[Semiannual]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 10-S-02
Title: Semiannual
Date: October 31, 2002
**********DISCLAIMER**********
This file contains an ASCII representation of an OIG report. No attempt has been made to display graphic images or illustrations. Some tables may be included, but may not resemble those in the printed version. A printed copy of this report may be obtained by referring to the PDF file or by calling the Office of Inspector General, Division of Acquisition and Management Operations at (202) 219-3841.
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I am pleased to present the results and accomplishments of the Office of Inspector General (OIG) from April 1, 2002 through September 30, 2002. During this reporting period, we concentrated our efforts on helping the Department of the Interior (DOI or Department) Bureaus and offices address their most serious management challenges.
To this end, over the last six months, our audit and evaluation staff focused on a number of programs that we identified as at-risk or that were brought to our attention by Departmental management as areas of concern. We highlight our findings related to the Information Technology (IT) Security within the Department, the Minerals Management Service's (MMS) gainsharing awards program, and the Bureau of Reclamation's (BOR) agreements with the California Water Authority. I am proud to report that the results of these audits and evaluations were well-received by the Department, which has already taken action to correct many of the deficiencies we found.
During this reporting period, our investigators brought to fruition investigations that resulted in 27 indictments, 15 convictions, and 19 sentencings, with nearly a million dollars in criminal judgments and restitutions. While these numbers are remarkable statistically, they tend to be concentrated in the Bureau of Indian Affairs (BIA) and tribal governments, areas in which we reported disturbing trends of fraud and corruption in our last Semiannual Report. Our investigations into tribal corruption resulted in numerous charges of embezzlement, money laundering, conspiracy, theft, bribery, and false claims. As we remain concerned about this trend, we are working with the Department to develop strategies to combat the widespread corruption and integrity problems within the tribes and BIA.
Following the issuance of two reports in July and August 2001 by the Court Monitor in Cobell, et al. v. Gale A. Norton, Secretary of the Interior, et al. (Cobell), the Solicitor, William G. Myers, III, referred to the OIG seven issues relating to allegations that DOI senior managers and attorneys engaged in misconduct. Following preliminary investigation, the OIG determined that further investigation was not warranted in four of the seven issues and so advised the Solicitor in October 2001. The OIG pursued an aggressive investigation into the remaining three issues, however, and conducted 66 interviews at various locations throughout the country. In the end, we found no criminal behavior or administrative misconduct on the part of any current DOI employees; however, we did not have an opportunity to interview many key former employees that played a role and, therefore, were not able to draw a conclusion concerning their conduct.
We also reported in the last Semiannual Report management and financial accountability
deficiencies in the Insular Area (IA) governments. Unfortunately, that trend remains a concern. Insular Area governments, for the most part, continue to ignore our audit recommendations and fail to sufficiently respond to our audit reports. We again identified severe deficiencies in controlling and accounting for Federal monies and in one case found that transactions for one facility were so mismanaged that the situation could serve as a case study on the misuse and waste of public funds. Because IA governments have not adequately responded to our report findings, we are working with the Department's Office of Insular Affairs to encourage adoption and implementation of our recommendations. We are also urging other Federal agencies that provide funds to IA governments to perform better fiscal oversight. Additionally, we recently appointed a dedicated advisor with audits background to work closely with IA governments, public auditors, and local authorities to expand their capability and expertise in managing both Federal and local funds.
We believe that this collaborative effort will serve as a catalyst to improve accountability in the Insular Areas for Federal dollars.
Our office will continue to target these and other significant issues affecting the Department and its Bureaus and offices. We are dedicated to ensuring that our efforts result in much-needed changes to reduce and prevent the waste of taxpayers' money and improve the accountability of government to the American public.
Earl E. Devaney
Inspector General
Subject: Semiannual (No. 10-S-02)
Following the issuance of two reports by the court monitor in the case Cobell, et al. v. Gale A. Norton, Secretary of the Interior, et al.), the Department of the Interior Solicitor referred seven specific issues to the OIG relating to allegations that senior managers and attorneys of the DOI engaged in misconduct. Following a preliminary investigation, we determined that three issues merited further examination. The three subjects included:
The process that led to the decision to conduct a statistical accounting of Individual Indian Money (IIM) accounts and the
ratification of that decision by Secretary Norton
The alleged failure to timely and fully notify the Court about the state of the Trust Asset and Accounting Management System (TAAMS)
The failure to retain and produce records in accordance with discovery requests and orders While we found no evidence of criminal behavior or administrative
misconduct on the part of any current DOI employee, we uncovered bad judgment, unfocused management, a myriad of definitional issues, and extreme hostility among the players and entities, all fueled by a multitude of motivations, many of which were well-intentioned but among the least of which was to protect and advance the interests of Individual Indian Trust account holders.
The independent certified public accounting firm of KPMG LLP, under contract with the OIG, rendered an unqualified opinion on the financial statements of the Department of the Interior's Franchise Fund (IFF) for fiscal year 2001. The firm's report, however, identified five material internal control weaknesses and two instances of non-compliance with laws and regulations.
Specifically, IFF had not: (1) fully implemented controls and procedures to ensure obligations were recorded as incurred, (2) redesigned the manual process for recording MMS activity, (3) fully implemented controls and procedures to ensure that accruals were recorded prior to the end of the reporting period,
(4) consistently recorded financial transactions and reconciled financial accounts in a timely manner, or (5) established clear lines of responsibility for reporting IFF transactions. KPMG also found that IFF did not comply with the Federal Financial Management Improvement Act of 1996 (FFMIA). Specifically, IFF's financial management systems did not comply with Federal financial management systems requirements or Federal accounting standards. Additionally, KPMG determined IFF was not always requiring advances prior to performing work as required by Public Law 104-208 (� 113). IFF officials generally concurred with all the report's recommendations and indicated the necessary corrective actions would be taken.
The independent certified public accounting firm of KPMG LLP, under contract with the OIG, rendered an unqualified opinion on the consolidated financial statements of the Departmental Offices for fiscal year 2001. The KPMG report, however, identified four material internal control weaknesses related to financial reporting. Specifically, KPMG determined that the Departmental Offices need to improve controls over: (1) Tribal and other special trust funds, (2) undelivered orders and accruals, (3) reconciling transactions with other Interior components, and (4) IFF financial reporting. Additionally, the report disclosed that the Departmental Offices' financial management systems failed to substantially comply with the FFMIA requirements for Federal financial management systems and Federal accounting standards. Departmental Offices' officials generally concurred with all the identified findings and recommendations and indicated that they would correct the weaknesses.
In our second annual evaluation of the DOI's security program and
practices over non-national security IT systems, we concluded that despite the Department's actions to improve its IT security, overall, the security program remains inadequate. Further, the Department should continue to report this as a material weakness until improvements are made.
In our report, we identified shortcomings in the areas of security
policies, procedures, and controls. Specifically, DOI should:
Hold program officials and Bureau/office Chief Information Officers (CIO) accountable for improving IT security and ensuring security plans are practiced throughout the life cycle of all IT systems
Implement sound security policies and procedures
Monitor and evaluate Bureau and office compliance with Federal IT security standards and guidelines
Integrate security costs into the capital planning and investment control process
In our report, we also suggested some organizational changes to enhance the level of visibility and authority of the DOI's CIO.
The DOI concurred with our findings and is in the process of developing and implementing policies and procedures and analyzing improvement areas in existing policies.
This report is exempt from disclosure to the public under the Freedom of Information Act and therefore will not appear on the OIG Web site.
Three individuals were taken into custody following their recent indictments by a Federal grand jury in the Southern District of Florida on charges of embezzlement, money laundering, and conspiracy arising from the theft of tribal funds from the Seminole Tribe of Florida. The 15-count indictment alleges that Danny Wisher, the tribe's Technical Advisor; Timmy Cox, the Operations Officer; and Michael Crumpton, Wisher's son-in-law who worked at the tribe as an employee of a company owned by Wisher, stole more than $2.7 million from the tribe by making illegal payments to Virtual Data, Ltd. Virtual Data, a shell company incorporated in Delaware in March 2000, was ostensibly an information services business; however, the corporation conducted no business of any kind. The trio then allegedly laundered the funds by moving the money to a bank account in Belize, Central America, which was controlled by Wisher. Crumpton voluntarily surrendered to the U.S. Marshal's Service, and Cox and Wisher were arrested at the Miami International Airport as they returned from Nicaragua. Trial is pending.
These charges are the latest to arise from the continuing joint investigation with the FBI and IRS into the activities of persons associated with the Seminole Tribe of Florida and the tribe's gaming operations. As reported in our April 2002 Semiannual Report, the tribe's former Director of Aviation, Charles Kirkpatrick, pled guilty to tax perjury for his failure to report hidden commissions he received on tribal aircraft deals he conducted for the Seminole Tribe. Kirkpatrick is currently serving a 13-month sentence in Federal prison as a result of that conviction.
In indictments returned by a Federal grand jury in the District of North Dakota, five officials of the Turtle Mountain Band of Chippewa Indians (TMBCI) were accused of various crimes, including conspiracy, theft, money laundering, witness tampering, and perjury. This is an ongoing joint investigation by the OIG, FBI, and IRS Criminal Investigation Division into a series of fraudulent activities by current and former officials of the TMBCI. At the center of some of the charges listed below is an elaborate fraudulent billing scheme in which Raphael DeCoteau, then tribal chairman, in concert with other tribal officials and members, allegedly arranged to donate an old dilapidated school bus garage belonging to the tribe to another tribal business entity and then leased the building back to yet another tribal entity. In the process, excessive and exorbitant rents were paid and deposited into bank accounts from which the conspirators siphoned the stolen funds.
Raphael DeCoteau, former Tribal Chairman, TMBCI, was charged in a five-count indictment of conspiracy and theft related to various schemes to defraud the TMBCI. The indictment alleges that DeCoteau, in concert with another TMBCI official, misapplied more than $110,000 in Federal and tribal funds by executing, and making payments on, an inflated and unnecessary lease between two TMBCI-owned businesses, ostensibly to store sensitive documents. Lease payments and other alleged expenses were then allegedly siphoned from one of the business bank accounts in which DeCoteau was a signatory and used the money for his personal benefit.
Raphael DeCoteau was also charged in a separate two-count indictment with the misapplication of $7,300 in tribal funds, which he used to purchase approximately 15 acres of land for his family members. According to the indictment, DeCoteau attempted to conceal his theft by recording the expense as "business grants." In addition, DeCoteau was charged with witness tampering after, according to the indictment, DeCoteau attempted to intimidate and induce a witness to change and withhold testimony regarding the details of the sale of his property to DeCoteau's family. Trial is pending.
Ronald S. Morin, Chief Executive Officer (CEO) of TSI, Board of Directors and Contract Administrator of Uniband, Chairman of Belcourt/Dunseith ATA Black Belt Academy Board of Directors,(all tribally-owned and controlled businesses) was charged along with DeCoteau as a conspirator in the five-count indictment. Morin was arrested and is awaiting trial.
Douglas J. Delorme, a current TMBCI Councilman, was indicted on charges of theft from an Indian tribal organization and witness tampering. In the five-count indictment, Delorme is alleged to have provided a tribal check to Kurt Lilley for $5,000 on the condition that Lilley return a portion of the money to Delorme. The indictment also charges Delorme with suborning a false and material declaration and intimidating and attempting to induce Lilley to change and withhold testimony regarding his receipt of the money from the agent investigating the theft. In addition, the indictment alleges that Delorme embezzled another $3,800 of tribal funds by issuing TMBCI checks to repay personal loans. Delorme was arrested and is awaiting trial.
Kurt S. Lilley, a material witness in this investigation, was charged in a one-count indictment with perjury in connection with material false statements he made under oath before a Federal grand jury, which contradicted previous statements he had made to investigating agents about one of the bogus financial transactions. Lilley was arrested and is awaiting trial.
Raymond Poitra, former CEO of Uniband Inc., was indicted on seven counts including theft, money laundering, and criminal asset forfeiture in connection with a scheme to defraud Uniband, a TMBCI owned and controlled business that provides data entry service costing nearly $300,000. The indictment alleges that Poitra committed a series of complex criminal acts in his official capacity as CEO of Uniband. The scheme to defraud both Uniband and TMBCI was allegedly accomplished, in part, through the submission of fictitious, fraudulent, inflated, or double-billed invoices related to a series of nominee companies established by Poitra as mediums to divert Uniband monies for his own personal use. Poitra was arrested and is awaiting trial.
Crow Tribal Chairman Clifford G. BirdinGround was indicted by a Federal grand jury in Billings, Montana, on charges of conspiracy, bribery, and theft in connection with a $559,000 car scheme that allowed tribal members to acquire late-model vehicles using funds belonging to the tribe. The indictment names BirdinGround, Homestead Hyundai Subaru of Billings, Wayne Kimmet, who owned the dealership at the time, and Terri Lyn Braun, a sales associate for Homestead. The six-count indictment describes a vehicle-swapping scheme that began less than two weeks after BirdinGround took office, when he began trading vehicles owned by the tribe to help his friends and relatives buy vehicles for their own personal use. At the center of the scheme are 10 tribally-owned vehicles that, according to the indictment, BirdinGround signed over to Homestead. Kimmet then credited the tribe in an equity account with $62,700. BirdinGround's friends and family used the money to make down payments on personal vehicles. Braun is also accused of giving money and other gifts to BirdinGround for arranging the purchase of $559,000 worth of personal vehicles. BirdinGround is also accused of using $26,944 from the Little Big Horn Casino to purchase a vehicle for the casino. BirdinGround then traded the vehicle in to Homestead for $18,000, which BirdinGround used, in part, to pay for repairs on his personal vehicles, the indictment stated.
A second indictment charged BirdinGround, his brother, Alexander R. BirdinGround, Kimmet, and Homestead with conspiracy and theft from an Indian Tribal organization in connection with the purchase of vehicles using tribal funds. BirdinGround, who resigned following his indictments, is the third Crow tribal chairman in a row to face Federal indictments. Trials are pending. The following details the results to date in this investigation:
Clifford G. BirdinGround, former tribal chairman, Crow Tribe of Indians, was charged with conspiracy, theft from an Indian tribal organization, theft from an organization receiving Federal funds, bribery involving an organization receiving Federal funds, and theft from an Indian gaming establishment.
Alexander R. BirdinGround, brother of Clifford BirdinGround, was charged with conspiracy and theft from an Indian tribal organization.
Wayne Kimmet, former owner, Homestead Hyundai Subaru, was charged with conspiracy, theft from an Indian tribal organization, theft from an organization receiving Federal funds, and aiding and abetting.
Terri Lyn Braun, former sales associate, Homestead Hyundai Subaru, was charged with conspiracy, theft from an Indian tribal organization, theft from an organization receiving Federal funds, and bribery involving an organization receiving Federal funds.
Homestead Hyundai Subaru of Billings was charged with conspiracy, theft from an Indian tribal organization, theft from an organization receiving Federal funds, bribery involving an organization receiving Federal funds, and aiding and abetting.
Charles C. Dillon, a BIA supervisor for the Crow Agency Facilities Management Branch; Emmett Old Bull, an accounting technician at the Facilities Management Branch; three Health and Human Services (HHS),Indian Health Service employees; and two businessmen were indicted by a Federal grand jury in Montana in five separate indictments on charges of conspiracy, bribery, wire fraud, false claims, and false statements in connection with a scheme to defraud the government by misusing Federal credit cards and accepting kickbacks. Others charged in the indictments include Kirm G. Kath, salesman and co-owner of JJ&K Enterprises and sales representative for West Lite Corporation, and David D. Bauman, vice president of Pro Tech Mechanical. According to the indictments, Dillon and Old Bull solicited and received payments from Kath and Bauman in exchange for using a Government credit card to purchase products or services from West Lite and Pro Tech. Dillon structured the purchases, which totaled $133,000, into amounts smaller than the $2,500 limit to avoid having to get BIA approval - in effect, creating a practical monopoly for the companies, according to the indictments. Old Bull allegedly used his BIA credit card to purchase $68,230 from Pro Tech and accepted kickbacks in return. The three Indian Health Services employees, Arthur Alden, Gale G. Three Irons, and Keith Reece, are charged with conspiracy to defraud the Government, bribery, false claims against the Government, and wire fraud. Their unauthorized Government credit card purchases from West Lite totaled nearly $200,000 in exchange for receiving payments of nearly $17,000.
Members of our Investigations and Audits officies were joined by the HHS-OIG, HUD-OIG, IRS-CID, and investigators of the U.S. Attorneys office in Montana. The investigation has yielded the following results:
Charles C. Dillon, Supervisor, Facilities Management Branch, Crow Agency, BIA, Montana, was charged with 16 counts, including conspiracy to defraud the Government, bribery, false claims against the Government, wire fraud, employment fraud, and false statements to the BIA. Dillon was also removed from Federal service.
Emmett Old Bull, former BIA Crow Agency maintenance worker, was indicted on three counts, including conspiracy to commit fraud, bribery, and wire fraud.
Kirm G. Kath, salesman and co-owner of JJ&K Enterprises and sales representative for West Lite Corporation, was named in three of the indictments and is facing 12 counts of conspiracy to commit fraud, bribery, wire fraud, and false claims against the Government.
David D. Bauman, vice president of Pro Tech Mechanical, Billings, Montana, was indicted on five counts, including conspiracy to commit fraud, bribery, wire fraud, and false claims against the Government. Bauman recently pled guilty to bribing BIA employees to induce them to hire his company for repair and maintenance work. He also pled guilty to being an accessory after the fact for helping Dillon cover his purported criminal activity.
Arthur Alden, a maintenance leader for the Facilities Maintenance Branch, Indian Health Service, HHS, was indicted on four counts, including conspiracy to defraud the Government, bribery, wire fraud, and false claims against the Government.
Gale G. Three Irons, Hardin supply supervisor, Indian Health Service, HHS, was indicted on four counts, including conspiracy to defraud the Government, bribery, wire fraud, and false claims against the Government.
Keith Reece, maintenance mechanic at the Lodge Grass Health Center, Indian Health Service, HHS, was indicted on four counts, including conspiracy to defraud the Government, bribery, wire fraud, and false claims against the Government.
Three family members previously charged with passing numerous bad checks at Harrah's Cherokee Tribal Casino pleaded guilty to charges of theft from an Indian gaming institution and were sentenced in the Western District of North Carolina for their actions. Cindy Turner, who used her position as a license examiner for the South Carolina Department of Public Safety to obtain fictitious drivers licenses and identification cards, which her father and uncle used in the scheme to cash the fraudulent checks, was sentenced to 5 years of probation and ordered to pay restitution in the amount of $3,500. Luther Turner, Jr., was sentenced to 5 years of probation and ordered to pay restitution in the amount of $2,500, and James Turner was sentenced to 30 days of house arrest, 5 years of probation, and ordered to pay restitution in the amount of $9,000. As reported in our April 2002 Semiannual Report, the three cashed more than 20 fraudulent checks totaling $15,000 at the North Carolina casino. The three used fake identification provided by Cindy Turner to open the bank accounts and obtain the checks.
Barry James, a paleontologist and co-owner of Prehistoric Journeys, who was accused of excavating a complete Allosaurus from BLM lands in Utah, then selling and exporting the fossil to a buyer in Japan, pleaded guilty to a State of Utah criminal charge of receiving stolen property. This joint OIG and BLM investigation revealed that the fossil, which was valued at $500,000, was removed from Federal land and transported to Santa Barbara, California, then sold for $400,000. Concurrently, the U.S. District Court in Utah filed a civil complaint against James, his wife, April R. James, a fossil preparatory, and their company, Prehistoric Journeys, on charges of statutory theft, conversion, and unjust enrichment. Prehistoric Journeys started 13 years ago in Pennsylvania, where the James' have assembled more than 130 real and replica skeletons of dinosaurs and prehistoric mammals, including a Giganotosaurus, stretching 48 feet from tip to tail, a carnivore that dwarfs even the renowned Tyrannosaurus Rex. Barry James was sentenced in State court to one year of probation and to pay restitution in the amount of $50,000, concurrent with a U.S. District Court civil judgment of $50,000.
A private development company donated land to the city of Tooele, Utah, for a wastewater treatment plant, golf course storage ponds, and a sewer
transmission line. The Bureau of Reclamation and the Economic Development Administration provided funds, totaling $20,857,457, for these specific projects.
The developer, in return for donating the land, acquired a source of
irrigation water for the golf course and housing development in a region where water supply is short. The developer also received the water for a lower price. Further, the storage ponds are an integral part of the landscaping of the golf course and enhance the entire development, making the area more desirable to potential homeowners. As a result of the transaction, the city secured a customer for the sale of its water and receives the benefit of an increased tax base from homeowners.
Because both the developer and the city benefited from the land donation, the city of Tooele and the developer are, in effect, business partners. As such, we question the amount of money claimed by the city for the land.
Additionally, of two waterlines constructed for the water treatment plant, one transports water to the private company's housing development -- not the plant -- and the other will eventually serve other customers as well as the plant. In our opinion, the treatment plant should only be charged for water it uses, with the remaining costs being absorbed by other current and future users.
BOR agreed with our findings and is in the process of resolving the cost exceptions with the city of Tooele.
A road construction company owner was sentenced following a lengthy
investigation into public corruption in the Commonwealth of the Northern Mariana Islands (CNMI). Candido Castro, owner of Castro & Associates, pleaded guilty and was sentenced in U.S. District Court, Saipan, to 8 months of imprisonment, 3 years of probation, and to pay restitution in the amount of $100,000 in connection with bribes he paid to Herman Manglona relating to contracts with the CNMI government. Manglona, then CNMI Senator, pleaded guilty to bribery and
attempting to corruptly influence a grand juror, resigned from the CNMI Senate, was sentenced to 24 months of imprisonment, and ordered to pay $30,000 in restitution and fines.
Castro's sentencing was the latest to arise from the continuing joint
investigation with the FBI into criminal activities of public officials and businessmen in the CNMI. As reported in our April 2001 Semiannual Report, the former Secretary of Finance, Antonio Cabrera, was convicted of theft of monies from the CNMI government, and was sentenced to 33 months of imprisonment, and was ordered to pay more than $70,000 in restitution and fines.
In a separate investigation, the owner of a construction company operating in the CNMI was sentenced in connection with his plea of guilty to charges that he paid $13,500 in bribes to a CNMI Department of Public Works official in
exchange for special treatment on contracts his company had with the CNMI government. Epitacio Lumactod, owner of LVP Pacific Development Corporation Saipan, was sentenced in U.S. District Court, Saipan, to 60 months of probation and fined $30,000. Lumactod admitted to the Court that he paid bribes to Leonard Manacop, a former estimator for the Technical Services Division, CNMI Department of Public Works, to expedite progress payments, change orders, and accept substandard materials or materials that did not meet contract specifications. Manacop's sentence was previously reported in our October 2000 Semiannual Report.
Audits of Insular Area programs and activities conducted during this
reporting period revealed the continued existence of serious uncorrected
deficiencies in the management of program monies and grants received from Federal departments. Insular Area governments have generally failed to develop and implement standard business practices to account for these monies and ensure that they were spent in a manner that met program and grant goals and requirements. Specifically:
The Virgin Islands Department of Health failed to effectively administer grants totaling $30.5 million received from the Department of the Interior's Office of Insular Affairs to construct health care facilities. We found poor record keeping, the failure to follow standard procedures for competitive bidding and land acquisition, and a lack of documentation to support claimed costs.
In fact, transactions for one health clinic that was never completed were so mismanaged that they could serve as a case study on the misuse and waste of public funds that can occur when procurement regulations and procedures are sacrificed in the name of expediency.
The Guam Department of Mental Health and Substance Abuse could not adequately account for costs billed under grants totaling nearly $3 million from the U.S. Department of Health and Human Services. We identified expenditures totaling $1.5 million that could not be documented, expenditures of nearly $400,000 used for a computer system that was never completed, and expenditures of nearly $150,000 used for services that were not allowed under the grants.
The failure to follow standard business practices adversely affected the ability of the Virgin Islands Department of Public Works to effectively administer $25 million in grants from the Federal High way Administration. Deficiencies in contract administration and grant management resulted in instances in which competitive bidding was bypassed, contractors were overpaid, and contracts were
inadequately monitored. Deficiencies similar to those that existed in the management of contracts under the Federal Highway Grants existed in the award and administration of $100 million of professional service contracts issued by the Government of the Virgin Islands during fiscal years 2000 and 2001.
Of the 46 recommendations made in these reports, only 15 were resolved; 20 remain unresolved, and 11 required additional information on actions to be taken to implement the recommendations. We provided copies of our reports to the appropriate Federal agencies, including the Office of Insular Affairs, for follow-up purposes.
As indicated in past Semiannual Reports, we have been extremely concerned with the lack of response to recommendations made in our prior audits of the Insular Areas. In the past 6 months we have committed resources to elicit long-overdue responses to past OIG internal audits and to secure single audit reports, which are required from various Insular Area governments. Responses, however, have either been insufficient or not produced at all.
To resolve and clear our recommendations, we have been working with a team from the Department's Office of Insular Affairs to focus on audits dealing with DOI funds provided to Insular Area governments. We have also contacted other Federal agencies to determine their response to our audit recommendations
concerning their funds. Finally, an Insular Area Field Liaison and staff support have been appointed to assist local Insular Area governments and their components with the development of responses to audit recommendations concerning purely local funds.
To assist Insular Area governments with their obligation to contract with independent Certified Public Accountants (CPA), as required by the Single Audit Act, we have conducted a thorough review of the single audits submitted. Not one of the Insular Area governments currently submits a Single Audit with an unqualified opinion from the CPA firm. We will be working with the governments to correct these deficiencies. In some instances, notably the Virgin Islands, American Samoa, and Guam, single audit reports have not been produced or if produced omit such significant information as to render them meaningless. With the approval of the other Federal agencies affected, we have negotiated extended filing dates to enable Insular Area governments to come into compliance with their responsibilities.
We are confident that with our capacity building efforts, the local Offices of the Public Auditor for the Insular Area governments can effectively assume the responsibility for auditing purely local funds. We are urging other Federal agencies providing funds to Insular Area governments to become more involved in tracking the uses to which their funds are directed. The Department of State is in the process of negotiating new Compact provisions containing greater accountability requirements with the Federated States of Micronesia and the Republic of the Marshall Islands. When the Compact for the Republic of Palau is renegotiated, we believe similar increased accountability provisions will also be included. These developments will allow us to focus our future Insular Area audits primarily on Department of the Interior funds provided to the Insular Areas.
At the request of the Department's Deputy Secretary, we assessed two
methods that the Minerals Management Service uses to collect royalties on Federal oil and gas leases. We reviewed Royalty in Kind (RIK) -- accepting oil and gas for payment - and Royalty in Value (RIV) -- accepting money. We concluded that when MMS accepted money for payment rather than oil and gas, the process was more vulnerable to underreporting because MMS must rely on the lessee to report the value. A series of audits and investigations over a 20-year period found $2 billion underreported using RIV. We found instances, however, where taking Royalties in Value would be preferable, such as when transportation costs are high and volume is low. We also found several opportunities for MMS to improve its RIK process, such as implementing independent reviews of its process for manually entering data.
We presented these results to the Deputy Secretary, the Assistant Secretary for Land and Minerals Management, and the Director of MMS, all of whom concurred with our findings.
We reviewed how the National Park Service oversees funds for
improvements to concession facilities (restaurants, gift shops, hotels, etc.). An older system authorizes parks to monitor the use of funds but requires concessioners to contract for and oversee projects. The newer system requires the park to perform both responsibilities. We found weaknesses in both systems.
In 1965, Congress created special accounts in which concessioners are required to deposit a percentage of their earnings for repairs and improvements to their facilities. The parks have oversight of the accounts, but the concessioners are responsible for planning and contracting the projects as well as ensuring they reach completion.
In 1998, Congress passed new legislation that put the responsibility of concession improvements in the hands of the parks, authorizing them to collect franchise fees from concessioners. Under this legislation, the parks are responsible for managing funds, overseeing projects, and issuing contracts, among other duties. The parks still have oversight of the special accounts that existed before the legislation, but they now have a new set of responsibilities for contracts after 1998.
These two systems currently in use have shortfalls. Under the original system, there is potential for misusing funds because NPS does not consistently review all of the documentation necessary to ensure that expenditures were appropriate. There are deficiencies in the new system as well. NPS lacks planning for projects, has a contract negotiation backlog, lacks contracting resources, and has a funding shortfall. These new obstacles could significantly delay much-needed improvements to visitor facilities.
NPS has hired an outside consultant to address these concession issues. We believe it is essential that planning to resolve these uncertainties be initiated immediately to minimize any negative impact on services for park visitors.
Additionally, parks must improve account oversight and ensure that concessioners are using funds for approved purposes.
The independent certified public accounting firm of KPMG LLP, under contract with the OST, rendered qualified opinions on the fiscal year 2001 Tribal and Other Trust Funds and Individual Indian Monies Trust Funds financial
statements of the Office of the Special Trustee for American Indians. The opinions were qualified because: (1) cash balances reflected in the financial statements were materially greater than balances reported by the U.S. Treasury, (2) inadequacies in certain Department of the Interior accounting systems made it impractical to extend auditing procedures to satisfy auditors regarding the fairness of Trust Fund balances, and (3) certain parties for whom the Office of Trust Funds Management (OTFM) holds monetary assets in trust do not agree with the balances recorded by the OTFM and have filed or are expected to file claims against the U.S. Government.
Timothy E. Ruble, who was terminated from his position as a U.S.
Geological Survey (USGS) research geologist in Denver, Colorado, for using his USGS computer to access and download child pornography depicting images of the sexual exploitation of small children, was sentenced to 41 months of
imprisonment and 36 months of probation. As we reported in our April 2002 Semiannual Report, Ruble was indicted by a Federal grand jury on 10 counts of receipt and possession of child pornography and one count of criminal forfeiture for receiving child pornography that had been transported in interstate or foreign commerce by use of a computer. Following his removal from his Federal position, the OIG learned of Ruble's attempt to work with the USGS as an employee of a contractor. Our office notified the DOI Office of Acquisition and Property Management, which immediately suspended him from participating in Federal contracts or grants. Following the suspension, Ruble was debarred from
participating in Federal contract transactions for a period of six years, four months.