 million reportedly were inappropriately spent or
allocated, "it is difficult for us to identify or evaluate these projects as having been funded
inappropriately."

OIG Reply. We will provide FWS with detailed information on the projects.

Use of Deferred Maintenance Funds

FWS Comments. FWS stated that under guidance in effect during fiscal years 1996
through 1998, the deferred maintenance funding of $2.1 million for computer and vehicle
replacements was "appropriate." FWS also said that although it had interpreted Federal
accounting standards as providing for equipment and vehicles to be included as deferred
maintenance items, it has requested clarifying guidance from DOI on whether equipment
and equipment replacement are reportable deferred maintenance costs. FWS further
stated that deferred maintenance standards are changing in their application and definition
and that the report should be "clarified to give the reader a full appreciation of the
changing nature of standards guiding deferred maintenance reporting and auditing." FWS
noted that the required level of audit review of deferred maintenance data in Federal
agencies' financial statements was amended in April 1999.

OIG Reply. We agree that additional guidance on deferred maintenance, including a
clarification of replacement costs, is needed. However, FWS is the only bureau in DOI to
include the replacement of equipment and vehicles as deferred maintenance items.
Further, Statement of Federal Financial Accounting Standards No. 6 states that
maintenance "includes preventative maintenance, normal repairs, replacement of parts
and structural components, and other activities needed to preserve the asset so that it
continues to provide acceptable services and achieves its expected life." We interpret this
definition to mean that deferred maintenance enables an item to reach its useful life and
does not mean that deferred maintenance provides for the replacement of items that have
reached or surpassed their useful lives. Although the level of audit review of deferred
maintenance data for fiscal year 1998 financial statements was changed, the Federal
standard applicable to the types of items that should be reported as deferred maintenance
in fiscal year 1998 did not change.

B. DEFERRED MAINTENANCE DATA

FWS did not always produce or maintain reliable information on its deferred maintenance
needs and/or estimate its deferred maintenance costs in accordance with Federal
accounting standards and DOI guidance. Deferred maintenance information was not
reliable because FWS had not (1) conducted surveys of all of its assets to identify asset
condition and thereby determine deferred maintenance needs; (2) fully documented its
estimated deferred maintenance costs; (3) established adequate controls to ensure
compliance with Federal, DOI, and FWS deferred maintenance guidance; and (4)
implemented adequate controls to ensure the reliability of deferred maintenance data. As
a result, FWS may not produce reliable deferred maintenance data for inclusion in its
financial statements and did not have sufficient reliable data to fully support its fiscal year
2000 budget requests for deferred maintenance funding.

Deferred Maintenance Guidance

The Governmentwide standard for deferred maintenance was established in November
1995, when the Federal Accounting Standards Advisory Board issued Statement of
Federal Accounting Standards No. 6. Chapter 3, "Deferred Maintenance," of the
Standard defines deferred maintenance as "maintenance that was not performed when it
should have been or was scheduled to be and which, therefore, is put off or delayed for a
future period"; as "the act of keeping fixed assets in acceptable condition"; and as
"activities needed to preserve the asset so that it continues to provide acceptable services
and achieves its expected life." Chapter 3 also states that Federal agencies are required to
identify and measure their deferred maintenance for financial statement reporting
purposes.

DOI issued guidance in 1998 on deferred maintenance in Attachment G to DOI's "Fiscal
Year 2000 Budget Request Formulation Guidance." This guidance directed the bureaus
to use the condition assessment method to identify their deferred maintenance needs and
described condition assessments as "a complete inventory of their constructed assets [to]
identify the cost of correcting the deferred maintenance needs associated with those
assets." The guidance also stated that a condition code (good, fair, or poor) should be
assigned to inspected assets and defined the deferred maintenance backlog as the
"unfunded or otherwise delayed work required to bring a facility or item of equipment to
a condition that meets accepted codes, laws, and standards and preserves the facility or
equipment so that it continues to provide acceptable services and achieves its expected
life."

Appendix B of the FWS Handbook defines the maintenance backlog as "those items of
maintenance and repair which cannot be corrected within 12 months from the time the
deficiency was detected." Chapter 4 of the FWS Handbook further states, "Standardized
inspections are necessary to determine the condition of facilities and equipment and to
identify and document maintenance needs." These inspections also are to be conducted
periodically.

Reliability of Data

We found that FWS's deferred maintenance data for fiscal year 1998 were unreliable
because the items included in FWS's deferred maintenance listings in some cases were
not supported with documentation to show that the required condition assessments had
been conducted, were not supported with documented estimates of deferred maintenance
costs, and did not meet the Federal or DOI definition of deferred maintenance.
Specifically, we found that although FWS was required to conduct condition assessments
to identify its deferred maintenance needs and to inventory asset condition, none of the 34
field stations we visited had conducted condition assessments for all of the assets in their
deferred maintenance backlog. Station managers said that the only projects with detailed
condition assessments, including documented cost estimates, were bridge repair or
replacement projects. In fieldwork related to an audit of the deferred maintenance cost
estimates of six DOI bureaus (Report No. 99-I-874), we found that only 41 of 119 FWS
projects reviewed had documented condition assessments and that 73 of these 119
projects did not have documented cost estimates.

We also found that FWS included items in its deferred maintenance listing that did not
meet Federal accounting standard, DOI, and/or FWS definitions of deferred maintenance,
as described in the paragraphs that follow:

Habitat Rehabilitation Projects. Although Appendix D of the FWS Handbook states
that habitat maintenance projects should not be included in FWS's deferred maintenance
listings, we found that 33 of the 2,227 deferred maintenance projects reviewed (with a
total estimated cost of $8.8 million) were habitat maintenance or restoration projects
which did not involve the maintenance of existing structures or facilities. For example:

- A deferred maintenance project at the Okefenokee National Wildlife Refuge in Georgia
provided for the repair of two water structures (low hazard dams), at an estimated cost of
$6.9 million. During fiscal year 1998, Refuge managers reduced the cost estimate by
$1.9 million, to a new total of $5.0 million, and redefined the project. As redefined, the
project did not entail the repair of the water structures. Instead, the objective of the
project was to establish a "4-year monitoring plan" in partnership with the U.S.
Geological Survey, to remove two water structures, and to "breach the dike in numerous
locations to simulate the natural riverine system."

- In Texas, the Anahuac National Wildlife Refuge's deferred maintenance backlog
included five habitat rehabilitation projects that provided for the removal of oil facilities,
drill pads, and roads from the Roberts Mueller Tract ($1.2 million); old structures in
Onion Bayou ($45,000); old structures and trailers from the Middleton Tract ($95,000);
old cattle shelters from Jackson/White and Old Anahuac ($30,000); and old oil pads and
roads from Old Anahuac, Gator Marsh ($60,000).

- In Virginia, the Mason Neck National Wildlife Refuge's deferred maintenance backlog
included two habitat rehabilitation projects, with an estimated cost of $1.2 million, that
provided for the removal of military buildings on property being transferred to the
Refuge.

Exhibit Updates. Although deferred maintenance, as defined in Federal accounting
standards and DOI guidance, includes the rehabilitation or repair of equipment, it does
not include the modernization of items that have exceeded their useful lives or that are
obsolete. At six of the field stations reviewed, we identified 12 projects, with cost
estimates totaling about $2.3 million, that provided for the replacement of assets that had
exceeded their useful lives or were obsolete. For example:

- A deferred maintenance project at the Okefenokee National Wildlife Refuge in Georgia
included a project that was described as "[r]eplace/update worn or inaccurate public use
displays" at the visitor center (estimated cost of $1,390,000). Refuge management stated
that the existing displays were outdated and in some cases needed to be updated with new
technology.

- Three deferred maintenance projects at the Patuxent Wildlife Research Refuge in
Maryland provided for the refurbishing of visitor center exhibits. Descriptions for two of
the projects (estimated cost of $260,000) stated, "Rehabilitate several exhibit panels at the
National Wildlife Visitor Center to educate the public about wildlife program activities
and to explain the Service mission and its role in research." Refuge managers said that
the project would entail updating old exhibits using current technology. A description for
the third project stated, "Rehabilitate animal exhibits by having a taxidermist check
animal items for bugs."

Projects for New or Upgraded Structures. Deferred maintenance guidance does not
provide for projects to be classified as deferred maintenance if they significantly increase
facility size (according to the FWS Handbook, deferred maintenance projects can increase
an existing building's size by up to 10 percent) or if they represent a major upgrade or
serve needs different from, or significantly greater than, those originally intended.
However, we found that the backlog listings for the 25 refuge stations reviewed included
39 projects, with an estimated deferred maintenance cost of $13.8 million, which
provided for new facilities, the significant expansion of existing facilities, or a facility
upgrade that served needs other than those of the original structure. For example:

- A deferred maintenance project at the Genoa National Fish Hatchery in Wisconsin, with
an estimated cost of $1 million, provided for the replacement of a deteriorated office,
outreach, and education facility. The justification for the project stated, "Current office
building is over 60 years old and inadequate to meet the needs of the hatchery staff and
the visitor load the hatchery has annually." The justification also stated that the project
would provide for a "new office . . . equipped with aquariums, and visitor displays
depicting the hatchery's programs, and the Service's mission," features that were not
included in the original facility.

- A deferred maintenance project at the Attwater Prairie Chicken National Wildlife
Refuge in Texas, with an estimated cost of $1 million, provided for the replacement of an
"old, energy inefficient, and insect infested visitor center." We found that the visitor
center was a house that had not been constructed to serve as a visitor center.

- A deferred maintenance project at the Sacramento National Wildlife Refuge in
California provided for the replacement of "dilapidated unsafe mobile trailer residence for
fire crew, interns, volunteers, researchers, and temporary employees with [a] five-
bedroom bunkhouse. Dilapidated wiring and lack of hard-wired fire alarm or sprinkler
system pose [a safety hazard]." Refuge managers estimated that it would cost $225,000
to build the bunkhouse to replace the trailers.

Completed Projects. After our site visits, station managers eliminated from their
deferred maintenance backlog 515 projects, with an estimated cost of $28.5 million, that
we had identified as completed or not appropriately classified as deferred maintenance
projects. For example:

- Managers at the Wichita Mountains Wildlife Refuge in Oklahoma, after our site visit,
eliminated from their deferred maintenance listing 41 projects, with cost estimates
totaling $2.1 million, that had been completed in prior years. Likewise, managers at the
Patuxent Research Refuge in Maryland eliminated 72 projects, with an estimated cost of
$3 million, from the Refuge's deferred maintenance backlog. The eliminated projects
included work that had been completed in prior years and other projects that were the
responsibility of the Refuge's tenant, the U.S. Geological Survey's Biological Research
Division. The Refuge deleted 60 projects, with an estimated cost of $2.5 million, that
also were reported as deferred maintenance needs by the Geological Survey.

- During our review, managers at the Yazoo National Wildlife Refuge Complex in
Mississippi deleted from their deferred maintenance listing 19 projects, having an
estimated cost of $2.7 million. One of these projects, the replacement of the office/visitor
facility, had an estimated cost of $2 million. The project is not deferred maintenance, in
our opinion, because the replaced facility is a 40-year old converted shop building and the
replacement structure will have features, including interpretive facilities, a conference
room, and an auditorium, that are not part of the original structure.

Support for Data

We found that FWS's deferred maintenance data were not reliable because FWS's field
stations had not performed or documented the performance of condition assessments to
determine the status (good, fair, or poor condition) of all of FWS's assets and to identify
FWS's deferred maintenance needs. Also, FWS had not required that documentation be
prepared to support its estimated deferred maintenance costs; therefore, supporting
documentation was not always available to determine whether estimated deferred
maintenance costs were reliable. FWS also had not established adequate controls to
ensure that its personnel complied with Federal accounting standard, DOI, and FWS
deferred maintenance guidance. Also, although FWS's maintenance management system
provided for the recording of useful data, FWS had not implemented adequate controls to
ensure that deferred maintenance data were accurate, current, and complete and
safeguarded against unauthorized revision.

We also found that the field offices did not always comply with the FWS Handbook
(372 FW 2), which states, "Regional Offices/field stations are responsible for data
integrity, project priorities, and meeting system update schedules." Chapter 5, Section
5.1, of the FWS Handbook further requires that cost estimates entered into the
maintenance management systems be adjusted for inflation. However, we found that
carryover projects were not always adjusted for inflation by station management. For
example, at the 25 wildlife refuges reviewed, we identified 1,282 deferred maintenance
projects that were carried forward from fiscal years 1998 to 1999. However, we found
that 893 (about 70 percent) of these projects were not adjusted for inflation. Although
FWS has issued guidance on developing cost estimates and requires that backlog data be
reviewed by all organizational levels at least once a year, we found that cost estimates,
except for bridge repair and replacement projects, generally were not documented and
that backlog data reviews had not detected the inclusion of inappropriate deferred
maintenance items in the backlog listings.

Use of Data

FWS needs to improve the reliability of its deferred maintenance data so that it can
prepare a reliable estimate of its deferred maintenance costs for financial reporting
purposes. In January 1999, the Office of Management and Budget issued guidance to
Federal agencies, "Amendments to OMB Bulletin No. 98-08, 'Audit Requirements for
Federal Financial Statements,'" which states that for fiscal year 1998, the Office had
reduced the scope of audit of deferred maintenance data reported in Federal financial
statements but that it "expects to increase the level of audit assurance relating to deferred
maintenance . . . in future years as the standards and criteria for reporting such
information are developed."

Also, FWS needs reliable deferred maintenance cost estimates to support its budget
requests for deferred maintenance funding. In budget documents for fiscal years 1997
through 2000, FWS requested total funding of $152.6 million for 154 deferred
maintenance construction projects. During our audit, we reviewed 17 of these projects to
determine whether the supporting deferred maintenance cost estimates were reliable. We
found that for 13 projects, FWS did not provide sufficient documentation to support the
need for the projects (that is, documentation to show that condition assessments had been
performed) and/or documentation on the basis for the estimated costs of these deferred
maintenance projects.

Recommendations

We recommend that the Director, FWS:

1. Require that adequate documentation on condition assessments and deferred
maintenance cost estimates be prepared.

2. Implement controls to ensure FWS compliance with Federal, DOI, and FWS guidance
on the identification of deferred maintenance needs and the estimation of deferred
maintenance costs.

3. Implement controls to ensure that deferred maintenance data entered into FWS's
maintenance management system are complete, current, and accurate.

FWS Response and OIG Reply

In the December 17, 1999, response (Appendix 2) to the draft report from the Deputy
Director, FWS concurred with all three recommendations. Based on the response, we
consider the recommendations resolved but not implemented (see Appendix 3).
Accordingly, the unimplemented recommendations will be referred to the Assistant
Secretary for Policy, Management and Budget for tracking of implementation.

General Comments on Finding

FWS provided additional comments on the finding. FWS's comments and our replies are
as follows:

Deferred Maintenance Data and Guidance

FWS Comments. FWS said that it disagreed with our conclusion that FWS "may not
produce reliable deferred maintenance data for inclusion in its financial statements." It
also said that there is a difference between Federal accounting guidance and DOI
guidance on deferred maintenance and that deferred maintenance cost estimates based on
the two "are significantly different in their use and purpose and in the data sets that
contribute to each estimate." According to FWS, DOI guidance provides for deferred
maintenance cost estimates of future funding needs that are developed in support of the
budget package. FWS said that the Federal accounting standards require estimates of
total costs, including all labor costs, that may not be included in DOI's deferred
maintenance cost estimates. FWS also said that the report "introduces" budget estimates
for fiscal year 2000, which "should be excluded from the scope of this audit as it [the
audit] was to cover fiscal years 1996 through 1998."

OIG Reply. This finding pertained to FWS's deferred maintenance data that were
developed for inclusion in its financial statements for fiscal year 1998. As such, we
applied the applicable, Federal accounting criteria in determining whether the cost
estimates were reliable. We also discussed DOI guidance on deferred maintenance,
including Attachment G to DOI's "Fiscal Year 2000 Budget Request Formulation
Guidance," which defines deferred maintenance and instructed the bureaus to use the
condition assessment method to identify their deferred maintenance needs. We did not
apply the guidance contained in other attachments, which directed the bureaus to exclude
certain project costs in developing deferred maintenance cost estimates for budget
formulation purposes. We believe that FWS may have prepared inaccurate financial
statement deferred maintenance cost estimates in part by inappropriately using the project
cost estimating criteria in the budget formulation guidance. Also, we referred to "budget
documents for fiscal years 1997 through 2000" to quantify the amount of deferred
maintenance funding that FWS reported as a budgetary requirement and to illustrate the
importance of developing reliable data to support funding requests for such significant
expenses.

Reliability of Data

FWS Comments. FWS stated that the use of condition assessments as the basis for
developing reliable deferred maintenance cost estimates has not been a long-term
accepted procedure. Specifically, FWS said that "the concept of 'condition assessments'
as a formal documented procedure was not uniformly applied in other fiscal years, except
as the concept was defined" in the FWS's Maintenance Management System Handbook.

OIG Reply. The use of assessments to determine whether assets need repair or
maintenance was a required FWS procedure for several years before fiscal year 1998
deferred maintenance cost estimates were developed. For example, Chapter 4 of the FWS
Manual, which was last revised in 1992, states, "Standardized inspections are necessary
to determine the condition of the facilities and equipment to identify and document
maintenance needs." Although the term "condition assessment" may not have been used,
FWS nonetheless recognized the need to identify and to document the condition of
facilities and equipment on a periodic basis, actions that are essential to a condition
assessment. Despite the guidance contained in FWS's Manual, we found that none of the
34 field stations we visited conducted "periodic inspections" to document the condition
of all of the assets in their deferred maintenance backlog.

Habitat Rehabilitation Projects

FWS Comments. FWS said that "habitat rehabilitation is not an appropriate use of
deferred maintenance funds; however, all of the projects cited involved modification or
demolition of facilities." Discussing the Okefenokee sill project, FWS said that this
project was revised to include a 2-year monitoring effort "as a precursor to a decision on
partial rehabilitation of water control structures" and that two other projects cited in the
report were not habitat rehabilitation but the removal of unneeded facilities that were
"creating a health and safety risk for employees and visitors." Regarding these projects,
FWS said that "[w]ithout the ability to use deferred maintenance funds to correct these
sometimes sizeable health and safety liabilities," it will be "severely hampered in taking
timely corrective actions."

OIG Reply. The three projects discussed in the report provided for the modification or
removal of structures that were no longer needed (in one case) or were undesirable
structures that had conveyed to FWS when the property was acquired (two cases). These
projects did not involve maintenance work that had been deferred. Although funding may
be needed to dismantle unsafe or unused facilities, we do not consider such projects to be
deferred maintenance projects as defined in Federal accounting standards. Thus, we do
not consider the habitat rehabilitation project costs to be appropriate for inclusion in
FWS's financial statements for fiscal year 1998 as deferred maintenance items. We
consider the need for funding of rehabilitation projects to be an issue separate from the
financial reporting of estimated deferred maintenance costs.

Support for Data

FWS Comments. FWS said that our report implies that FWS's deferred maintenance
data were "not reliable" because FWS "had not performed or documented the
performance of condition assessments." FWS said that it conducted periodic inspections
of its assets but may not have documented the assessments or labeled the inspections as
"condition assessments."

OIG Reply. The FWS Manual requires field managers to document the condition of
their facilities, and as such, FWS has established the need for documentary support for its
evaluation of maintenance needs. However, FWS did not have sufficient documentation
to show that any type of inspection, assessment, or review had been conducted to
determine the condition of its assets and the estimated cost to repair the assets. Although
not referred to in the report, the General Accounting Office's "Standards for Internal
Control in the Federal Government" requires Federal agencies to clearly document "all
transactions and other significant events" and states that "the documentation should be
readily available for examination." Thus, we do not believe that we are making FWS
adhere to a standard higher than it and the General Accounting Office have established.