[Final Audit Report, Management of Federal Funds by the Cheyenne and Arapaho Tribes of Oklahoma]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 2002-I-0006

Title: Final Audit Report, Management of Federal Funds by the Cheyenne
       and Arapaho Tribes of Oklahoma

 
Date:  January 11, 2002

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U.S. Department of the Interior
Office of Inspector General 
  
Management of Federal Funds Cheyenne and Arapaho Tribes of Oklahoma
  
Tribes and Bureau of Indian Affairs Working Together to  Improve Tribal Financial and Program Management Systems
  
No. 2002-I-0006
January 2002

United States Department of the Interior
Office of Inspector General
Western Region
Federal Building
2800 Cottage Way, Suite E-2712
Sacramento, California 95825
  
  
January 11, 2002
7430
  
Memorandum
  
  
To:  Assistant Secretary for Indian Affairs
  
From:  Michael P. Colombo
Regional Audit Manager, Western Region
  
Subject:  Final Audit Report, Management of Federal Funds by the Cheyenne and Arapaho Tribes of Oklahoma (No. 2002-I-0006) 

The attached report presents the results of our review of the effectiveness of the Cheyenne and Arapaho Tribes of Oklahoma in managing federal funds.  As requested by your office and by Senators Don Nickles and James M. Inhofe and Representative Frank D. Lucas, we reviewed the Tribes= management systems and internal controls to determine whether they were sufficient to ensure that these funds were properly managed, accounted for, and expended in accordance with federal laws and regulations and the terms of the funding agreements.  The Tribes have experienced difficulty in complying with the terms of their funding agreements since at least 1992. 

Results in Brief 

We are pleased to report that although much work remains to be done, the Tribes are improving their management of federal programs.  We believe that this improvement is the direct result of the decisive actions taken by the Bureau of Indian Affairs (BIA) and the U.S. Department of Health and Human Services (HHS).  These agencies, which collectively account for the majority of the Tribes= federal funding, continue to take the steps necessary to address identified problems and ensure that federal funds are properly managed and expended.  In September 1996, BIA classified the Tribes as a Ahigh-risk@ contractor, placed
the Tribes on a cost-reimbursable basis, and increased its monitoring of Tribal contracts and grants with BIA.  Similarly, in July 1999, HHS increased the monitoring of its contracts and grants with the Tribes and in June 2000 placed the Tribes on a cost-reimbursable basis.  As a result, a majority of the Tribes= federal funding is now provided on a cost-reimbursable basis.

Our review confirmed BIA=s determination that while the Tribes have made progress in improving their compliance with federal program requirements, they still needed to make significant improvements in the management of their financial systems and Social Services Program.  The Tribes must now implement, and elected officials and Tribal management personnel must consistently enforce, the recommendations made by their auditors and federal funding agencies.  If the Tribes do not take the necessary actions, BIA will be required to continue to closely monitor BIA programs into the foreseeable future.  We also found that
from 1997 through 1999, the Tribes had inappropriately used about $614,000 of direct federal program funds to pay the overhead, or indirect, costs of administering their federal programs. 

We recommended that you direct BIA to continue to work with Tribal officials to ensure that the Tribes (1) comply with their Accounting and Finance Manual in accounting for and administering federal funds, (2) properly determine and document in case files the eligibility and need of participants in the Social Services Program, (3) determine the amount of direct program funding used for indirect purposes applicable to each federal program, and (4) notify each federal agency of the reimbursable amount identified.  In our opinion, these
recommendations will assist BIA=s continuing effort to work with the Tribes in implementing an effective financial management system and in further improving program management, specifically of the Social Services Program.  If the Tribes do not improve their management of federal programs, we believe that BIA should consider installing a federal monitor or reassuming administration of the programs.
  
In your response to our draft report (Appendix 1), you concurred with recommendations 1 and 2 and did not concur with Recommendations 3 and 4.  We modified Recommendations 3 and 4 to address your concerns and believe that your proposed actions meet the general intent of the recommendations.  Accordingly, we consider Recommendations 2, 3, and 4 resolved and are referring them to the Assistant Secretary for Policy, Management and Budget for tracking of implementation.  We modified Recommendations 1 and 2 to include a provision for establishing a federal monitor.  For Recommendation 1, we are requesting that BIA provide us with additional information:  namely, an estimated date for either (1) the Tribe=s compliance with the Accounting and Finance Manual or (2) BIA=s installation of a federal monitor or reassumption of program ministration.
  
In their response, the Tribes generally concurred with our findings and recommendations, but expressed frustration at their Ahigh-risk@ classification and stated that more cooperation is needed between the Tribes and BIA.  We agree that corrective actions are best accomplished in an atmosphere of cooperation and believe that the actions proposed in your response will assist the Tribes in correcting their financial and program deficiencies.
  
We commend the managers and staff of BIA=s Southern Plains Regional Office and Concho Agency Office for their oversight of BIA programs.  We also thank BIA and the Tribes for their assistance and cooperation during our audit.  We will report the results of our review to the three Congressmen, as well as to the regional offices of the Inspectors General for the federal agencies providing significant funding to the Tribes.
  
Action Required
  
In accordance with the Departmental Manual (360 DM 5.3), we are requesting a written response to this report by March 15, 2002.  The response should provide the information requested in Appendix 3.
  
The legislation, as amended, creating the Office of Inspector General requires us to report semiannually to Congress on all audit reports issued, actions taken to implement audit recommendations, and each significant recommendation that has not been implemented.
  
Attachment 
  
cc:  Mr. Jerry Fiely, Acting Director, Assistant Secretary for Indian Affairs, Office of Audit and Evaluation
Mr. Dan Deerinwater, Regional Director, Southern Plains Regional Office, Bureau  of Indian Affairs
Ms. Galila Johnson, Superintendent, Concho Agency, Bureau of Indian Affairs
Audit Liaison Officer, Bureau of Indian Affairs   

Contents
  
Page
                                                           
Background . . . . . . . . . . . . . . . . . . . . . . . . .1
Objective and Scope of Review . . . . . .4
Tribes Have Made Progress But Further Improvement 
Is Needed . . . . . . . . . . . . . . . . .4
Enforce Existing Financial Management Controls 5
Ensure Eligibility of Applicants for Social 
Services Program Benefits  . . . . . . .6
Tribes Used Direct Program Funds for Indirect Costs  . . . .7
Recommendations  . . . . . . . . . . . . . . . . . . . . . .8
Agency and Tribal Response and OIG Reply . . . . . . . . . .8
  
Appendices
1 Response from Bureau of Indian Affairs 10
2 Response from Cheyenne and Arapaho Tribes13
3 Status of Recommendations. . . . . . . 15

List of Figures
Figure 
No.
1  Location Map  . . . . . . . . . . . .1
2  Chronology  . . . . . . . . . . . .2-3
3  General Assistance Payments . . . . .6
  
Abbreviations
  
BIA  . . . . . . . Bureau of Indian Affairs
CPA  . . . . . .Certified Public Accountant
HHS Department of Health and Human Services
IG  . . . . . .Office of Inspector General

Background
  
The headquarters office of the Cheyenne and Arapaho Tribes of Oklahoma is located in Concho, Oklahoma.  The Tribes have about 11,500 enrolled members, of which about 5,000 live on or near the reservation.  A business committee, composed of four representatives elected from the Cheyenne Tribe and four representatives from the Arapaho Tribe, administers the day-to-day operations of federal programs and Tribal enterprises, including a casino, bingo halls, smoke shops, and a farm and ranch.
  
The Tribes' federal programs are funded through agreements executed with federal
agencies, generally under the Indian Self-Determination and Education Assistance Act (Public Law 93-638 as amended).  In fiscal year 1999, the Tribes received $7.3 million in federal funds, of which over 80 percent was received from BIA and HHS.  To ensure that the funds are properly expended, federal agencies, in this case primarily BIA and HHS, periodically review Tribal financial and program management.  The agencies also rely on annual audits of the Tribes' financial management system conducted by certified public accountants (CPA) under the Single Audit Act (Public Law 98-502 as amended) and Office of Management and Budget Circular A-133, Audits of State, Local Governments, and Non-Profit Organizations.
  
Since at least 1992, the Tribes have had difficulty in complying with the terms and conditions of their federal contracts and grants and in maintaining the integrity of their financial and program management systems.  As a result, by December 31, 1996, the Tribes had been advanced about $2.9 million in federal monies that had not been spent on approved program purposes and were not covered by available Tribal resources.  Of this amount, $2.3 million was applicable to BIA.  Figure 2 shows the recent history of deficiencies in the Tribes' financial and program management systems and the corrective actions taken by BIA and HHS.

September 1996 - BIA Classifies Tribes As A "High-Risk" Contractor And Places Them On A Cost-Reimbursable Basis. Acting Area Director of BIA's Anadarko Area Office (now known as the Southern Plains Regional Office) based the decision, in part, on the inability of the Tribes to provide financial statement audits (single audits) and program and financial reports within required time frames and their failure to comply with contract terms and to address about $2.3 million of deferred revenue applicable to BIA programs.
  
1997 - BIA's Concho Agency Conducts Expenditure Reviews.  Agency staff performed expenditure reviews of the Tribes' requests for reimbursements about once a month.
  
1998 And 1999 - BIA Reviews Note Some Improvement Since 1996, But Identify
Continued Deficiencies.

June 1998 Review Of Law Enforcement Program.  This review reported a general failure to meet minimum Program requirements; specifically the review dentified:
(1)  Missing law enforcement weapons.
(2)  Inadequate accountability for sensitive equipment. 
(3)  Poor management practices in hiring, training, and directing employees and in conducting criminal investigations.  October 1999 Followup Review Of Law Enforcement Program.  This review reported that many issues identified in the 1998 review had been corrected but that some personnel-related issues remained.
July 1998 Review Of Social Services Program.  This review questioned the allowability of assistance payments and noted that very little effort was made
toward moving clients toward long-term self-sufficiency.  Specifically:  Application forms were incomplete.
Case files did not have sufficient documentation to establish eligibility, support need and payment amounts, or to indicate verification of income or other   resources available to applicant.  Expenditure Reviews.  Five reviews, conducted to verify that expenditures were allowable and supportable, continued to identify deficiencies in payroll, travel, property management, and procurement.
  
July 1998 - BIA's Concho Agency Awarding Official Issues Decisions To Disallow
$593,505.  The $593,505 was funds advanced under completed federal contracts and
grants with the Tribes.  The Tribes had not provided documentation that these funds had been spent for approved purposes.
  
September And December 1998 - BIA Issues Bills For Collection For $593,505.
  
October And December 1998 - Tribes Appeal BIA Bills For Collection To Interior Board Of Contract Appeals.  (Awaiting Resolution)
  
June 1999 - BIA's Concho Agency Awarding Official Issues Decision To Disallow
$2,277,748.  The amount represents the cumulative total of unaccounted for deferred revenue for BIA contracts and grants, including the $593,505.
  
July 1999 - Tribes Appeal June 1999 Agency Decision To Interior Board Of Contract Appeals.  (Awaiting Resolution)
  
July 1999 - HHS Office Of Audit Services Advises That The Tribes Should Be Put  On "Departmental Alert List."  This action increased HHS monitoring of Tribal contracts and grants.
  
February 2000 - BIA Receives The Tribes' Single Audit Report For Calendar Year 1997 With Qualified Opinion.  The CPA firm conducting the audit issued a qualified opinion because interfund transfers to and from funding sources did not reconcile and because there were  nine significant internal control deficiencies involving the Tribes' ability to administer federal funding in accordance with the terms of federal contracts and grants.  In effect, the Tribes did not accurately record, process, document, and report financial and
program information.  (The1997 report was due February 1, 1999.)
  
June 2000 - HHS/Indian Health Service Places Tribes On Cost-Reimbursable Basis. 
(Decision retroactive to March 1, 2000)
  
March 2001 - BIA Receives Single Audit Report For Calendar Year 1998 With Qualified Opinion.  The CPA firm reported 18 significant internal control deficiencies affecting the Tribes' ability to account for and report financial data in accordance with federal contracts and grants.  Overall, the deficiencies reported were similar to those identified in the 1997
single audit report and in BIA expenditure and program reviews.  (The 1998 report was due February 1, 2000.) 



Figure 2
Chronology
  
Objective and Scope of Review
  
The Assistant Secretary for Indian Affairs and Senators Don Nickles and  James M. Inhofe and Representative Frank D. Lucas requested that we review the Tribes' management systems and internal controls to determine whether they were sufficient to ensure that federal funds were properly managed, accounted for, and expended in accordance with federal laws and regulations and the terms of the funding agreements.

We conducted our review in accordance with the "Government Auditing Standards,"
issued by the Comptroller General of the United States and included such tests of records and other auditing procedures that were considered necessary to meet our objective.  We also reviewed the system of internal controls over the Tribes' management of federal funds and administration of federal programs.  We identified and confirmed CPA-reported control weaknesses related to the accurate and timely recording, processing, documenting, and reporting of financial information and the management of the Social Services Program.  Our recommendations to correct the identified weaknesses should improve internal controls in these areas.

We reviewed six programs (Community Health Representative, Child Care and
Development, Higher Education, Social Services, Law Enforcement, and Housing
Improvement) to determine the adequacy of file documentation, verify applicant or recipient eligibility, and test general compliance with contract provisions.  We selected these programs because they were considered major programs (programs over $300,000) or because agency reviews or other audits had identified material problems with the programs.  These programs received a total of $2.7 million, or 37 percent of the federal funds received in 1999.

We also analyzed the financial status of the Tribes' federal programs by testing program revenues and expenditures and other financial and planning data available for the Tribes' fiscal year ending December 31, 1999.  We confirmed the validity of federal funds reported and reviewed the propriety of payroll, procurement, travel, and property   management expenses, which accounted for about 64 percent of total expenditures.  With the exception of our review of the Tribes' indirect cost charges, we did not test accounting periods prior to January 1999 because the Tribes' 1997 records had just been audited and the Tribes' CPA firm was auditing Tribal records for calendar year 1998.
  
Tribes Have Made Progress But Further Improvement Is Needed

Our review confirmed BIA's determination that the Tribes had made progress in
developing management systems and internal controls to administer their federal
programs.  We believe that the Tribes' progress was primarily the result of BIA's increased oversight.  We agree with BIA that further improvements are needed in implementing and enforcing these systems and controls.  We believe that enforcing compliance with the Tribes' Accounting and Finance Manual and ensuring the eligibility of individuals who apply for benefits from the Social Services Program would significantly improve Tribal compliance with the terms of federal funding agreements and help ensure that federal funds are spent only for approved purposes.

Enforce Existing Financial Management Controls
The Tribes' Accounting and Finance Manual provides for the systematic processing and reporting of financial transactions, including procedures to review both active and inactive programs that had not been officially closed out.  Tribal officials, however, did not consistently enforce these policies and procedures, which significantly contributed to accounting-related problems similar to those identified by BIA during its 1997 and 1998 expenditure and program reviews and by the Tribes' CPA firm during its 1997 audit. Specifically, the Tribes did not accurately and timely record, process, document and report financial information, as shown in the following examples.

Tribal officials did not require employees to produce monthly or quarterly financial statements, close accounting records, or make year-end adjusting and closing entries.  Instead, management allowed these functions to be performed during the Tribes' single audit process months or even years after the end of the accounting period.  In July 2000, for instance, we found that staff were still making adjustments to 1998 financial data.

Tribal officials allowed nearly every finance department employee to adjust financial data, resulting in some data being adjusted more than once and without supervisory review or approval.

Tribal officials did not always require employees to reconcile differences between accounts, such as interfund transfers.  In addition, the Controller or other designated official did not always analyze the reconciliations that were made to determine the reasons for differences and to reduce or prevent their reoccurrence.

Tribal officials did not require employees to close out federal contract/program
accounts in a timely manner.  We found that as of July 2000, accounts for 16
inactive contracts were still open in the Tribes' accounting records, thus allowing for unapproved adjustments to accounts.

Tribal officials did not consistently require employees to use the budgetary features of the accounting software, which is designed to measure financial performance and thereby reduce or prevent the over-expenditure of federal program funds.  Enure Eligibility of Applicants for Social Services Program Benefits

Of the six programs reviewed, we found that, with the exception of the Social Services Program, the Tribes generally expended contract funds for the purposes allowable under the contracts. In the Social Services Program, however, officials still were not adequately documenting applicant eligibility and allowed ineligible applicants to receive assistance.  Of the 470 participants receiving general assistance payments totaling $212,607 in 1999, we randomly selected and reviewed case files for 48 participants.  Of these, we could
verify the eligibility of only two participants, based on file documentation.  See Figure 3.

Figure 3
General Assistance Payments

We also reviewed 6 of 163 homeless assistance payments made in 1999 to ascertain the eligibility of program participants and found that none were sufficiently documented to determine eligibility.  We limited our testing because a June 2000 BIA review had determined that participants for 40 of the 49 cases reviewed were not eligible.  Our review confirmed BIA's determination that the lack of adequate documentation to establish participant eligibility was and continues to be a significant problem for the Social Services Program.

The Social Services Program Director stated that ineligible Tribal members received assistance because of high staff turnover, heavy workload, and lack of staff training.  Notwithstanding these problems, the Tribes' Social Services Program contract, which incorporates Part 20 of Title 25 of the Code of Federal Regulations, requires limiting applicant eligibility to persons who are at least one-quarter Indian; live in the area served by the Tribes; lack basic food, shelter, or clothing; do not receive financial assistance from the Aid To Families With Dependent Children or the Supplemental Security Income Programs; and complete an application for local, state, and federal assistance.

Accordingly, we believe that both BIA and the Tribes should continue to monitor the Social Services Program carefully to ensure that case files are properly documented and that only eligible applicants receive assistance.  If necessary, BIA should consider either installing a federal monitor to administer the Social Services Program or reassuming administration of the Program.

Tribes Used Direct Federal Program Funds for Indirect Costs

We also found that from 1997 through 1999, the Tribes inappropriately used about
$614,000 of federal program funds to pay overhead, or indirect, costs.  We did not determine how much of the $614,000 applied to each federal agency because such a determination would have required an analysis of the revenues and expenditures for all funding sources for the entire 3-year period.  We believe, however, that the $614,000 is money "borrowed" from federal funds which was not covered by cash in the bank or investments and which is therefore "unaccounted for" deferred revenue.  BIA should coordinate with the Tribes to determine the amount of direct costs that are reimbursable to each federal program.  In our opinion, the unaccounted revenue occurred because the Tribes supplemented direct federal program funding without funding their proportionate share of indirect costs.

Recommendations

To assist the BIA and the Tribes in addressing identified problems and issues, we recommend that the Assistant Secretary for Indian Affairs direct appropriate BIA officials to work with the Tribes to:

1. Ensure that Tribal management and elected officials enforce compliance with the Tribes' Accounting and Finance Manual in accounting for and administering federal funds to forestall establishing a federal monitor and/or reassuming administration of the programs.

2. Ensure that the eligibility and need of participants in the Tribes' Social Services Program are properly determined and documented in case files so that only eligible applicants receive federal assistance.  Such assurance could include BIA's installing a federal monitor, reassuming administration of the Program, or taking other action as appropriate.

3. Determine the amount of direct funding used for indirect purposes that is
reimbursable to each federal program.

4. Notify each affected federal agency of the reimbursable amount determined.


Agency and Tribal Response and OIG Reply

In his October 31, 2001 response (Appendix 1), the Assistant Secretary for Indian Affairs generally concurred with Recommendations 1 and 2 and did not concur with Recommendations 3 and 4.  We modified Recommendations 3 and 4 to address the Assistant Secretary's concerns and believe that BIA's proposed actions meet the general intent of these recommendations.  The response stated that BIA would (1) ask the Tribes to require their CPA firm to prepare an analysis of the direct program funding used for indirect cost purposes as part of the Tribes' next single audit and (2) leave the decision as to whether to recover the costs to each of the federal agencies involved.  We agree and
are providing copies of this report to the regional offices of the Inspectors General of the agencies providing significant federal funding to the Tribes.

We consider Recommendations 2, 3, and 4 resolved and are referring them to the
Assistant Secretary for Policy, Management and Budget for tracking of implementation. We modified Recommendations 1 and 2 to include a provision for establishing a federal monitor and are requesting additional information for Recommendation 1.  Although BIA concurred with that recommendation, it stated that it could not provide a target date for completing the corrective action since ultimate resolution of the recommendation was up to the Tribes.  BIA did not address the second part of Recommendation 1, which was to reassume  administration of the programs if the Tribes did not enforce compliance with
their Accounting and Finance Manual in accounting for and administering federal funds.  We are asking BIA, after meeting with the Tribes, to provide an estimated date for either (1) Tribal compliance with the Accounting and Finance Manual or  (2) BIA's establishment of a federal monitor or reassumption of program administration.

In their October 31, 2001 response (Appendix 2), the Tribes generally concurred with our findings and recommendations, although the Tribes were critical of BIA's monitoring and oversight prior to placing the Tribes on "high-risk" status in September 1996.  Specifically, the Tribes stated that "an atmosphere and spirit of working together to resolve the causes that prompted the "high risk" designation or which resulted from the designation does not exist between the Bureau and the Tribes" and requested that we make a  recommendation for BIA and the Tribes to work together.

We appreciate the Tribes' response and understand their frustration with being on "high risk" for the past 5 years.  We believe, however,  the situation is equally frustrating for BIA because of the extensive  monitoring and oversight it has continued to provide to ensure that federal funds are properly managed and accounted for.  In addition, the Tribes still have not adequately addressed several of the conditions that gave rise to BIA's designating the Tribes as a "high-risk" contractor.  These conditions were reported in the Tribes' single audit reports for 1996, 1997, and 1998; BIA's monitoring reports; and our
audit report.  Further, based on discussions with BIA personnel and BIA's response to the draft report, BIA has been and continues to be willing to work with Tribal officials and personnel to develop, implement, and enforce the corrective actions necessary to address many of the conditions that are the basis for the Tribes' "high risk" designation.  We are particularly interested in BIA's statement that it would offer to assist the Tribes in creating
and adopting a "Compliance Code" applicable to all staff, including actions to be taken for incidences of noncompliance.

We agree that progress toward resolving the system and program changes necessary to address the Tribes' "high risk" status is best accomplished in an atmosphere of cooperation.  The Tribes, however, are ultimately responsible for ensuring that federal funds are properly managed and accounted for and must take the steps necessary to again assume full responsibility for administering programs and services to their members.

Appendix 3
Status of Recommendations

Recommendation 1

Status: Management Concurs Additional Information Is Needed
Action Required: Provide an estimated date for (a) Tribal  compliance with the
Accounting and Finance Manual or (b) BIA's  establishment of a federal monitor or re-assumption of program administration

Recommendations 2, 3 and 4

Status: Resolved; Not Implemented
Action Required: No further response to the OIG is required.  We will refer the
recommendations to the Assistant Secretary for Policy, Management and Budget
for tracking of implementation.

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