[Independent Auditors Report on the U.S. Fish and Wildlife
Service's Financial statements for Fiscal Year 2000 ]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 01-I-410

Title: Independent Auditors Report on the U.S. Fish and Wildlife
       Service's Financial statements for Fiscal Year 2000 

 
Date:  June 22, 2001

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June 22, 2001

Memorandum

To:  Director, U.S. Fish and Wildlife Service

Subject:  Independent Auditors Report on the U.S. Fish and Wildlife Service's Financial
statements for Fiscal Year 2000  (No. 01-I-410)

We found that the U.S. Fish and Wildlife Service's (FWS) principal financial statements1 for
fiscal year 2000 were fairly presented in all material respects except for the recorded balance for
the FWS' undelivered orders on the Consolidated Statement of Budgetary Resources for the
fiscal year ended September 30, 2000.  We were unable to satisfy ourselves as to the balance of
the undelivered orders account for the fiscal year ended September 30, 2000 because of a
material weakness in the FWS' internal controls over deobligating undelivered orders in a timely
manner.  We also identified three other material weaknesses, two  reportable conditions,  a
weakness in reporting stewardship investments in the Required Supplementary Stewardship
Information, and three instances of noncompliance with laws and regulations. 

Internal Controls

Material Weaknesses.  We found material internal control weaknesses in the areas of undelivered
orders, construction-in-progress balances, Federal Aid program grants, and capitalized equipment
reconciliation procedures.   

* Undelivered Orders.  The FWS has not performed a timely and comprehensive review of its
undelivered orders account.  We estimate that the overstatement in undelivered orders was
approximately $23.4 million.  

* Construction-in-Progress Balances.  The FWS' construction-in-progress procedures and
reconciliation controls need improvement to ensure that errors are detected and corrected  in a
timely manner.  We determined that the FWS' quarterly and year-end reconciliation efforts have
not been timely, effective, or complete.


* Federal Aid Program Grants.  The FWS needs to improve reporting processes used by grantees
to ensure grantees provide documentation to support costs incurred for Federal Aid Program
grants.  We determined that the FWS allowed Federal Aid Program grantees to draw down funds
without having all grantees periodically submit documentation on costs incurred.

Capitalized Equipment Reconciliation Procedures.  The FWS' capitalized equipment
reconciliation process needs to be more effective.  Specifically, the FWS adjusted the capitalized
equipment general ledger control account to agree with its capitalized equipment subsidiary
ledger without adequately researching why differences occurred.  

Reportable Conditions.  In addition to these material weaknesses, we identified two reportable
conditions in the following areas:

Capitalized Equipment Transactions.  The FWS needs to improve its procedures for recording
capitalized equipment transactions and establish adequate management controls to prevent
transactions that should not be capitalized from updating the capital equipment general ledger
account.  We determined that the FWS had to prepare hundreds of entries to correct the
transactions that were improperly recorded in the equipment account throughout the fiscal year.   
 
Automated Systems Controls.  The FWS' general support systems and major applications did not
meet minimum Federal information systems security standards.  The FWS has a corrective action
plan to address some of these issues.  Until the FWS' corrective actions have been implemented,
we will continue to report the control weaknesses over the FWS' general support systems and
major applications as a reportable condition.

Stewardship.  We considered the FWS' internal controls over Required Supplementary
Stewardship Information by obtaining an understanding of the FWS' internal controls.  Although
we do not provide an opinion on such controls, we have applied certain limited procedures,
which consisted principally of inquiries of management regarding the methods of measurement
and presentation of the Required Supplementary Stewardship information.  

Stewardship Investments.  The FWS did not report on stewardship investments  in non-Federal
physical property by grantees in fiscal year 2000 .  In fiscal year 1999, the FWS reported on
stewardship investments totaling $191.2 million that were made by grantees for acquiring and
improving lands and non-Federal physical property.  The FWS' lack of reporting stewardship
investments made by grantees in non-Federal physical property represents a departure from the
reporting requirements. 

Compliance With Laws and Regulations

The results of our tests of compliance, exclusive of the Federal Financial Management
Improvement Act (FFMIA), disclosed an instance of noncompliance with the following
regulation:

* The FWS is not complying with the Code of Federal Regulations to require that grantees
periodically submit financial status reports. * 

The results of our tests of compliance with the FFMIA disclosed instances of noncompliance
with the following regulations:

* The FWS is not in full compliance with OMB Circular A-130, "Security of Federal Automated
Information Resources," to ensure information in automated systems is adequately safeguarded.

* The FWS is not complying with the Statement of Federal Financial Accounting Standards
Number 8 to report stewardship investments made by grantees relating to non-Federal physical
property.
* 
Consistency of Other Information

We found that the information presented in the Management Discussion and Analysis Section
and the supplementary information sections of the FWS' Annual Report for fiscal year 2000 was
consistent with the principal financial statements.

We made 19 recommendations to correct the identified weaknesses.  Based on the FWS'
response to the draft report (see Appendix 3 of the Independent Auditors Report), we consider 2
of the recommendations unresolved and 17 of the recommendations resolved but not
implemented (see Appendix 4 of the Independent Auditors Report).  The recommendations that
were considered not resolved or implemented will be referred to the Assistant Secretary for
Policy, Management and Budget for resolution and tracking of implementation.

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.


The attached Independent Auditors' Report is intended for the information of management of the
Department of the Interior, the Office of Management and Budget, and the Congress.  The report,
however, is a matter of public record and its distribution is not limited.



Roger La Rouche
Assistant Inspector General 
for Audits

     
Attachment:
Independent Auditors Report
     


[CONTACT THE U.S. FISH AND WILDLIFE SERVICE FOR INFORMATION ON ITS
FINANCIAL STATEMENTS FOR FISCAL YEAR 2000, WHICH ARE NOT INCLUDED.]




Attachment


Independent Auditors Report 
U.S. Fish and Wildlife Service
Financial Statements 
Fiscal Year 2000 

We have audited the U.S. Fish and Wildlife Service's (FWS) principal financial statements for
the fiscal year ended September 30, 2000.  The FWS' principal financial statements consist of the
Consolidated Statement of Financial Position as of September 30, 2000; the Consolidated
Statement of Net Cost and Consolidated Statement of Changes in Net Position for the fiscal year
ended September 30, 2000; and the Consolidated Statement of Budgetary Resources and the
Consolidated Statement of Financing for the fiscal year ended September 30, 2000. These
financial statements are the responsibility of the FWS, and our responsibility is to express an
opinion, based on our audit, on these principal financial statements.

Except as discussed in the following paragraph our audit was conducted in accordance with the
"Government Auditing Standards," issued by the Comptroller General of the United States, and
with the Office of Management and Budget (OMB) Bulletin 01-02, "Audit Requirements for
Federal Financial Statements."  These standards require that we plan and perform the audit to
obtain reasonable assurance as to whether the accompanying principal financial statements are
free of material misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures contained in the principal financial statements and the
accompanying notes.  An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall financial statements
presentation.  We believe that our audit work provides a reasonable basis for our opinion.  The
objective, scope, and methodology of our work are discussed in Appendix 1

Opinion on Principal Financial Statements

We were unable to satisfy ourselves as to the recorded balance for the FWS' undelivered orders
on the Consolidated Statement of Budgetary Resources for the fiscal year ended September 30,
2000. Nor were we able to satisfy ourselves as to the balance by other auditing procedures.  The
uncertainty over the September 30, 2000 balance resulted from a material weakness in the FWS'
internal controls over deobligating undelivered orders in a timely manner.  This weakness is
addressed in our report on the FWS' internal controls.

In our opinion, except for the qualification discussed in the preceding paragraph, the principal
financial statements audited by us present fairly, in all material respects, the Consolidated
Statement of Financial Position as of September 30, 2000; the Consolidated Statement of Net
Cost and Consolidated Statement of Changes in Net Position for the fiscal year ended September
30, 2000; and the Consolidated Statement of Budgetary Resources and the Consolidated
Statement of Financing for the fiscal year ended September 30, 2000 in conformity with
generally accepted accounting principles. 

As discussed in Note 11 to the financial statements, the FWS changed its accounting for
appropriations of trust and special receipt revenues in accordance with new guidance from the
Department of the Treasury. 

The FWS has not presented its investment in non-Federal physical assets as required by the
Statement of Federal Financial Accounting Standards Number 8, Supplementary Stewardship
Reporting.  The Federal Accounting Standards Advisory Board has determined this information
is necessary to supplement, although not required to be part of, the principal financial statements. 
This matter is discussed in the Stewardship and Performance Measures section of this report.  

Our audit was conducted to form an opinion on the principal financial statements taken as a
whole, and our opinion relates only to the principal financial statements. The supplemental
financial and management information contained in the FWS' Annual Report is presented for
additional analysis and is not a required part of the principal financial statements.  We applied
certain limited procedures, including discussions with management on the methods of
measurement and presentation of this information, to ensure compliance with the OMB guidance
and consistency with the financial statements.  We found that the management information
presented in the FWS' Annual Report is consistent with the principal financial statements. This
information, however, has not been subjected to the auditing procedures applied in our audit of
the principal financial statements, and accordingly, we express no opinion on it.
  

Report on Internal Controls

In planning and performing our audit, we considered the FWS' internal controls over financial
reporting by obtaining an understanding of the internal controls, determining whether these
internal controls had been placed in operation, assessing control risks, and performing tests of
controls to determine our auditing procedures for the purpose of expressing an opinion on the
principal financial statements.  We limited our internal control testing to those controls necessary
to achieve the objectives described in Bulletin 01-02.  We did not test all internal controls
relevant to operating objectives as broadly defined by the Federal Managers' Financial Integrity
Act of 1982, such as those controls relevant to ensuring efficient operations.  The objective of
our audit was not to provide assurance on internal controls, and accordingly, we do not express
an opinion on the internal controls.

Our consideration of the internal controls over financial reporting would not necessarily disclose
all matters in the internal controls over financial reporting that might be reportable conditions. 
Under standards issued by the American Institute of Certified Public Accountants, reportable
conditions are matters coming to our attention relating to significant deficiencies in the design or
operation of the internal controls that, in our judgment, could adversely affect the FWS' ability to
record, process, summarize, and report financial data consistent with the assertions made by
management in the financial statements.  Material weaknesses are reportable conditions in which
the design or operation of one or more of the internal control components does not reduce to a
relatively low level the risk that misstatements in amounts that would be material in relation to
the financial statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. Because of inherent
limitations in internal controls, misstatements, losses, or noncompliance may nevertheless occur
and not be detected.  

We did note, however, certain matters involving the internal controls and their operation that we
consider to be material weaknesses or reportable conditions.  

Material Weaknesses

Our review identified four conditions that we believe to be material weaknesses which are
summarized in the paragraphs that follow.

A.  Undelivered Orders 
The FWS needs to perform timely and comprehensive reviews of its undelivered orders account. 
Although the regional offices have conducted reviews and, in many cases, have made entries to
correct invalid obligations, these reviews were not comprehensive. 

During the audit, we also found the following:

* The FWS has not provided adequate oversight to ensure that each region reconciles Federal
Aid Program grant data in the Federal Aid Information Management Systems (FAIMS) to data in
the Federal Financial System (FFS).  During fiscal year 2000, the FWS established procedures
requiring each region to reconcile the two systems on a monthly basis.  This procedure, however,
was not uniformly followed.  Region 5, for example, submitted only one reconciliation report in
15 months.  Further, on February 1, 2001, when the Region submitted the report, it identified 112
reconciling items totaling $17.5 million.  (Subsequently, the FWS Finance Center researched the
reconciling items in the Region's report and found that there were substantially fewer reconciling
items for a lesser amount than originally reported.)

* Currently, it takes the National Business Center (NBC), an organization which is contracted to
perform fiscal activities for the FWS, from 45 days to 6 months to correct differences in the FFS
because:
* Regions were not providing complete and accurate information to the NBC to record the
entries in the FFS to correct differences.
* The NBC was not following up with the regions and informing the FWS management when
regions did not provide complete documentation.

As a result, we were not able to satisfy ourselves as to the balance of the undelivered orders
recorded on the Consolidated Statement of Budgetary Resources for the fiscal year ended
September 30, 2000.  Our review estimated that the most likely error was an overstatement in
undelivered orders of $23.4 million.

Recommendations

We recommend that the FWS:

1. Train regional and Division of Finance personnel in regard to undelivered orders, and ensure
that the training:
a.  Emphasizes the need for performing periodic reviews of undelivered orders.
b.  Emphasizes the need for retaining workpapers to verify the validity of obligations.
c.  Provides examples that show reasons why obligations may not be valid.

2. Ensure undelivered orders reviews and Federal Aid grant reconciliations are performed in a
timely and comprehensive manner.

3. Establish procedures to ensure that the regions report necessary corrections to the undelivered
orders balances on a monthly basis.

4. Report a material internal control weakness relating to the FWS' need to improve procedures
for performing comprehensive reviews of its undelivered orders account balance in the FWS
Fiscal Year 2001 Federal Managers' Financial Integrity Act report to the Department of the
Interior unless all corrective actions have been completed by September 30, 2001. 

The FWS Response:  The FWS agrees with this finding.  The FWS is planning on providing (1)
additional guidance, with respect to performing undelivered orders reviews, in its year-end
closing procedures and (2) training for field level managers and employees. 

The FWS plans to strengthen year-end guidance pertaining to the review of undelivered orders. 
The FWS believes that greater focus on timely reviews of the undelivered orders balance is
necessary.  For Federal Aid, the FWS conducted a workshop, which reconciled 90 percent of the
differences between the Federal Financial System (FFS) and the Federal Aid Information
Management System (FAIMS).  The remaining 10 percent of the differences will be reconciled
by June 30, 2001.  The workshop also drafted improved policies and procedures for promptly
reconciling discrepancies between the FFS and FAIMS.  The FWS will implement a Servicewide
quarterly review process for undelivered orders that remain unchanged for a year. 

The FWS plans on conducting undelivered orders review training for regional and Division of
Finance personnel.  The FWS is concerned that the criteria used in the training for assessing the
validity of undelivered orders is still being refined and decisions on when to adjust the
undelivered orders balance is often subjective.  The FWS plans on participating in the Finance
Officers' Partnership task group to address undelivered orders issues.

B.  Construction-in-Progress Account 
The FWS needs to improve its reconciliation procedures for the construction-in-progress account
in order to detect and correct errors in a timely manner.  In response to our 1999 financial
statement audit, the FWS established additional reconciliation procedures to address the
problems.  We found, however, that the FWS' quarterly and year-end reconciliation efforts have
not been timely or complete.  As a result, the construction-in-progress general ledger account
was overstated.  The FWS made adjusting entries to correct the account balance, including
transferring:
* $40 million to the buildings account for completed construction projects.
* $34.7 million to the structures account for completed projects.
* $24.2 million to the operating expenses account. 

The overstatements have occurred because the FWS has not provided oversight to ensure
reconciliations are being done promptly or completely.  Additionally, the FWS has not designed
procedures to ensure that only costs for capitalized projects are included in the
construction-in-progress account.  In fact, the FWS uses the construction-in-progress account to
record all project costs, including those that it knows will be written off to operating expense. 
This causes an extensive reconciliation process. 

Recommendations

We recommend that the FWS:

1. Develop oversight procedures to ensure that the quarterly reconciliations are performed and
reviewed promptly. 

2. Implement procedures to ensure that only costs for capital projects are recorded in the
construction-in-progress account.

3. Report a material internal control weakness relating to the FWS' need to improve its
procedures for ensuring accurate construction-in-progress balances in its fiscal year 2001 Federal
Managers' Financial Integrity Act report to the Department of the Interior unless the corrective
actions are completed by September 30, 2001.

The FWS Response:  The FWS agrees with this finding and recommendations.  The FWS is
developing strengthened guidance for reconciling the construction-in-progress account to the
property records.  The FWS has committed to perform two construction-in-progress
reconciliations per year.  The FWS is also investigating system changes to minimize recording
expense transactions in the Construction Work-in-Progress account.

The OIG Reply:  The FWS' response to investigate rather than investigate and implement system
changes to minimize recording expense transactions in the construction-in-progress account does
not satisfy the intent of the second recommendation.  We therefore consider this recommendation
unresolved.

C.  Processes Used by Grantees to Document and Support Costs Incurred for Federal Aid
Program Grants 
The FWS needs to improve reporting processes used by grantees to ensure grantees provide
documentation to support costs incurred for Federal Aid Grants.  The FWS doesn't require its
grantees to submit annual financial status reports.  Instead the FWS requires the submission of
the financial status report 90 days after the close out of the grant.  The FWS needs this
information annually to properly reconcile grant expenditures and to ensure the expenses were
recorded in the appropriate accounting period.  As a result, the FWS had to record a high level
adjustment to correct the estimated overstatements in the accounts payable and related accounts. 
Further, the FWS is not in compliance with 43 CFR 12.81 (b) , which requires grantees to report
on the status of funds at least annually. 

The Federal Financial Assistance Improvement Act of 1999 requires that agencies implement a
system by May 20, 2001 that allows grantees to electronically apply for and report on the use of
funds.  We found that the FWS was working with the Department and other Federal agencies to
develop and implement a system as required.  The system, when implemented, should simplify
reporting processes for grantees and should provide the necessary support.  


Recommendations

We recommend that the FWS:

1.  Ensure that electronic procedures are implemented to support that grantees cash drawdowns
are either for costs that were previously incurred or for advances.

2.  As an interim step, require that grantees submit financial status reports annually to comply
with 43 CFR 12.81(b). The FWS should then use this information to calculate year-end grant
expense accruals.

3.  Report a material internal control weakness relating to grantees not providing sufficient
documentation to support costs incurred for the FWS' Federal Aid Program grants in its Fiscal
Year 2001 Federal Managers' Financial Integrity Act report to the Department of the Interior
unless the corrective actions are completed by September 30, 2001.


The FWS Response:  The FWS agrees with this finding and will implement electronic processes
being developed by the Interagency Electronic Grants Committee (IAEGC) as soon as they are
available.  The FWS has been working with the Department and other Federal agencies as part of
the IAEGC to develop and implement electronic processes to streamline reporting processes for
grantees. The actions planned by IAEGC, when implemented, should simplify reporting
processes for grantees, streamline reconciliation steps for financial reporting purposes, improve
the FWS' financial management practices, and meet OMB reporting requirements.

The FWS will require annual financial status reports from grantees at the end of the grant year. 
The FWS will not receive financial status reports from the grantees at the end of the fiscal year
but will receive the reports on the anniversary dates of the grants.  The FWS will select a
methodology to calculate year-end grant expense accruals that will satisfy year-end financial
reporting requirements. 

D.  Capitalized Equipment Reconciliation Procedures
The FWS needs to improve its procedures for reconciling capitalized equipment.  The FWS
adjusted the equipment general ledger control account to agree with its subsidiary ledger without
adequately researching why differences occurred.  Reconciling items were not adequately
researched due to time constraints and the labor-intensive manual processes.  There were not
enough common data elements in the Federal Financial System and the capital equipment
subsidiary system to perform an electronic reconciliation.  To bring the general ledger into
balance with the subsidiary ledger for fiscal year 2000, the FWS added $8.1 million to the
equipment account and reduced its operating expense by the same amount.  The FWS also
subtracted $4.7 million from the general ledger equipment account and increased its operating
expense account by that amount.

Recommendations

We recommend that the FWS: 

1. Implement procedures to identify the nature and cause of all differences between the
capitalized equipment general ledger control account and the subsidiary ledger prior to making
any adjustments.

2. Establish common transaction data elements in the FFS and the capitalized equipment
subsidiary system to help ensure that the majority of reconciling items can be reconciled in a
timely manner.

3. Report the lack of a capitalized equipment reconciliation between the general and subsidiary
ledger as a material internal control weakness in the Fiscal Year 2001 Federal Managers'
Financial Integrity Act report to the Department of the Interior unless the corrective actions are
completed by September 30, 2001.

The FWS Response:  The FWS recognizes the need to improve the accuracy of recording capital
equipment transactions and the procedures to reconcile the Federal Financial System and the
property systems.  The FWS will establish a working group comprised of representatives of
Finance and Contracting and General Services personnel to prepare guidelines for identifying
and documenting the nature of differences between the equipment general ledger control account
and the subsidiary ledger and to establish common transaction data elements for the Federal
Financial System and the FWS personal property files.  If it is determined that existing systems
cannot effectively be modified to include additional common data elements, the FWS will
consult with the Department concerning replacement systems.



Reportable Conditions

E.  Procedures for Recording Capitalized Equipment Transactions

The FWS needs to improve its procedures for recording capitalized equipment transactions. 
Specifically, the FWS has not trained its staff to properly code non-capital equipment
transactions or established controls to prevent recording non-capital equipment in the equipment
general ledger.   Although the FWS established a reconciliation process to correct these
transactions after-the-fact, improvements are needed when the transactions are recorded.  The
established process resulted in the FWS' need to research and prepare manual voucher entries for
762 transactions to correct the coding errors that occurred throughout fiscal year 2000.   

Recommendations

We recommend that the FWS:

1.  Ensure that additional training is provided for remote data entry personnel to ensure
transactions are properly recorded at the time the transactions are entered into the system.

2.  Ensure that front-end computer system edits and controls are designed to ensure that
transactions are properly processed at the time the transactions are entered into the system.

The FWS Response:  The FWS agrees with this finding.  The FWS plans to train personnel to
record transactions properly.  The training will be based on the procedures and guidance
developed by the FWS task force established to address capitalized equipment reconciliation. 
The FWS task force will also evaluate whether the computer systems can be modified to include
front-end edits to ensure transactions are properly recorded.  If it is determined that existing
systems cannot effectively be modified to include front-end edits and controls, the FWS will
consult with the Department concerning replacement systems.

F.  FWS Needs Improved General Controls Over Its Automated Systems
The FWS' general support systems and major applications did not meet minimum Federal
information systems security standards.  Office of Management and Budget Circular A-130,
"Management of Federal Information Resources," Appendix III, "Security of Federal Automated
Information Resources," requires that adequate security be provided for all agency information
collected, processed, transmitted, stored, or disseminated in general support systems and major
applications. To ensure information is adequately safeguarded, the * * * * FWS needs to: 
* Appropriately assign responsibility for security.  The FWS regional offices/installations did not
have appropriate individuals responsible for information technology security.  For example, at
Region 2 the responsible official for the Ecological Services' LAN and e-mail server was a
biologist even though Region 2 has an IRM official.  The FWS has identified numerous
information systems security control weaknesses for the Ecological Services' LAN and e-mail
server.  The standards require that information technology mangers be knowledgeable about
information technology security matters. We do not believe that a biologist is the appropriate
person to be responsible for correcting these issues or to have the security responsibility for these
general support systems. Additionally, FWS identified information system security weaknesses 
for the Facility Management Information System including the lack of a security officer.  In this
instance a computer specialist was assigned the responsibility for security.  It is an internal
control weakness to have a computer specialist who is responsible for systems analysis,
programming, or equipment operation and maintenance also responsible for the security of the
systems because there isn't sufficient separation of duties.   Also, the computer specialist reports
to an individual who is responsible for these activities, which is an internal control weakness
since the specialist would need to be able to override the manager's decisions.

* Develop systems and applications security plans.  The FWS reported that 5 of the 9 general
support systems and 2 of the 3 major applications did not have security policies and procedures,
risk assessments, and contingency plans.  These policies, procedures, practices, and plans are the
basis for security plans; therefore, we believe that it is unlikely that security plans existed.  

The FWS management did not hold information resources personnel or other personnel, such as
system owners, accountable for ensuring Federal minimum security controls were in place and
operating effectively for the FWS' general support systems and major applications.

Additionally, although the FWS identified material weaknesses in the areas of risk assessments
and contingency planning for its general support systems and major applications, the FWS did
not report to the Department's Chief Information Officer that it had an overall information
systems security control weakness.  The FWS did not report this weakness because the FWS had
developed action plans to correct the weaknesses; however, the plans were not scheduled for
completion until after fiscal year 2000.  Until the corrective actions have been implemented, we
will continue to report the control weaknesses over the FWS' general support systems and major
applications as a reportable condition.  Additionally, we will report these weaknesses as a
reportable condition in our report on compliance with laws and regulations related to our audit of
the FWS' fiscal year 2000 financial statements.

Recommendations

We recommend that the FWS:

1. Assign appropriate individuals security responsibility at each of its installations. 

2. Develop security plans for each general support system and major application.

3. Hold information resources personnel and other personnel accountable for developing and
implementing adequate security over the FWS' general support systems and major applications.

The FWS Response:  The FWS agrees with this finding and recommendations.  The FWS will:

* Prepare a compilation of each FWS installation together with a documented assignment of
security responsibility for each site; list the site and the person assigned responsibility,
accompanied by a formal assignment of security responsibility to that individual based on an
analysis of the appropriate nature of assigning such responsibility to the individual.  The FWS
will secure Departmental waivers where needed.
* Identify all general support systems and major applications; identify which systems and
applications do not have security plans; work with the managers of the systems and applications
to review security controls and training and correct weaknesses; and work with the managers to
develop or update security plans.
* Develop a multi-year Management Control Review cycle for general support systems and
major applications in accordance with 270 FW 4, "IRM Reviews".




Stewardship and Performance Measures

We considered the FWS' internal controls over the Required Supplementary Stewardship
Information by obtaining an understanding of the FWS' internal controls, determining whether
these internal controls had been placed in operation, assessing control risks, and performing tests
of controls as required by OMB Bulletin 01-02.  Our review was not of sufficient scope to
provide assurance on these controls.  Accordingly, we do not provide an opinion on such
controls.   We have, however, applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of the
Required Supplementary Stewardship Information. In applying these limited procedures, we
believe that the FWS' lack of reporting Stewardship investments made by grantees in
non-Federal physical property represents a material departure from the reporting requirements in
the Statement of Federal Financial Accounting Standards Number 8, Supplementary Stewardship
Reporting. 

With respect to internal controls related to performance measures reported in the FWS' Annual
Report, we obtained an understanding of the design of the significant internal controls relating to
the existence and completeness assertions, as required by OMB Bulletin 01-02.  Our procedures
were not designed to provide assurance over internal controls over reported performance
measures, and accordingly, we do not provide an opinion on such controls

G.  Stewardship Investments 
The FWS has not reported on stewardship investments in non-Federal physical property made by
grantees in fiscal year 2000, as required by the Statement of Federal Financial Accounting
Standards Number 8, Supplementary Stewardship Reporting.  In fiscal year 1999, however, the
FWS reported on stewardship investments of $191.2 million that were made by grantees for
acquiring and improving non-Federal physical property.   The FWS' lack of reporting
stewardship investments made by grantees in non-Federal physical property in fiscal year 2000
represents a departure from the reporting requirements.

Recommendation

We recommend that the FWS report on stewardship investments funded through grants for
non-Federal physical property. 

The FWS Response:  The FWS disagrees with this finding.  The FWS maintains that the intent
for reporting stewardship investments is to identify funds that are directed toward or result in
maintaining or enhancing the national productive capacity.  Using this definition the FWS
believes that its grant programs, which include investments, to acquire and improve non-Federal
physical property do not qualify as stewardship investments. 

The OIG Reply:  The FWS asserts that the intent for reporting stewardship investments is to
identify funds that maintain or enhance national productive capacity.  However, the definitions of
"stewardship investments" and "non-Federal physical property" contained in the Statement of
Federal Financial Accounting Standards Number 8, Supplementary Stewardship Reporting do
not support  FWS' position.  We therefore consider this recommendation unresolved.   

Report on Compliance With Laws and Regulations

Management of the FWS is responsible for complying with applicable laws and regulations.  As
part of obtaining reasonable assurance as to whether the FWS' financial statements are free of
material misstatement, we performed tests of the FWS' compliance with certain provisions of
laws and regulations, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts, and certain other laws and regulations specified in
OMB Bulletin 01-02, including the requirements referred to in the Federal Financial
Management Improvement Act (FFMIA) of 1996.  We limited our tests of compliance to these
provisions, and we did not test compliance with all laws and regulations applicable to the FWS.

As discussed in the internal control finding C, the FWS is not in compliance with the Code of
Federal Regulations (43 CFR), Uniform Administrative Requirements for Grants and
Cooperative Agreements to State and Local Governments, Part 12.81(b), which stipulates that
grantees will report on the status of funds using the SF-269, Financial Status Report--Long Form,
or SF-269A, Financial Status Report--Short Form. This matter is discussed as a material
weakness with recommendations in our report on internal controls.

Under the FFMIA, we are required to report whether the FWS financial management systems
substantially comply with:  (1) Federal financial management system requirements, (2)
applicable Federal accounting standards, and (3) the U.S. Government Standard General Ledger
at the transaction level.  To meet our reporting requirements, we performed tests of compliance
with the FFMIA section 803(a) requirements. The results of our tests disclosed instances
described below where the FWS' financial management system did not substantially comply with
applicable Federal accounting standards and Federal financial system requirements.

* The FWS was not complying with Federal accounting standards regarding stewardship
investments for fiscal year 2000.  The Statement of Federal Financial Accounting Standards
Number 8, Supplementary Stewardship Reporting, establishes standards for reporting on the
Federal Government's stewardship over certain resources and responsibilities, including
stewardship investments.  The standard identifies stewardship investments as "Non-Federal
Physical Property-grants provided for properties financed by the Federal Government, but owned
by the state and local governments." This matter is discussed as a finding with recommendations
in the preceding Stewardship and Performance Measures section of this report.* 

>    The FWS was not in full compliance with Federal financial system requirements.  Office
of Management and Budget Circular A-130, "Management of Federal Information Resources,"
Appendix III, "Security of Federal Automated Information Resources," requires that adequate
security be provided for all agency information collected, processed, transmitted, stored, or
disseminated in general support systems and major applications.  We noted certain matters,
which indicate that the FWS was not complying with Office of Management and Budget Circular
A-130, Appendix III, "Security of Federal Automated Information Resources."   These matters
are discussed as a reportable condition with recommendations in our report on internal controls.

The results of our tests disclosed no instances in which the FWS' financial management system
did not substantially comply with the United States General Ledger at the transaction level.

Providing an opinion on compliance with certain provisions of laws and regulations was not an
objective of our audit and, accordingly, we do express such an opinion.



PRIOR AUDIT COVERAGE

We reviewed prior Office of Inspector General and General Accounting Office audit reports
related to the FWS' financial statements to determine whether these reports contained any
unresolved or unimplemented recommendations that were significant to the FWS financial
statements or internal controls. The results of this review are in Appendix 2.

We made 19 recommendations addressing the weaknesses that we identified.  Based on the FWS'
May 18, 2001 response (Appendix 3) to the draft audit report, we consider 2 recommendations
unresolved and 17 recommendations resolved but not implemented.  Accordingly, the
recommendations that are not resolved or implemented will be referred to the Assistant Secretary
for Policy, Management and Budget for resolution and tracking of implementation.

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.  

This report is intended for the information of management of the Department of the Interior, the
Office of Management and Budget, and the Congress.  However, this report is a matter of public
record, and its distribution is not limited.




Roger La Rouche
Assistant Inspector General 
for Audits
February 14, 2001

Appendix 1



Objective, Scope, and Methodology 

Management of the FWS is responsible for the following:

* Preparing the principal financial statements and the required supplementary information in
conformity with generally accepted accounting principles and for preparing the other information
contained in the Annual Report for fiscal year 2000.

* Establishing and maintaining an internal control structure over financial reporting.  In fulfilling
this responsibility, estimates and judgments are required to assess the expected benefits and
related costs of internal control structure policies and procedures.

* Complying with applicable laws and regulations.

We are responsible for the following:

* Expressing an opinion on the FWS' principal financial statements.

* Obtaining an understanding of the internal controls based on the internal control objectives
contained in OMB Bulletin 01-02, which require that transactions be properly recorded,
processed, and summarized to permit the preparation of the principal financial statements and the
required supplementary information in accordance with Federal accounting standards; that assets
be safeguarded against loss from unauthorized acquisition, use, or disposal; and that transactions
and other data that support reported performance measures be properly recorded, processed, and
summarized to permit the preparation of performance information in accordance with criteria
stated by management.

* Testing the FWS' compliance with selected provisions of laws and regulations that could
materially affect the principal financial statements or the required supplementary information.

To fulfill these responsibilities, we took the following actions:

* Examined, on a test basis, evidence supporting the amounts disclosed in the principal financial
statements.

* Assessed the accounting principles used and the significant estimates made by management.

* Evaluated the overall presentation of the principal financial statements.

* Obtained an understanding of the internal control structure related to safeguarding assets;
compliance with laws and regulations, including the execution of transactions in accordance with
budget authority; financial reporting; and certain performance measure information reported in
the annual report.

* Tested relevant internal controls over the safeguarding of assets; compliance with laws and
regulations, including the execution of transactions in accordance with budget authority; and
financial reporting.

* Tested compliance with selected provisions of laws and regulations.

We did not evaluate all of the internal controls related to the operating objectives as broadly
defined by the Federal Managers' Financial Integrity Act, such as those controls related to
preparing statistical reports and ensuring efficient operations.  We limited our internal control
testing to those controls needed to achieve the objectives outlined in our report on internal
controls.


Appendix 2

PRIOR AUDIT COVERAGE

We reviewed prior Office of Inspector General and General Accounting Office audit reports
related to the FWS' financial statements to determine whether these reports contained any
unresolved or unimplemented recommendations that were significant to the FWS' financial
statements or internal controls.  We found two reports issued by the Office of Inspector General
that contained significant unimplemented recommendations related to the FWS' financial
statements or internal controls:

>  "Deferred Maintenance, U. S. Fish and Wildlife Service," Report No. 00-I-226, issued March
10, 2000. Funding for the FWS deferred maintenance projects was not spent solely on the FWS'
highest priority deferred maintenance projects. Of the $93.2 million available in fiscal years 1996
through 1998 for deferred maintenance, $4.8 million was spent on non-maintenance expenses
such as equipment replacements, administrative functions, and routine maintenance.  In addition,
the FWS needed to improve the reliability of its deferred maintenance data.  The deferred
maintenance data prepared for the FWS' fiscal year 1998 financial statements were not reliable
because the FWS failed to survey all of its assets to determine its deferred maintenance needs,
had not fully documented its estimated deferred maintenance costs, and had not established
adequate controls over deferred maintenance data.  To correct these deficiencies, the OIG
recommended that the FWS ensure that deferred maintenance funds are allocated to field offices
on the basis of priority and that the FWS implement controls over the expenditure of deferred
maintenance funding and controls over deferred maintenance data.  All recommendations are
resolved, and three recommendations are implemented.

* >  "Miscellaneous Receipts, U. S. Fish and Wildlife Service," Report No. 00-I-50, issued
November 9, 1999. This review of 46 refuges operated by the FWS revealed that 5 refuges
charged unauthorized fees for the mitigation of damages associated with oil and gas exploration
and then arranged for the fees to be retained for refuge use.  At the 46 FWS refuges visited or
contacted, the FWS set fees for the use of refuge resources that provided a reasonable return to
the Government.  However, five refuges in Louisiana and Texas assessed fees of more than $32.8
million during fiscal years 1990-1998, depositing only $26 million into U.S. Treasury accounts,
as required by law.  At the five refuges, the FWS directed exploration companies to deposit fees
of $1.5 million into accounts maintained by the Fish and Wildlife Foundation, to remit fees of
$5.1 million into the refuges' contributed funds accounts, and to pay fees of about $200,000 to
vendors and grantees.  The refuges used the fees for expenses such as employee salaries,
marine-related equipment and repairs, computers, research grants, travel, fuel, a vehicle, and
lumber.  In addition, the OIG questioned the FWS' retention of about $21.3 million from fiscal
years 1990 through 1998 for the costs of administering economic uses on the refuges because the
FWS had not determined the amount of its administrative expenses in accordance with the
Provisions of the Refuge Revenue Sharing Act.  The Office of the Solicitor, the OIG, and the
FWS reached resolution in August 2000.  The FWS is taking action to implement the
recommendations.* * 
Appendix 3










Appendix 4



STATUS OF AUDIT RECOMMENDATIONS