[Final Audit Report on the U.S. Fish and Wildlife Service Federal  Assistance Grants Administered by the State of Alabama, Department of  Conservation and Natural Resources, Wildlife and Freshwater Fisheries Division  and Marine Resources Division, from October 1, 2002, through September 30, 2004]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. R-GR-FWS-0002-2005

Title: Final Audit Report on the U.S. Fish and Wildlife Service
       Federal  Assistance Grants Administered by the State of
       Alabama, Department of  Conservation and Natural Resources,
       Wildlife and Freshwater Fisheries Division  and Marine
       Resources Division, from October 1, 2002, through September
       30, 2004 

  
Date:  September 7, 2005

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AUDIT REPORT

Memorandum

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

From:  Andrew Fedak, Director of External Audits

Subject:  Final Audit Report on the U.S. Fish and Wildlife Service Federal 
Assistance Grants Administered by the State of Alabama, Department of 
Conservation and Natural Resources, Wildlife and Freshwater Fisheries Division 
and Marine Resources Division, from October 1, 2002, through September 30, 2004 
(No. R-GR-FWS-0002-2005)

This report presents the results of our audit of outlays reported by the State 
of Alabama, Department of Conservation and Natural Resources (Department), 
Wildlife and Freshwater Fisheries Division (Wildlife and Fisheries) and Marine 
Resources Division (Marine Resources), under Federal Assistance grants from the 
U.S. Fish and Wildlife Service (FWS).  The audit included reported outlays that 
totaled approximately $23.8 million on FWS grants that were open during the 
Stateï¿½s fiscal years ended September 30, 2003 and 2004 (see Appendix 1).  The 
audit also covered the Divisionsï¿½ compliance with applicable laws, regulations, 
and FWS guidelines, including those related to the collection and use of State 
fishing and hunting license revenues and the reporting of program income.

We found that Wildlife and Fisheries did not report program income on the 
correct form, and did not report the interest earned on that income during the 
grant period. 

FWS Region 4 provided a response to the draft of this report on August 4, 2005, 
which included the Departmentï¿½s July 18, 2005 response to FWS.  The FWS and 
Department responses generally concurred with the audit findings and 
recommendations, but included suggested changes to the report. Based on the 
responses, we clarified the finding on program income and modified the report to 
incorporate the interest amounts computed by the Department and correct minor 
errors.  We summarized the FWS and Department responses after the 
recommendations and added our comments regarding the responses.  The status of 
the recommendations is summarized in Appendix 3.

In accordance with Departmental Manual (361 DM 1), please provide us with your 
written response to the recommendations included in this report by December 6, 
2005.  Your response should include the information requested in Appendix 3.  If 
you have any questions regarding this report, please contact Mr. Lawrence Kopas, 
Audit Team Leader, or me at (703) 487-5345.

cc:  Regional Director, Region 4, U.S. Fish and Wildlife Service

Introduction

Background

The Pittman-Robertson Wildlife Restoration Act and the Dingell-Johnson Sport 
Fish Restoration Act  (Acts) 1 authorize FWS to provide Federal Assistance 
grants to states to enhance their wildlife and sport fish programs.  The Acts 
provide for FWS to reimburse the states up to 75 percent of the eligible costs 
incurred under the grants.  They also specify that state hunting and fishing 
license revenues cannot be used for any purpose other than the administration of 
the stateï¿½s fish and game department.

Scope, Objective, and Methodology

We conducted our audit at the Alabama Department of Conservation and Natural 
Resources (Department) offices in Montgomery, the Wildlife and Freshwater 
Fisheries Division (Wildlife and Fisheries) headquarters in Montgomery, and the 
Marine Resources Division (Marine Resources) headquarters at Dauphin Island.  
The audit included reported outlays that totaled approximately $23.8 million on 
49 of the 512 FWS grants that were open during the Stateï¿½s fiscal years (SFY) 
ended September 30, 2003 and 2004 (see Appendix 1).  We also visited three 
district offices, one fish hatchery, and two Marine Resources offices (see 
Appendix 2).  The objective of our audit was to determine:

> the adequacy of the Divisionsï¿½ accounting systems and related internal 
controls; 
> the accuracy and eligibility of the direct and indirect costs claimed under 
the Federal Assistance grant agreements with FWS;
> the accuracy and reliability of Wildlife and Fisheriesï¿½ hunting and fishing 
license fees collection, certification, and disbursement processes; 
> the adequacy of the Divisionsï¿½ asset management systems and related internal 
controls with regard to purchasing, control, and disposal; and
> the adequacy of the Stateï¿½s compliance with the Actsï¿½ assent legislation 
requirements. 

We performed our audit in accordance with the Government Auditing Standards 
issued by the Comptroller General of the United States.  Accordingly, we 
included such tests of records and other auditing procedures that we considered 
necessary under the circumstances.  Our tests included an examination of 
evidence supporting selected expenditures charged by the Divisions to the 
grants, interviews with employees to ensure that personnel costs charged to the 
grants were supportable, and a review of Wildlife and Fisheries use of hunting 
and fishing license revenues to determine whether the revenues were used only 
for fish and wildlife program purposes.  We relied on the work performed by the 
Alabama Department of Examiners of Public Accounts (State auditors) on the State 
Single Audit for SFY 2003 to the extent possible in order to avoid a duplication 
of effort.  At the time of our fieldwork, the State auditors had not completed 
fieldwork on the Single Audit for SFY 2004.  

Based on our review of the audit work of the State auditors, we were able to 
reduce the amount of our internal control testing and other audit work for the 
accounting, purchasing, and labor reporting systems.  In addition, we were able 
to reduce our audit work for grant compliance and expenditure testing, license 
certifications, drawdowns, license revenue, program income, assent legislation, 
real property management, equipment management, and in-kind contributions.  
Therefore, our review covered primarily SFY 2004.  We did not evaluate the 
economy, efficiency, or effectiveness of the Divisionsï¿½ operations.

At the time of our review, FWS granted the Department an extension until March 
31, 2005, for submitting the annual Financial Status Reports for the SFY 2004 
grants.  Our review of expenditures for SFY 2004 was based on the information in 
the Divisionsï¿½ drawdown records. 

Prior Audit Coverage

On July 17, 2002, we issued a memorandum to FWS on the ï¿½Results of Agreed-Upon 
Procedures Review of Costs Claimed by the State of Alabama Department of 
Conservation and Natural Resources, Division of Wildlife and Freshwater 
Fisheries and Division of Marine Resources, Under Federal Aid Grants from the 
U.S. Fish and Wildlife Service from October 1, 1998 through September 30, 2000.ï¿½  
The memorandum stated that the prior audit agency had not completed its audit 
work in the areas of purchasing, labor recording, asset management, and testing 
of costs claimed for reimbursement to determine whether the costs were incurred 
in accordance with the grant agreements.  We reviewed the memorandum, followed 
up on the two findings, and determined they had been resolved prior to our 
review.  In addition, the State auditors issued a Single Audit report on the 
State of Alabama for SFY 2003 in which the Sport Fish and Wildlife Restoration 
programs were audited as major programs.  The report did not identity any 
findings regarding Federal Assistance grants or license fees or the Stateï¿½s fish 
and wildlife programs.

Results of Audit

We found that:

> The accounting system used by both Wildlife and Fisheries and Marine Resources 
was adequate to account for grant and license fee receipts and disbursements.
> The asset management system used by both divisions and related internal 
controls with regard to purchasing, control, and disposal of assets was 
adequate.
> The Wildlife and Fisheries hunting and fishing license fees collection and 
disbursement processes were adequate and reliable.
> The Wildlife and Fisheries license certification process was adequate and 
reliable.
> The State had adequate assent legislation in place to prohibit the use of 
license revenues for any purpose other than the administration of the 
Departmentï¿½s game and fish activities.

However, we also found that while Wildlife and Fisheries identified program 
income on its annual performance reports, it did not report this program income 
on its Financial Status Reports (SF 269).  In addition, Wildlife and Fisheries 
did not report interest earned on this program income.

A.  Program Income

Although the Department reported program income totaling $865,729 on its annual 
performance reports, it did not include all program income on its Financial 
Status Reports (SF 269).  According to the performance reports, the Department 
received $850,951 from a timber lease and the sale of timber, $13,338 from Farm 
Services payments, and $1,440 from the sale of replacement cards that were 
produced under the Hunter Education grants.3


Grant No.
Source
W-34-50
W-34-51
W-1-31
W-1-32
Total
Timber Sales
$682,646
$168,305


$850,951
Farm Services
5,950
7,388


13,338
Replacement Cards


$1,220
$220
1,440
Totals
$688,596
$175,693
$1,220
$220
$865,729

Title 43 CFR ï¿½ 12.65 (b) defines program income as ï¿½gross income received by the 
grantee or subgrantee directly generated by a grant supported activity, or 
earned only as a result of the grant agreement during the grant period.ï¿½  
Regarding the use of program income, 43 CFR ï¿½ 12.65 (g) states: 

ï¿½Ordinarily, program income shall be deducted from total allowable costs to 
determine the net allowable costs [deductive method].  Program income shall be 
used for current costs unless the Federal agency authorizes otherwiseï¿½When 
authorized, program income may be added to the funds committed to the grant 
agreement by the Federal agency and the grantee [addition method] ï¿½ [or] used to 
meet the cost sharing or matching requirement of the grant agreement.ï¿½

FWS authorized the Department to use the addition method to dispose of program 
income and defer the disposition of this income. The receipts were deposited 
into the Capital Outlays Account in the Departmentï¿½s Game and Fish Fund (Fund), 
an interest-bearing fund, where they were commingled with license fees and other 
revenues and retained until the opportunity arose to acquire land for its fish 
and wildlife programs.  At such time, FWS would award the Department a grant for 
the specific acquisition, funded entirely with the program income revenues. 

The U.S. Fish and Wildlife Service Manual (522 FW 1.23) requires states to 
submit an annual Financial Status Report (SF 269) not later than 90 days after 
the expiration date of the grant agreement unless a request for extension has 
been approved.  FWS also requires the states to identify estimated program 
income on the grant application and agreement and report actual program income 
on the SF 269.

The Department reported revenues totaling $689,8164 as program income for 2003 
on its performance report for grant No. W-34-50, but did not report these 
revenues as program income on the SF 269s.  The amount reported on the SF 269s 
should have included $688,596 for grant No. W-34-50 and $1,220 for grant No. W-
1-31.  

In January 2005, we notified FWS and the Department of this issue and 
recommended that FWS require the Department to (a) adopt procedures to report 
program income from timber sales on the SF 269 and track timber sales revenues 
deposited into the Fundï¿½s Capital Outlays Account and (b) report program income 
of $688,596 for grant No.W-34-50, and $175,693 for grant No. W-34-51on the 
respective SF 269s.  FWS and the Department agreed with our finding and 
recommendations, and prior to our exit conference, the Department submitted a 
revised SF 269 for grant No. W-34-50, which properly identified the revenues as 
undisbursed program income.  The Department also agreed to report program income 
of $175,693 on the final SF 269 for grant No.W-34-51, which was not yet due at 
the completion of our audit (FWS had granted an extension).

We also found that the Department did not report the interest earned during the 
grant period on the program income deposited into the Fund. The Department 
earned interest totaling $6,257 on grant Nos. W-34-50 ($4,356) and W-34-51 
($1,901).  The Department earned a negligible amount of interest on grant Nos. 
W-1-31 and W-1-32.

Recommendations

We recommend that FWS:

1. Ensure that the Department properly reports the $175,913 of program income on 
its final SF 269s for grant Nos. W-34-51 ($175,693) and W-1-32 ($220).

2.  Require the Department to develop written procedures for (a) ensuring that 
program 
income is properly reported on the SF 269s, and (b) reporting the status and use 
of revenues deposited into the Capital Outlays Account of the Game and Fish Fund 
along with the SF 269.

3 Ensure the Department reports program income of $4,356 for grant No. W-34-D-50 
and $1,901 for grant No. W-34-D-51 on the respective SF 269s for the interest 
earned during the grant periods on the revenues deposited in the Capital Outlays 
Account.

Department Response 

The Departmentï¿½s response included general comments on the finding in addition 
to the comments on the recommendations.

General Comments.  The Department stated that it does not agree that not all 
program income was reported since the income was identified in its annual 
performance reports to FWS. It agreed, however, that it should have reported 
this income on the 
SF 269s. The Department expressed concern that, ï¿½Read alone, without the follow-
up information presented in this report, it would appear the [FWS] was unaware 
of the program income,ï¿½ and suggested that the report be reworded to more 
accurately reflect the reporting issue.

We believe the finding in the draft report, when read in total, clearly noted 
that the Department had reported the program income on its performance reports 
to FWS.  However, we have modified the finding to clarify the circumstances.
 
Comments on Recommendations.  The Departmentï¿½s comments on the recommendations 
are summarized below.

The Department agreed with Recommendation 1 but disagreed with the dollar 
amounts to be reported as program income.  The Department stated that it had 
reported additional income of $321 from refunds and reimbursements, and 
suggested that we revise the report to reflect this additional income. The 
Departmentï¿½s response included copies of the revised SF 269s submitted to FWS, 
which include program income.  The Department also stated that the program 
income from the replacement cards was attributed in the report to the wrong 
Hunter Education grants.

The Department agreed with Recommendation 2 and has developed written procedures 
for the accounting and reporting of program income, and has provided those 
procedures to FWS. 

The Department also agreed with Recommendation 3, but did not agree with the 
interest amounts shown in the report.  The Department recomputed the interest on 
program income for SFYs 2003 and 2004 and included these amounts on its revised 
SF 269s. 

FWS Response 

FWS stated that it concurred with the recommendations, but agreed with the 
Department that the report should be revised to include program income from 
refunds and reimbursements, the revised interest amounts computed by the 
Department, and the correct grant numbers for the income derived from the 
replacement cards under the Hunter Education program.
 
OIG Response 

Regarding Recommendation 1, the regulations (43 CFR 12.65 (a)) state that 
refunds are not considered program income, and the SF 269 form indicates that 
ï¿½refund, rebates, etc.ï¿½ should be reported as an offset to reported outlays.  
Therefore, we did not revise the report to include refunds and reimbursements.  
However, since the Department did not report the $321 as an offset, has already 
reported this amount as program income on the SF 269s, and the amount is 
immaterial, we do not believe that any further action is needed. 

Regarding Recommendation 2, FWS should determine whether the Departmentï¿½s new 
procedures for reporting and accounting for program income are adequate. 

Regarding Recommendation 3, we agree with the Departmentï¿½s interest computations 
and have revised the report to include these amounts.

Although FWS stated that it concurred with the recommendations, it also stated 
that the Stateï¿½s response ï¿½will be considered in the Corrective Action Plan.ï¿½  
Therefore, additional information is needed on the actions taken or planned to 
resolve the finding and to implement the recommendations.  This information 
should be included in the corrective action plan. 


ALABAMA DEPARTMENT OF CONSERVATION AND NATURAL RESOURCES, WILDLIFE AND 
FRESHWATER FISHERIES DIVISION AND MARINE RESOURCES DIVISION
FINANCIAL SUMMARY OF REVIEW COVERAGE
OCTOBER 1, 2002 THROUGH SEPTEMBER 30, 2004

WILDLIFE AND FRESHWATER FISHERIES


Grant No.
Grant
Amount
Reported
 Outlays



F-18-39
$12,000 
$12,000 
F-18-40
12,000 
12,000 
F-18-41
12,000 
0 
F-35-30
733,500 
833,353 
F-35-31
700,000 
803,659 
F-37-30
580,000 
640,667 
F-37-31
580,000 
587,428 
F-38-30
580,000 
660,953 
F-38-31
650,000 
640,858 
F-39-30
360,000 
385,207 
F-39-31
380,000 
378,658 
F-40-30
511,928 
383,808 
F-40-31
390,788 
274,526 
F-41-30
680,000 
693,973 
F-41-31
600,000 
587,056 
F-46-18
694,276 
620,091 
F-46-19
665,000 
567,950 
F-50-15
200,000 
128,608 
F-50-16
300,000 
114,575 
F-54-14
180,000 
260,891 
F-54-15
218,000 
247,967 
W-1-31
480,000 
482,716 
W-1-32
480,000 
474,247 
W-8-61
400,000 
383,939 
W-8-62
400,000 
448,439 
W-34-50
3,404,000 
3,248,059 
W-34-51
3,316,000 
3,170,743 
W-35-50
245,000 
275,470 
W-35-51
248,000 
228,700 
W-39-46
12,120 
12,120 
W-39-47
12,120 
12,120 
W-39-48
12,120 
0 
W-44-28
52,244 
38,954 
W-44-29
54,244 
40,683 
W-47-13
75,000 
68,385 
W-48-19
62,000 
57,256 
W-48-20
69,300 
39,440 
W-49-18
166,000 
168,466 
W-49-19
130,000 
137,867 
W-53-11
468,000 
474,704 
W-53-12
472,000 
518,086 
W-60-2
172,000 
188,681 
W-60-3
86,000 
84,573 
W-61-3
1,143,000 
1,128,998 
W-62-1
   72,052 
   84,888 
Subtotal
$21,070,692 
$20,601,762 



MARINE RESOURCES 



Grant No.
Grant
Amount
Reported
Outlays
F-51-16
$150,000 
$148,224 
F-51-17
150,000 
130,529 
F-52-13
400,000 
225,980 
F-52-14
300,000 
22,417 
F-101-10
1,450,000 
957,991 
F-101-11
  1,450,000 
  1,729,797 
Subtotal
$3,900,000 
$3,214,938 



Total
$24,970,692 
$23,816,700 

Appendix 2

ALABAMA DEPARTMENT OF CONSERVATION AND NATURAL RESOURCES, WILDLIFE AND 
FRESHWATER FISHERIES DIVISION AND MARINE RESOURCES DIVISION 

SITES VISITED

HEADQUARTERS
Department of Conservation and Natural Resources, Montgomery, AL
Marine Resources Division, Dauphin Island, AL
Wildlife and Freshwater Fisheries Division, Montgomery, AL

WILDLIFE AND FRESHWATER FISHERIES DIVISION
District 1, Tanner, AL
Wildlife Section
Fisheries Section
Law Enforcement Section

District 2
Wildlife Section, Jacksonville, AL
Fisheries Section, Eastaboga, AL

District 5, Spanish Fort, AL
Wildlife Section
Fisheries Section
Law Enforcement Section

Fish Hatchery, Eastaboga, AL
Eastaboga Fish Hatchery


MARINE RESOURCES DIVISION
Dauphin Island Office, Dauphin Island, AL
Gulf Shores Office, Gulf Shores, AL

Appendix 3

ALABAMA DEPARTMENT OF CONSERVATION AND NATURAL RESOURCES STATUS OF AUDIT 
FINDINGS AND RECOMMENDATIONS

Recommendation	Status	Action Required

Recommendations:  A.1 and A.2

Status:  Management Concurs; Additional Information Needed	

Action Required:  Provide a corrective action plan that identifies the actions 
taken or planned to resolve the finding and implement the recommendations, as 
well as the basis for disagreement with any recommendations.  The plan should 
also include the target date and the official responsible for implementation of 
each recommendation.  The unimplemented recommendations remaining at the end of 
90 days (after December 6, 2005) will be referred to the Assistant Secretary for 
Policy, Management and Budget, for resolution and/or tracking of implementation. 

Recommendation:  A.3 

Status:  Finding Resolved and Recommendation Implemented

Action Required:  No further action is necessary.