[Audit Report on Followup of Recommendations Concerning Repayment of Municipal and Industrial Water Supply Investment Costs, Bureau of Reclamation]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 00-i-270

Title: Audit Report on Followup of Recommendations Concerning Repayment
       of Municipal and Industrial Water Supply Investment Costs,
       Bureau of Reclamation



Date:  March 31, 2000



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U.S. Department of the Interior
Office of Inspector General



AUDIT REPORT
FOLLOWUP OF RECOMMENDATIONS CONCERNING REPAYMENT OF 
MUNICIPAL AND INDUSTRIAL WATER SUPPLY INVESTMENT COSTS,
BUREAU OF RECLAMATION


REPORT NO. 00-I-270

MARCH 2000




EXECUTIVE SUMMARY

Followup of Recommendations Concerning Repayment of 
Municipal and Industrial Water Supply Investment Costs,
Bureau of Reclamation Report (No. 00-i-270)

BACKGROUND

Our August 1992 audit report "Repayment of Municipal and
Industrial Water Supply Investment Costs, Bureau of Reclamation"
(No. 92-I-1128) stated that the Bureau of Reclamation (BOR) was
not fully recovering the Government's costs of financing
municipal and industrial water supply facilities that were
originally constructed to supply water for irrigation purposes.
According to the report, this occurred primarily because BOR had
not established the controls needed to identify changes in water
use from irrigation to municipal and industrial purposes.  As a
result, we estimated that BOR was not recovering financing costs
of more than $1.3 million annually on 11 projects reviewed.  We
also reported that BOR guidelines did not include provisions to
allow the Government to fully recover financing costs from the
date project construction was completed to the date that these
facilities were converted to municipal and industrial purposes.
Consequently, we estimated that for the 11 projects, BOR would
not recover municipal and industrial financing costs ranging from
$23 million, using project interest rates, to $128 million, using
U.S. Treasury interest rates.  To improve BOR's internal controls
and ensure that the Government's financing costs are fully
recovered from project beneficiaries, we recommended that BOR
take the following actions: establish internal controls to
require periodic reviews of annual project water use to ensure
that the quantities of water delivered are in conformance with
the contract terms (Recommendation 1); revise its guidelines to
provide for the recovery of an equitable portion of the
Government's financing costs on facilities that have been
converted to municipal and industrial use (Recommendation 2); and
compute and recover the Government's financing costs on the 11
projects identified as having water use conversions and on any
other projects where conversions have occurred, as identified
through implementation of our recommendations (Recommendation 3).
BOR agreed to implement the first recommendation and the five
action items established by the Assistant Secretary for Policy,
Management and Budget in lieu of the other two recommendations.

OBJECTIVE

The objective of our audit was to determine whether BOR had taken
sufficient actions to implement the recommendations made in our
August 1992 audit report and whether any new recommendations were
warranted.

RESULTS IN BRIEF

Overall, we found that BOR had not taken sufficient actions to
implement the recommendations made in our August 1992 audit
report.  Specifically, BOR had not developed procedures or
conducted adequate reviews to ensure that changes in water use
were identified and had not completed four of the five
agreed-upon actions designed to provide policy guidance and
assist it in valuing and reporting on water use conversions to
ensure that the Government fully recovered the cost of financing
municipal and industrial water supply facilities that were
originally constructed to supply water for irrigation purposes.
As a result, BOR did not have sufficient procedures and controls
to identify changes in water use and ensure that an equitable
portion of the Government's costs of financing the facilities
were recovered.  Based on our current review, we identified
financing costs of about $217,000 on 4 of 12 projects reviewed
that BOR will not recover annually.  In addition, BOR has lost
the opportunity to recover financing costs of about $2.3 million
associated with water use conversions on six projects identified
in our August 1992 report.

RECOMMENDATIONS

We recommended that BOR's Commissioner establish uniform and
consistent control procedures that require periodic reviews of
annual project water use to ensure that the quantities delivered
and used are in conformance with the water contracts, complete
the five action items that are cited in this report, and report
BOR's lack of adequate procedures to identify water conversions
in BOR's annual assurance statement on management controls as a
material weakness under the Federal Managers' Financial Integrity
Act.

AUDITEE COMMENTS AND OIG EVALUATION

BOR said that it "agrees in principle" with the recommendation
relating to requiring periodic reviews of annual project water
use and would establish a task group responsible for "developing
various options for Reclamation-wide implementation of
directives."  BOR concurred with the remaining two
recommendations relating to completing five action items and
reporting the lack of procedures for identifying water
conversions as a material weakness.  Based on the response, we
considered the three recommendations resolved but not
implemented.




AUDIT REPORT                                    W-IN-BOR-001-99-D


Memorandum

     To:  Assistant Secretary for Water and Science

   From:  Roger La Rouche
          Acting Assistant Inspector General for Audits

Subject:  Audit Report on Followup of Recommendations Concerning
          Repayment of Municipal and Industrial Water Supply
          Investment Costs, Bureau of Reclamation (No. 00-i-270)

INTRODUCTION

This report presents the results of our audit of actions taken by
the Bureau of Reclamation (BOR) to implement the recommendations
made in our August 1992 audit report entitled "Repayment of
Municipal and Industrial Water Supply Investment Costs, Bureau of
Reclamation" (No. 92-I-1128).  The objective of our current audit
was to determine whether BOR had taken sufficient actions to
implement the recommendations made in the August 1992 audit
report and whether any new recommendations were warranted.

BACKGROUND

BOR has constructed more than 120 multipurpose projects, which
provide, among other benefits, water for irrigation and municipal
and industrial purposes in the 17 western states. Construction of
these projects was financed primarily with funds appropriated by
the Congress.  In accordance with Reclamation law,[1] water users
enter into contracts with BOR to repay the Government's
investment in those projects.  Beginning with project
construction, BOR computes and is supposed to recover, from
municipal and industrial water contractors, interest on their
construction obligations at rates established by Reclamation law.
However, to encourage agricultural development within the western
states, the Congress has subsidized irrigation contractors by not
authorizing BOR to assess and collect interest on the repayment
obligations associated with irrigation water deliveries.

Because of population growth in the western United States,
including areas served by BOR water projects, the demand for
municipal and industrial water supplies has increased
significantly, with deliveries from BOR projects doubling since
1965.  Because of this increased demand, project facilities
originally constructed by BOR to provide water for irrigation
purposes have been used to provide more water for municipal and
industrial purposes than was originally planned.

In our August 1992 audit report, we stated that BOR was not fully
recovering the Government's costs of financing municipal and
industrial water supply facilities that were originally
constructed to supply water for irrigation purposes.  This
occurred primarily because BOR had not established the controls
needed to identify changes in water use from irrigation to
municipal and industrial purposes.  As a result, we estimated
that BOR was not recovering financing costs of more than $1.3
million annually on 11 projects reviewed.  We also reported that
BOR guidelines did not include provisions to allow the Government
to fully recover financing costs from the date project
construction was completed to the date that these facilities were
converted to municipal and industrial purposes. Consequently, we
estimated that for the 11 projects, BOR would not recover
municipal and industrial financing costs ranging from $23
million, using project interest rates, to $128 million, using
U.S. Treasury interest rates.  To improve BOR's internal controls
and ensure that the Government's financing costs are fully
recovered from project beneficiaries, we recommended that BOR
take the following actions: establish internal controls to
require periodic reviews of annual project water use to ensure
that the quantities of water  delivered are in conformance with
the contract terms (Recommendation 1); revise its guidelines to
provide for the recovery of an equitable portion of the
Government's financing costs on facilities that have been
converted to municipal and industrial use (Recommendation 2); and
compute and recover the Government's financing costs on the 11
projects identified as having water use conversions and on any
other projects where conversions have occurred, as identified
through implementation of our recommendations (Recommendation 3).

In response to Recommendation 1, BOR agreed to implement
procedures to require periodic reviews of the water quantities
delivered to ensure that they are in conformance with contractual
terms.  Based on BOR's response, we considered Recommendation 1
resolved but not implemented, and the Department of the Interior
reported the control deficiency as a material weakness under the
Federal Managers' Financial Integrity Act in December 1992. In
December 1994, the Assistant Secretary for Policy, Management and
Budget considered the recommendation implemented based on
corrective actions cited by BOR, and in December 1995, the
Department reported that the material control weakness had been
corrected.

In response to Recommendations 2 and 3, BOR agreed to revise its
guidelines to ensure that an "equitable share" of the
Government's financing costs are recovered during the repayment
period.  Also, BOR agreed to compute and recover an "equitable
share" of the Government's financing costs on the projects
included in the audit report and on other projects where changes
in water use have occurred.  In accordance with the Departmental
Manual, we referred the two recommendations to the Assistant
Secretary for Policy, Management and Budget in February 1993 for
tracking of implementation.  However, by November 1996, BOR
changed its position and stated that it did not concur with these
recommendations. Therefore, Policy, Management and Budget
resolved the matter in July 1997 by establishing, in lieu of the
recommendations, five action items, which BOR agreed to
implement.  BOR reported in January 1999 that it had completed
actions on four of the five items.  BOR officials told us in
December 1999 that work on the remaining item would be completed
by March 31, 2000.

SCOPE OF AUDIT

The scope of our current audit included an evaluation of the
actions taken by BOR to implement Recommendation 1 in the August
1992 report and the five action items specified in the July 25,
1997, memorandum that resolved Recommendations 2 and 3.  To
accomplish our objective, we interviewed officials from BOR's
Denver Office and BOR's regional and area offices (see Appendix
2) and reviewed supporting documentation pertaining to the
actions taken in response to Recommendation 1 and the action
items.  In addition, we reviewed the latest available water usage
records at three of BOR's five regions and compared these amounts
with amounts recorded in fiscal year 1992 to identify additional
conversions of use.  In instances where we identified increased
municipal and industrial water usage, we reviewed contracts,
legislation, and other documents to determine whether the
increased municipal and industrial use was authorized and whether
the contractor had paid municipal and industrial water rates to
BOR.

We conducted our audit from May through September 1999 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
reviewed the Departmental Reports on Accountability for fiscal
years 1997 and 1998, which included information required by the
Federal Managers' Financial Integrity Act, and BOR's annual
assurance statements on management controls for fiscal years 1997
and 1998 and determined that no material weaknesses were reported
that directly related to the objective and scope of our audit.

We also evaluated BOR's system of internal controls related to
our audit objective.  We found that BOR did not establish
sufficient procedures to ensure that conversions of water use
from irrigation to municipal and industrial purposes were
identified.  The internal control weakness is discussed in the
Results of Audit section of this report.  The recommendations, if
implemented, should improve the internal controls in this area.

PRIOR AUDIT COVERAGE

During the past 5 years, neither the Office of Inspector General
nor the General Accounting Office has issued any reports that
directly related to the objective and scope of our audit.

RESULTS OF AUDIT 

Overall, we found that BOR had not taken sufficient actions to
implement Recommendation 1 or to complete four of the five action
items agreed to as a result of our August 1992 audit report.  To
resolve Recommendation 1, BOR agreed to develop "Reclamation
Instructions," which would establish procedures for monitoring
water use and require periodic reviews to ensure that the
quantities of water delivered are in conformance with contractual
terms. However, we found that BOR had not developed procedures or
conducted adequate reviews to ensure that changes in water use
were identified. To resolve Recommendations 2 and 3, BOR agreed
to take five actions designed to provide policy guidance and
assist BOR in valuing and reporting on water use conversions to
ensure that the Government fully recovers the cost of financing
municipal and industrial water supply facilities that were
originally constructed to supply water for irrigation purposes.
We found that actions were not completed on four of the five
items in that BOR did not (1) develop example water rates for
facilities expecting future conversions, (2) report annually
(beginning with fiscal year 1997) on the individual quantities
and prices of the water converted during the year, (3) conduct
economic studies to estimate the demand for municipal and
industrial water in major markets supplied by BOR, and (4) issue
guidance regarding the incorporation of contract language for the
periodic reallocation of costs based on current water use.  As a
result, we found that BOR did not have sufficient procedures and
controls to identify changes in water use and ensure that an
equitable portion of the Government's costs of financing these
facilities were recovered.  Based on our current review, we
identified financing costs of about $217,000 on 4 of 12 projects
reviewed that BOR will not recover annually.  In addition, BOR
has lost the opportunity to recover financing costs of about $2.3
million associated with water use conversions on six projects
identified in our 1992 report.

BOR Actions 

Our review of BOR's efforts to implement Recommendation 1 and the
agreed-upon action items are summarized in the paragraphs that
follow.

Recommendation 1.  "Establish internal controls requiring
periodic reviews of annual project water use to ensure that the
quantity delivered conforms with that specified in the
contracts."

In response to the recommendation, BOR stated that it would
develop "Reclamation Instructions" to require periodic reviews to
ensure that the quantities of water delivered are in conformance
with contractual terms.  We found that instead of "Reclamation
Instructions," a November 22, 1994, policy memorandum was issued
by the Commissioner, which stated:

The regional offices and area offices are directed to establish
procedures to periodically review water deliveries to ensure they
conform to the contract provisions.  As a part of the
implementation of this recommendation, you should review your
data reporting procedures to ensure that accurate data is being
reported by the districts. . . . It is anticipated Reclamation
will adopt some internal auditing procedures to verify overall
accuracy of the monitoring program and the reporting and record
keeping.

Based on this memorandum, BOR and the Assistant Secretary for
Policy, Management and Budget considered the recommendation to be
implemented, and the Department considered the material control
weakness reported under the Federal Managers' Financial Integrity
Act to be corrected.  However, we believe that the memorandum did
not establish the recommended procedures and the necessary
internal controls because BOR's regional and field offices did
not develop the Commissioner's directed procedures to verify
water use, conduct sufficient reviews to ensure compliance with
contractual terms, or verify the overall accuracy of the
monitoring program.  Instead, at the regional and field offices
that we visited or contacted, BOR officials cited "other"
procedures and reviews which they believed satisfied the intent
of the policy memorandum such as the following: 

- Reclamation Reform Act reviews.  BOR officials from the
Mid-Pacific and Upper Colorado Regions stated that certain
procedures performed during their water contractor reviews for
compliance with requirements of the Reclamation Reform Act of
1982 (43 U.S.C. * 390) were used to identify changes in water
use.  At the Mid-Pacific Region, officials stated that since
1997, their reviews included asking contractor officials whether
they had established procedures to assess municipal and
industrial water rates for water delivered to small tracts.[2]
At the Upper Colorado Region, officials stated that their reviews
included an examination of water user lists to identify potential
municipal and industrial water users and that, if any were noted,
the cognizant BOR repayment specialist would be asked to
determine whether a conversion of use had occurred.

- Contract renewal procedures.  At all five regions contacted,
officials stated that they addressed conversions of water use
when they renewed existing contracts.  For conversions proposed
by water districts, BOR included provisions in contracts to
recover a portion of the Government's costs associated with the
converted water.  To allow for future conversions, BOR also
included appropriate provisions in contracts to allow charging
municipal and industrial water rates.

- Water delivery tracking.  At all five regions contacted,
officials stated that the quantity of water delivered to water
contractors was "tracked" by BOR on projects that it operated. By
doing this, according to those officials, BOR ensured that the
amount of water it delivered to water contractors was in
conformance with its contractual terms.

We believe that the procedures and reviews cited by regional
officials provide a part of the internal control environment
anticipated by the Commissioner's policy memorandum and/or
Recommendation 1.  However, we believe that the procedures do not
ensure that (1) the amounts of irrigation and municipal and
industrial water use reported by water contractors are accurate
and (2) the use of the water is in conformance with contract
provisions.  Such expanded procedures could be performed during
the Reclamation Reform Act reviews, which are performed on a
3-year cycle, but alternative arrangements and procedures would
be needed for water contractors that are not subject to these
reviews.[3]  Furthermore, we found that no action had been taken
to establish procedures for verifying the overall accuracy of the
monitoring program.

As part of our evaluation of the regions' cited alternative
procedures, we determined the extent to which the regions
collected water usage data (amount of municipal and industrial
and irrigation water deliveries by water contractors).[4]  We
found that in 1998, the regions collected water use data for only
58 (17 percent) of the 342 water contractors served by BOR, while
in 1992, the regions collected water use data for 307 (90
percent) of the 342 water contractors.  These water use data are
compared in Table 1.

-------------------------------------------------------
|       |Number  | |
|       |of Water| |
|       |Contractors||
-------------------------------------------------------
|           |       |        | |1992||1998
-------------------------------------------------------
|     Region|     |      | |Number| |Percent*||Number||
-------------------------------------------------------
|     Percent*
-------------------------------------------------------
|     Great |      |  |126| | | |112|| |89  | | |3 | ||
|     Plains|      |  |  |  | | |  | | |    | | |  | ||
-------------------------------------------------------
|              2
-------------------------------------------------------
|     Lower |      |  |36|  | | |27| | |75  | | |22| ||
|     Colorado|    |  |  |  | | |  | | |    | | |  | ||
-------------------------------------------------------
|             61
-------------------------------------------------------
|    Mid-Pacific|  |  |14|**| | |14| | |100 | | |4 | ||
-------------------------------------------------------
|             29
-------------------------------------------------------
|     Pacific|     |  |111| | | |101|| |91  | | |7 | ||
|     Northwest|   |  |  |  | | |  | | |    | | |  | ||
-------------------------------------------------------
|              6
-------------------------------------------------------
|     Upper |      |  |55|  | | |53| | |96  | | |22| ||
|     Colorado|    |  |  |  | | |  | | |    | | |  | ||
-------------------------------------------------------
|             40
-------------------------------------------------------
|       Total|     |  |342| | | |307|| |90  | | |58| ||
-------------------------------------------------------
|             17
-------------------------------------------------------

As shown in Table 1, some regions collected a greater percentage
of water use data than other regions, but no regions verified the
data submitted.  Also, water contractors did not report their
data consistently. For example, a contractor reported municipal
and industrial water deliveries as miscellaneous deliveries in
certain years and as municipal and industrial in other years,
while another contractor reported municipal and industrial water
deliveries as irrigation.  We believe that BOR needs to ensure
that accurate and complete water use data are available in order
to identify potential conversions.  Because water use data were
not available from all contractors, we concluded that BOR's
ability to identify conversions in a timely manner had not
improved since our 1992 report was issued.  As such, we believe
that a material control weakness still exists and should be
reported in BOR's annual assurance statement on management
controls under the Federal Managers' Financial Integrity Act.

As part of our audit, we visited three of BOR's regional offices
to identify conversions of water use from irrigation to municipal
and industrial purposes.  Based on the limited reporting
information available, we compared municipal and industrial water
use reported in 1998 with the use reported in 1992 on 12 projects
and identified 4 projects[5] for which conversions of use had
occurred that were not identified by BOR and were not covered by
authorizing legislation or contract provisions.  We estimated
that BOR did not recover financing costs of about $217,000[6] in
1998 associated with these conversions.  We also found that the
Pacific Northwest Region did not take actions to recover
financing costs for conversions on six projects[7] identified in
our 1992 report.  As such, we estimated that BOR lost the
opportunity to recover financing costs of about $2.3 million from
1993 to 1998 on these projects.

To fully implement Recommendation 1 from our August 1992 report,
we believe that BOR should develop uniform and consistent control
procedures to ensure that project water is used in conformance
with contract terms.  Specifically, BOR should (1) collect and
verify annual water use data from all of its irrigation water
contractors, (2) determine whether the water was used in
conformance with contract terms, and (3) maintain documentation
of the verifications performed and the determinations made.

Action Item 1.  "Issue policy guidance to the regions and develop
example rates for facilities expecting future
conversions/transfers."

In response to this action item, BOR issued a November 13, 1997,
memorandum entitled "Policy for Pricing Water Converting from
Irrigation to Municipal and Industrial Service" to its regions
that contained policy which applies to all proposed conversions
that have not been reduced to contract unless an exception is
approved by the Commissioner.  Based on our review of the policy,
we believe that BOR completed the requirement to issue policy
guidance on water conversions.  However, BOR did not develop
"example rates" for facilities expecting future conversions.
Instead, the memorandum stated only that "additional background
information and guidance including examples of the current cost
method will be provided in the near future."  (Emphasis added.)
According to a BOR official, the example rates were not developed
because BOR believed that the action taken to implement Action
Item 3 would meet the requirement.  We do not agree with this
position because the wholesale market rates listed for Action
Item 3 are too general and do not correlate to specific BOR
projects in which future conversions are anticipated.  As such,
we believe that to consider the action completed, BOR needs to
develop "example rates" specifically for its projects in which
future water conversions are expected.

Action Item 2.  "Provide the Assistant Secretary for Water and
Science with an annual report on the individual quantity and
prices of the transfers and conversions that occurred during the
year.  The first year report will be issued for fiscal year
1997."

In response to this action item, BOR's November 13, 1997, policy
memorandum established criteria for documenting how pricing
decisions for water conversions would be made and stated that the
Commissioner would submit annual reports to the Assistant
Secretary beginning with the completion of fiscal year 1997.
However, as of September 1999, these reports had not been
submitted.  A BOR official stated that a task group established
to complete implementation of Action Item 5 will prepare the
first report.  However, specific milestones for completion of
this action were not provided.  As such, we do not consider
Action Item 2 implemented until the reports are prepared and
submitted to the Assistant Secretary for Water and Science.

Action Item 3.  "Conduct economic studies and compile existing
information to estimate the demand for M&I [municipal and
industrial] water in the major markets supplied by federal
projects.  Information will be distributed to the regions to be
used in developing pricing policies for water converted or
transferred from agriculture to M&I [municipal and industrial]
uses."

In response to this action item, BOR issued a November 2, 1998,
memorandum entitled "Wholesale Municipal and Industrial Water
Rates" to its regions.  The memorandum presented primarily
wholesale water rates for 149 water providers in 15 of the 17
western states.[8]  However, according to the memorandum, BOR did
not conduct economic studies or compile data to estimate future
demand for municipal and industrial water because of "the
complications associated with estimating the demand for municipal
and industrial water in different markets."  As such, we believe
that BOR did not take sufficient actions to satisfy the intent of
the agreed-upon item.  Therefore, to consider this action item
complete, we believe that this information is needed to assist
BOR in estimating future water demand and in developing prices
for water conversions in the markets that BOR serves.

Action Item 4.  "Issue guidance regarding the incorporation of
contract language to provide for the periodic reallocation of
costs based on current water use at the time and [for] rate
review at five year intervals."

In response to this action item, BOR incorporated in its November
13, 1997, policy memorandum, a requirement to review water rates
at 5-year intervals but did not provide the guidance to
incorporate contract language for the periodic reallocation of
costs based on current water use.  A BOR official said that a
policy statement on the reallocation of costs was being
developed.  We believe that this guidance is needed to consider
the action item complete and to provide for the recovery of an
equitable share of the Government's financing costs attributable
to water supplies converted from irrigation to municipal and
industrial purposes.

Action Item 5.  "Review water transfer guidelines and determine
if additional steps are required to facilitate voluntary
transfers of water.  A written report will be distributed to all
regions and area offices."

BOR's established milestone for completion of this action item is
March 31, 2000. Therefore, we did not evaluate BOR's actions for
completeness.

Recommendations

We recommend that the Commissioner, Bureau of Reclamation:

1.Establish uniform and consistent control procedures that
require periodic reviews of annual project water use to ensure
that the quantity delivered and used is in conformance with the
water contracts.  These procedures should include provisions to
collect and verify annual water use data, determine whether the
use of the water is in accordance with contract terms, and
maintain documentation of the verifications performed and the
determinations made.

2.Complete the five action items as agreed to with the Assistant
Secretary for Policy, Management and Budget that are cited in
this report.

3.Until Recommendation 1 is fully implemented, report BOR's lack
of adequate procedures to identify water conversions in BOR's
annual assurance statement on management controls as a material
weakness under the Federal Managers' Financial Integrity Act.

BOR Response and Office of Inspector General Reply

In the March 1, 2000, response (Appendix 3) to the draft report
from the BOR Commissioner, BOR said that it "agrees in principle"
with Recommendation 1 and concurred with Recommendations 2 and 3.
Based on the response, we consider the recommendations resolved
but not implemented.  Accordingly, the unimplemented
recommendations will be referred to the Assistant Secretary for
Policy, Management and Budget for tracking of implementation.

Recommendation 1.  Concurrence indicated.

BOR  Response.  BOR stated that it "agrees in principle with the
desirability of these data and follow-up" and that it has
"established a task group consisting of representatives from the
Denver, regional, and area office staffs to address the audit
findings." BOR further stated that the task group is responsible
for "developing various options for Reclamation-wide
implementation of directives to meet the intent of the
recommendation taking into account regional budget, staffing, and
program priorities."  According to BOR, the task group will
finalize a team report "outlining various viable options
available to Reclamation" by July 31, 2000, when it intends to
meet with the Audits staff "to discuss the most viable options
that meet Reclamation's legislative and contractual
responsibilities and address the audit findings."

Office of Inspector General Reply.

We believe that BOR's willingness to address both the audit
findings and Recommendation 1 provides a forum to mutually
resolve the recommendation.  We are available to discuss and/or
comment on the various options considered by the task group.
Accordingly, we believe that this action is sufficient to
consider Recommendation 1 resolved but not implemented.

Since the report's recommendations are considered resolved, no
further response to the Office of Inspector General is required
(see Appendix 4).

Section 5(a) of the Inspector General Act (5 U.S.C. app. 3)
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.

**FOOTNOTES**

[1]:Reclamation law is a term used to refer to the total body of
public laws governing the reclamation program, beginning with the
Reclamation Act of 1902 and including all laws amending and
supplementing the Act.

[2]:Water delivered to small parcels of land, as defined in water
district contracts, is considered to be used for municipal and
industrial purposes.

[3]:Water contractors that have fully met their construction
repayment obligations are exempt from the Act's provisions.

[4]:In our August 1992 report, we stated that BOR relied on data
submitted by irrigation contractors to monitor water use without
verifying its accuracy or compliance with contractual amounts.
At that time, BOR published this data in an annual document
entitled "Summary Statistics," but BOR discontinued the document
after 1992.

[5]:These projects are Tucumcari, The Dalles, Crescent Lake Dam,
and Ventura River.

[6]:This amount was computed in accordance with the
Commissioner's November 13, 1997, policy memorandum on pricing
water conversions issued in response to Action Item 1.

[7]:These projects are Yakima, Lewiston Orchards, Owhyee,
Rathdrum Prairie, Rogue River Basin, and Crooked River.

[8]:Excludes New Mexico and Idaho.

APPENDIX 1 

CLASSIFICATION OF MONETARY AMOUNTS


------------------------------------------------------------
|       Finding Area                            |  Lost
|                                               |Revenues
------------------------------------------------------------
Monitoring water use                             $217,000 *
------------------------------------------------------------
Conversions identified in                       2,262,000 **
1992 audit report
------------------------------------------------------------
Total                    |                    |$2,479,000
------------------------------------------------------------

*This amount is an estimate of the financing costs that the
Government did not recover in 1998 and will not recover annually
on project investments related to changes in water use on the
four projects identified in this report.

**This amount is an estimate of the financing costs that the
Government did not recover from 1993 to 1998 on project
investments related to changes in water use on the six projects
identified in our 1992 report.

APPENDIX 2 

BUREAU OFFICES VISITED OR CONTACTED

Office Location

Denver Office
Lakewood, Colorado
Upper Colorado Regional Office
Provo Area Office
Albuquerque Area Office*
El Paso Field Division*
Western Colorado Area Office*
Salt Lake City, Utah
Provo, Utah
Albuquerque, New Mexico
El Paso, Texas
Grand Junction, Colorado
Great Plains Regional Office*
Billings, Montana
Mid-Pacific Regional Office
Central California Area Office
South-Central California Area Office*
Sacramento, California
Folsom, California
Fresno, California
Pacific Northwest Regional Office
Snake River Area Office - West*
Boise, Idaho
Boise, Idaho
Lower Colorado Regional Office*
Boulder City, Nevada

*Offices contacted.

APPENDIX 3
Page  1  of  3

APPENDIX 4

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
Reference

Status

Action Required

1, 2, and 3

Resolved; not implemented.

No further response to the Office of Inspector General is
required.  The recommendations will be referred to the Assistant
Secretary for Policy, Management and Budget for tracking of
implementation.




ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED

TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street,N.W.
Mail Stop 5341
Washington, D.C. 20240

Calling:

Our 24 hour
Telephone HOTLINE
1-800-424-5081 or
(202) 208-5300

TDD for hearing impaired
(202) 208-2420 or
1-800-354-0996



Outside the Continental United States


Caribbean Region

U.S. Department of the Interior
Office of Inspector General
Eastern Division- Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

Calling:
(703) 235-9221


North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. F'lores Street
Suite 807, PDN Building
Agana, Guam 96910


Calling:
(700) 550-7428 or
COMM 9-011-671-472-7279