[Semiannual Report, April 2001]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 4-S-01

Title: Semiannual Report, April 2001

 
Date:  April 2001

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Subject:  Semiannual Report, April 2001 (No. 4-S-01).  No attempt
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Over the past year, the OIG has reorganized and re-engineered its internal operations to provide quality products and services in areas that are of the highest priority to the Department and provide the greatest return on our investment.  The new Administration has emphasized increased accountability in the Government's financial and management operations, major management reforms in Government organizations, and results from program activities.  This, in turn, translates into greater demands on the OIG community, as well as greater opportunities for Interior's OIG to play a more significant role in promoting integrity and accountability in the Department's programs and operations.  The OIG is evolving toward the highest risk and highest priority areas, making the most valuable recommendations and, then following up on these recommendations to ensure that they have been implemented appropriately and have the intended effect.  

This is a dramatic shift in thinking and operation, since the implementation of audit recommendations is, for the most part, out of our control.  We believe, however, that the right approach is to work collaboratively with the Department to exact the greatest and most valuable long-term benefit.  While it may take several years to actually measure the impact of our recommendations, our new Quality Assurance and Follow-up Unit has already begun the process of tracking and verifying recommendations that the Department reports as implemented.   Once sufficient information is obtained and recommendations have been prioritized, we plan to begin a more strategic and aggressive approach to audit follow-up.

Specifically, we will increase follow-up of reported audit recommendations to verify implementation, and begin the process of gauging the outcome(s) of our Audit work and the Department's efforts to implement recommendations.  Many OIGs have removed themselves from any activity that goes beyond identification of problems and simply making recommendations.  While we cannot force implementation of recommendations upon the Department, we believe that we have a responsibility to assist the Department in effecting the intended results of our recommendations.  Our participation in the implementation process will enhance flexibility, and should, in turn, better ensure that the results we envision are achieved.  

We will also increase consultative services for our customers.  The OIG is evolving from a reactive, problem-detecting culture to a more proactive, problem-solving, solution-oriented organization.  One of our primary objectives is to institute more short-term, quick-response approaches to respond more effectively to Congressional and DOI management requests and to independently and expediently assess areas of concern, usually within a 60-90 day period.  Using an array of techniques, our staff can identify actions that Departmental management can take to improve operations and meet program objectives in a more effective and, if feasible, a less costly manner. 

This approach has greatly enhanced communication and coordination with the Department and the Bureaus and has facilitated more collaborative resolutions of problems.  We hope to continue building a strong foundation to address and solve some of the more difficult internal control and management weaknesses within the Department, while always maintaining our independence and never surrenduring our ability to detect and prevent fraud, waste and abuse. 



Earl E. Devaney
Inspector General 

Semiannual Report (No. 4-S-01) 

Mission

The mission of the Office of Inspector General (OIG) is to promote excellence in the programs, operations and management of the Department of the Interior (DOI).

Responsibilities

The OIG is responsible for independently and objectively identifying risks and               vulnerabilities that directly impact, or could impact, the Department's ability to accomplish its mission.  We are required to keep the Secretary and the Congress fully and currently informed about problems and deficiencies relating to the administration of Departmental programs and operations.  Effective implementation of this mandate addresses the public's demand for greater accountability in the administration of Government programs and operations and the demand for programs that work better, cost less, and get the results Americans want.  

Activities

The OIG accomplishes its mission through conducting audits, evaluations, and                 investigations relating to programs and operations of the Department.  The OIG has reorganized and re-engineered its internal operations to provide higher quality products and services in areas that are of the highest priority and provide the greatest return on investment.  

Security and General Controls Over Financial Management Systems - Security and general controls over the DOI's financial management systems were not adequately established or were not operating 	effectively to ensure that sensitive or critical financial data or systems were safeguarded.

Deferred Maintenance Management and Reporting - Amounts reported for deferred 
maintenance were not adequately supported.

The progress and success of the DOI's planned improvements in these areas will be assessed during the audits of the fiscal year 2001 financial statements. 

At the request of Senator Strom Thurmond, IG Program Integrity and Audit staff teamed to review the Firefighter and Law Enforcement Retirement Team (FLERT) operated by the Bureau of Land Management on behalf of the Department.  FLERT processes applications for the certification of special retirement coverage for DOI firefighters and law enforcement officers.

A number of administrative weaknesses were identified in the assessment.  Recommendations to improve the efficiency of FLERT were also provided.  A Department task force was formed with participation from all of the affected Bureaus with law enforcement officers or firefighters.  Progress has been made to address the deficiencies.  IG staff will re-assess FLERT in the near future to determine if the unit is operating more efficiently.

The fiscal year 1999 and 1998 financial statements for trust funds held by the DOI for Indian tribes and individual Indians were not accurate.  As a result, the certified public accounting firm that conducted the audit qualified its opinion because of irreconcilable differences of about $35 million between recorded cash balances and the balances reported by the U.S. Treasury as of September 30, 1999 and 1998; inadequacies in various Indian trust fund accounting systems; inadequate records and weaknesses in internal controls; and disagreements with individual Indians about their trust fund balances.   In response to these and other related concerns, the DOI has implemented a high-level action plan to reform the trust fund management system. 

We identified opportunities for the Department of Hawaiian Home Lands (DHHL) to improve controls related to the collection of delinquent loans and property taxes.  We noted that the DHHL had not taken sufficient action to collect delinquent balances totaling $22 million on 600 loans or establish procedures to ensure the collection of  $1 million in property taxes it had committed to pay on behalf of lessees.  To address these issues, we advised the DHHL that it should:

Implement procedures, as provided in its regulations, to collect payment for delinquent loans, such as garnishing wages and instituting repayment agreements for delinquent borrowers.

Implement procedures to monitor the payment of real property taxes by Hawaiian Home Land lessees and ensure that the lessees either pay the taxes or arrange with the DHHL to repay advance payments made on their behalf.

The DOI's National Business Center's  (NBC) policies and procedures generally provided for accurate and timely processing of personnel and payroll transactions in compliance with applicable laws and regulations.   However, we found that opportunities exist to improve the efficiency and effectiveness of NBC's operations and to decrease risk of unauthorized access to, modification of, and disclosure of personnel and payroll data.  Based on our audit, NBC began or completed:  

Developing a strategic plan for its operations, Programming all required functions in the payroll/personnel system, Instituting all necessary security policies, and Improving internal controls over software changes and separation of duties.

We identified opportunities for the Department of Hawaiian Home Lands (DHHL) to improve controls related to the collection of delinquent loans and property taxes.  We noted that the DHHL had not taken sufficient action to collect delinquent balances totaling $22 million on 600 loans or establish procedures to ensure the collection of $1 million in property taxes it had committed to pay on behalf of lessees.  To address these issues, we advised the DHHL that it should:

Implement procedures, as provided in its regulations, to collect payment for delinquent loans, such as garnishing wages and instituting repayment agreements for delinquent borrowers.

Implement procedures to monitor the payment of real property taxes by Hawaiian Home Land lessees and ensure that the lessees either pay the taxes or arrange with the DHHL to repay advance payments made on their behalf.

The DOI's National Business Center's  (NBC) policies and procedures generally provided for accurate and timely processing of personnel and payroll ransactions in compliance with applicable laws and regulations.   However, we found that opportunities exist to improve the efficiency and effectiveness of NBC's operations and to decrease risk of unauthorized access to, modification of, and disclosure of personnel and payroll data.  Based on our audit, NBC began or completed:  

Developing a strategic plan for its operations,

Programming all required functions in the payroll/personnel system, 

Instituting all necessary security policies, and

Improving internal controls over software changes and separation of duties.

Construction of the Chief Leschi School was necessitated when the Assistant Secretary for Indian Affairs condemned the middle/high school portion of the old school.  Congress appropriated $28.9 million for construction of the new school, which was expected to house 1,077 pre-kindergarten through grade 12 students.   School construction was administered by the Puyallup Tribe under grants and contracts awarded by the Bureau of Indian Affairs (BIA). We found that although the Tribe constructed the School within the $28.9 million of contract and grant monies received, the facility differed from the BIA planning document for the School.  The School was larger than specified, which resulted in additional construction costs of about $666,000, and the School did not build the athletic fields provided for in the plans, which required the School to rent athletic facilities at a cost of about $10,000 a year.  Also, the BIA did not remove the old school buildings from its database, resulting in the BIA overpaying by $785,000 the Tribe's school board to maintain the old buildings.  The BIA agreed to provide more effective monitoring of school construction and to recover the erroneous payments.


We reviewed the financial plans of four BIA-operated schools and found that the schools were not adequately managing their financial resources and did not fully comply with the requirements for preparing and executing local financial plans.  

The plans did not include all funds available to the schools and/or did not contain budgets for individual programs; 

Expenditures were not adequately monitored and funds were not always spent in accordance with the approved plans; and 

The plans were not revised and school board officials were not informed when expenditures varied significantly from the plans.  

Accordingly, the BIA and school board officials lacked assurance that funds were spent in a prudent manner.  One school overspent its Indian School Education Program (ISEP) and transportation funding by about $115,000, and another school had unspent ISEP funds totaling $127,000 at year-end and lost the use of those funds.

Jean Peterson, former laboratory technician with Aaron Swan & Associates, Inc., was sentenced in the U.S. District Court, District of South Dakota, to 4 years of probation and ordered to pay a fine of $2,000 for her involvement in the fabrication of laboratory test reports.  A BIA construction contractor used the falsified lab reports to verify that the base aggregate materials used to construct a 12-mile road on the Cheyenne River Indian Reservation met proper standards.  The BIA paid the contractor $3.5 million to build the road.  They now estimate that it will cost millions of dollars to restore the road to the proper quality specifications.  The investigation continues to determine whether other individuals participated in the scheme.
  
Diana Smith and Doreen Begay, former employees of a Navajo boarding school, were sentenced in U.S. District Court, District of Arizona, following their guilty pleas to conspiracy and theft for stealing more than $200,000 from a Federal program intended to feed underprivileged Native American school children.  To carry out their scheme, the sisters discovered an obsolete school bank account, stole checks, deposited the funds into that account, and used the money to gamble at casinos.  Smith was sentenced to 18 months of imprisonment and 3 years of probation.  Begay was sentenced to 4 months of home confinement and 5 years of probation.  Smith and Begay were ordered to jointly make restitution of $208,422.  As a result of this investigation, BIA has initiated improvements in the manner in which lunch reimbursement checks are processed.
 
Tribal Comptroller Allan Butterfield and Tribal Accountant Lou Ann Gordon of the Red Cliff Band of Chippewa Indians (Red Cliff Band) were charged in a three-count indictment by a Federal grand jury for the Western District of Wisconsin of conspiring to embezzle approximately $925,000 from a tribal bank account and converting nearly a quarter of a million dollars of the funds to their personal use.  The Red Cliff Band located in Bayfield City, Wisconsin, is an Indian tribal organization that receives more than $1 million in funding from the BIA each year.  During a routine audit, auditors discovered that a bank account reserved solely for the distribution of Federal program funds was improperly being used to issue payroll advances to Red Cliff Band employees.  None of the advances were repaid.  The indictment charged that for more than three years, Butterfield and Gordon used a bank account that the tribal council was told had been closed, to divert Federal program funds.  Butterfield and Gordon hid the existence of the account by failing to report it in the tribal general ledger and year-end financial reports, and then disbursed payroll advances from the hidden account to themselves and others within the tribal accounting             department.  A trial date is pending.


Diana Smith and Doreen Begay, former employees of a Navajo boarding school, were sentenced in U.S. District Court, District of Arizona, following their guilty pleas to conspiracy and theft for stealing more than $200,000 from a Federal program intended to feed underprivileged Native American school children.  To carry out their scheme, the sisters discovered an obsolete school bank account, stole checks, deposited the funds into that account, and used the money to gamble at casinos.  Smith was sentenced to 18 months of imprisonment and 3 years of probation.  Begay was sentenced to 4 months of home confinement and 5 years of probation.  Smith and Begay were ordered to jointly make restitution of $208,422.  As a result of this investigation, BIA has initiated improvements in the manner in which lunch reimbursement checks are processed.
 

Tribal Comptroller Allan Butterfield and Tribal Accountant Lou Ann Gordon of the Red Cliff Band of Chippewa Indians (Red Cliff Band) were charged in a three-count indictment by a Federal grand jury for the Western District of Wisconsin of conspiring to embezzle approximately $925,000 from a tribal bank account and converting nearly a quarter of a million dollars of the funds to their personal use.  The Red Cliff Band located in Bayfield City, Wisconsin, is an Indian tribal organization that receives more than $1 million in funding from the BIA each year.  During a routine audit, auditors discovered that a bank account reserved solely for the distribution of Federal program funds was improperly being used to issue payroll advances to Red Cliff Band employees.  None of the advances were repaid.  The indictment charged that for more than three years, Butterfield and Gordon used a bank account that the tribal council was told had been closed, to divert Federal program funds.  Butterfield and Gordon hid the existence of the account by failing to report it in the tribal general ledger and year-end financial reports, and then disbursed payroll advances from the hidden account to themselves and others within the tribal accounting             department.  A trial date is pending.

Royalty Rate Reduction Program has merit and would allow operators to increase or restart production on wells that produce a marginal amount of oil or on which oil production is uneconomical.  The Government, however, may be losing royalty revenues because it has not determined whether all properties participating in the Program need the reduced rates to maximize production or promote development.  Also, the BLM did not consider a property's economic viability in determining eligibility for the Program and did not provide for royalty rates to be increased if the property subsequently became economically viable.  Although the BLM completed the required evaluation of the effectiveness of the Program, the evaluation's conclusion to extend the Program did not adequately consider critical comments from the BLM's field officials and the Minerals Management Service (MMS).  As a result, the Government may be losing royalty revenues from Program properties that do not require reduced royalties to maximize        production or promote development. 
 
We recommended that the Program be reevaluated and changed as appropriate.  In a written response, the Acting Director, BLM, said, "It is our intention to present a full range of policy options from status quo to discontinuing the program to the new Assistant Secretary for Land and Minerals Management." 

At the request of the Director of the BLM's National Business Center, we reviewed the collections module of the BLM's Collections and Billing System.  The System, which will be used to bill for and collect annual revenues of about $250 million, is intended to improve the processes for entering data on revenue collections into the System, for automating manual operations, and for exchanging data with other systems.  Even though processes have improved and the module operated as intended, more effort is needed to make sure data in the System are complete and reliable.  BLM officials agreed to provide more training to System users, ensure that only appropriate individuals have access to the System data, perform periodic field reviews to ensure data are entered timely and deposits are made expeditiously, and investigate the feasibility of allowing field offices without authorized depositories to mail their collections directly to authorized depositories.  

Douglas A. Anderson, former lead architect for BLM in Arizona, plead guilty in U.S. District Court, District of Arizona, to charges that he abused his procurement authority by approving and paying claims on contracts in which he had a personal financial interest.  For more than a year while working for the BLM, Anderson used his government-issued credit cards to obtain nearly $70,000 for work and services purportedly performed by three businesses he owned.  Anderson created the three fictional businesses on paper only, and invented work orders and billing charges to supplement his income.  No work or service was ever performed by the companies, and Anderson used the money paid to the fictitious companies by BLM to pay his personal debts. eloping water projects, including the Bonneville Unit of the Central Utah Project, by establishing an authorized cost ceiling, which is the maximum amount of money that Congress will appropriate to construct a project.  Since a water project can take years to come on line, Congress allows the authorized cost ceiling to be updated annually for changes resulting from economic factors, usually inflation.  The updating process is called indexing. 

We concluded that the Bureau of Reclamation's (BOR) $1.4 billion cost ceiling calculation for the Bonneville Unit was not reliable and should not be used as the basis for requesting additional appropriations for the following reasons:

BOR records were insufficient to support historical amounts and adjustments included in the computations.  For example, records were not available to support expenditures for noncontract (i.e., designs and specifications, construction supervision, and engineering) costs totaling $280 million from 1966 to 1997.

The BOR incorrectly continued to index unbuilt commercial power and irrigation features that, since 1992, it was no longer authorized to construct.  The continued indexing of these features for inflation incorrectly increased the ceiling by about $63 million.  

The BOR did not record $14.6 million of expenditures against the Bonneville cost ceiling, thereby overstating the ceiling available for appropriation by that amount.  

The Assistant Secretary for Water and Science disagreed with our conclusion and stated that the BOR's calculation would continue to be used as the basis for requesting additional appropriations.  As the Congress will ultimately resolve this issue (through the funding process), both the Assistant Secretary and our office informed the Congress of our respective positions.
 

During our review, we informed management officials of the Fish and Wildlife Service's (FWS) National Conservation Training Center of deficiencies in its purchasing and property management.  Center officials, before our final report was issued, implemented all ten of the audit recommendations. Problems addressed by the Center were the lack of competitive procurements, the use of inappropriate contracting methods, and the lack of controls over contractor payments and performance.  As a result, the Center lacked assurance that the best quality goods and services were obtained at the lowest cost.  Inadequate administrative controls were also found in the Center's property management system, which caused duplicate cost entries, other posting errors, and omissions of some acquisitions in the system, thus resulting in inaccurate property listings.

At the request of the Director of the Fish & Wildlife Service (FWS), IG Program Integrity staff teamed with consultants from the International Association of Chiefs of Police (IACP) to assess Refuge Law Enforcement.  IACP staff delivered a comprehensive final report, Protecting the National Wildlife Refuge System: Law Enforcement Requirements for the 21st Century.  This report identified numerous weaknesses and vulnerabilities in staffing, training and properly equipping refuge law enforcement.  Initial steps have been taken by FWS leadership to prioritize their efforts to address the identified concerns in the report.  IG staff will closely monitor efforts by FWS to address these issues in a timely manner. 

As a result of this study and numerous other studies related to the law enforcement components of the Department, Secretary Norton has requested that the IG conduct a comprehensive study of law enforcement in the Department.  Program Integrity and Audit staff will be utilized to conduct this assessment and we anticipate completing the final report to the Secretary in the fall of 2001.
  
The Virgin Islands (VI) Legislature spent $1.16 million more than it was allotted in fiscal year 1999, which contributed to the overall operating deficit of the VI Government.  This occurred because the Legislature was allotted less than its full appropriation but did not limit its expenditures to the amount allotted.  During the review, we also noted that the Legislature used its petty cash fund for regular operating expenses totaling about $1.26 million, thus bypassing the controls in the Department of Finance; allowed personal services contractors to begin contract work before the contracts were legally executed; awarded contracts to full-time Government employees; paid significantly different rates to different contractors performing the same function; did not track the number of hours worked by the contractors; and failed to discontinue retirement annuity payments to Government retirees who were  working under contract.  In its response, the Legislature did not agree with our recommendation to limit expenditures and obligations to amounts allotted because it believed that the executive branch of the Government did not have the authority to reduce its appropriation.  The Legislature did, however, agree with 7 of the other 11 report recommendations to improve operations and was asked to reconsider the other 4.

Although excise tax payments collected by the VI Bureau of Internal Revenue were appropriately deposited to the Government's General Fund, improvements in administration were needed to ensure that all taxes due are paid.  Specifically, the Bureau did not:

Assess and collect excise taxes in at least 1,111 instances where businesses received merchandise through the U.S. Postal Service.

Take effective action to collect $155,100 from 108 bondholders after the merchandise had been released.  

Validate tax credit claims before processing.  Not doing so resulted in approved claims of about $672,900 that were not adequately supported and claims of about $195,600 that were in excess of the taxes paid or were claimed more than once.  

Collect at least $3,500 in excise taxes because of computational errors. 

The Governor concurred with all eight recommendations and indicated that corrective actions would be taken.

During fiscal year 1999, the VI Port Authority, consisting of its Aviation Division and its Marine Division, successfully generated operating revenues of about $21.7 million from landing, passenger, and parking fees plus rents and concessions at airport facilities and revenues of about $15.1 million from various shipping and docking fees plus rents and concessions at seaport facilities.  However, the Port Authority needed to make improvements in the way it managed its real property leases, collected amounts it was owed, and controlled cash collections at parking facilities.  We found that:

Sublease revenues of $10,600 were not realized because the Port Authority had not obtained copies of sublease agreements.  

Effective collection and enforcement action on 87 accounts totaling more than $1 million that were delinquent for over 90 days was not	taken, and 31 other delinquent accounts were written off as uncollectible, even though there was no evidence that any collection activity was undertaken for 18 of the accounts. 

Parking fees were collected for only 25 percent of the parking machine tickets issued, and controls were not adequate to ensure that all collections were deposited.

The VI Port Authority agreed to improve controls over lease management, the collection of delinquent accounts, and the collection and deposit of parking lot fees.


Lincoln Gumbs, a construction contractor, was sentenced in U.S. District Court, St. Thomas, Virgin Islands, to 18 months of imprisonment, 3 years of probation, and ordered to pay restitution in the amount of  $251,131 following his conviction for making false statements and submitting false claims related to construction contracts at the St. Thomas Hospital and the Eudora Kean High School.  The construction contracts, valued at more than $4 million, required surety bonds to guarantee performance under the contracts.  Gumbs paid only $10,000 for the surety bonds; however, he submitted and received reimbursements for the claims in the amount of $236,926.  In addition, Gumbs falsely over-valued the real property he used as security for the performance and payment bonds.  Without the bonds, Gumbs could not have obtained the construction contracts for the two Government building projects awarded to his company.  Gumbs is appealing his sentence.

Antonio Cabrera, former Secretary of Finance, Commonwealth of Northern Mariana Islands (CNMI), was sentenced to 33 months of imprisonment, and 3 years of probation as a result of his conviction on three counts of theft related to his misappropriation of travel funds and other monies from the CNMI Government.  In addition, Cabrera was ordered to make restitution of $56,462, and to pay a fine of $15,000.  Cabrera was originally indicted by a Federal grand jury of the U.S. District Court, District of Guam, on charges of bribery, as well as the theft charges.  Cabrera was acquitted on the bribery counts.


In recent settlements, six major oil companies agreed to pay more than $154 million to the U.S. Government to resolve claims under the False Claims Act that they underpaid royalties owed for oil produced on Federal and Indian lands for more than 10 years.  The settlements resolve allegations that the companies underreported the value of the oil that they produced on the leased lands and, consequently, paid fewer royalties than they owed to the government.  This continuing effort by the Department of Justice and OIG has resulted in the recovery of more than $484 million since 1998.

These recent oil settlements included Shell Oil Company - $110 million; Burlington Resources, Inc. - $8.5 million; Marathon Oil Company - $7.7 million; Exxon Company USA - $7 million; Phillips Petroleum - $8 million; and Kerr McGee Energy Corporation/Oryx Energy Company - $13 million.