[Final Audit Report on the Wapato Irrigation Project, Bureau of Indian Affairs]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 95-I-1402

Title: Final Audit Report on the Wapato Irrigation Project, Bureau
       of Indian Affairs

Date: September 30, 1995

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MEMORANDUM

TO: Secretary

FROM: Wima A. Lewis
       Inspector General      

SUBJECT SUMMARY:Final Audit Report for Your Information - "Wapato
Irrigation Project, Bureau of Indian Affairs"(No. 95-I-1402)
         
Attached for your information is a copy of the final subject audit report.
The Wapato Irrigation Project Office was collecting the reimbursable construction
costs owed by the Project's non-Indian beneficiaries in a timely manner. However,
the Project Office was not assessing, billing, or collecting annual operation and
maintenance charges.  As of September 30, 1994, delinquent operation and
maintenance charges had increased from $2.8 million to $6.5 million over a 4-year
period. We had previously reported on deficiencies in Wapato Project maintenance
in our 1988 audit report (No. 88-42) on Indian irrigation projects. During our
current audit, we noted that neither the Portland Area Office, which oversees the
Project, nor the Project Office had acted to correct these deficiencies. Accordingly,
Project revenues were insufficient to ensure the proper maintenance of Project
facilities, which have continued to deteriorate, some to the point that future
irrigation deliveries may be jeopardized.
We recommended that the Project Office, with technical assistance and oversight by
the Portland Office, take the following corrective actions: develop operation and
maintenance rates that include the full costs of properly operating and maintaining
 the Project; establish reserve funds to rehabilitate and replace Project facilities and
equipment; comply with Departmental billing regulations and procedures; and
enforce debt collection procedures. We also recommended that the Portland Area
Office develop a plan to collect the delinquent operation and maintenance debt of
$6.5 million and that the Yakima Agency, which negotiates agricultural leases for
Indian-owned Project lands, enforce the requirement for surety bonds or other
security instruments for lessees of Indian lands. In addition, we suggested, and the
Bureau requested, a Solicitor's opinion on whether the $2.1 million in delinquent
Project operation and maintenance debt proposed for cancellation under the Leavitt
Act would be subject to the Revenue and Reconciliation Act of 1993, which requires
that the Internal Revenue Service be informed of the cancellation of individual debts
over $600. Based on the Bureau's response to our draft report and discussions with
Bureau officials, we considered all of the recommendations resolved but not
implemented.

If you have any questions concerning this matter, please contact me at 208-5745.

Attachment

W-IN-BIA-O02-94A

United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
Headquarters Audits
1550 Wilson Boulevard
 Suite 401
 Arlington, VA 22209

Memorandum

To:  Assistant Secretary for Indian Affairs

From:  Marvin Pierce
     Acting Inspector General for Audits

Subject: Final Audit Report on the Wapato Irrigation Project, Bureau of Indian
   Affairs (No. 95-I-1402)

The Office of Inspector General has completed a review of the Bureau of Indian
Affairs Wapato Irrigation Project, located on the Yakima Indian Reservation in the
State of Washington. The review was conducted as part of our audit of the Bureau's
management of its irrigation program. We issued this separate report on the
Wapato Irrigation Project because of the severity of the Project's financial problems
and the deteriorated state of Project facilities and equipment. Our objective was to
determine whether the Bureau identified and collected reimbursable construction
costs owed by non-Indians and whether it assessed, billed, and collected annual
operation and maintenance charges from project landowners and water users.

We found that Project construction costs were being collected in a timely manner.
The Wapato Project has been able to attain timely and consistent repayment of
reimbursable construction costs because the landowners' water rights applications
require the repayment of a proportionate share of those costs. As a result, as of
September 30, 1994, the unpaid portion of the reimbursable construction costs for
the Project's two major units was $72,046, and the amount delinquent was only
$10,279.

However, we also found that neither the Bureau's Portland Area Office, which
oversees the Project, nor the Project Office had taken actions necessary to obtain all
the operation and maintenance charges owed to the Project and to ensure the proper
maintenance of Project facilities and equipment. As of September 1994, delinquent
operation and maintenance charges totaled $6.5 million, including $1 million that had
not been billed and $1.2 million that had been billed but not collected during fiscal
years 1993 and 1994. Specifically, our review disclosed that:

   The Project Office did not assess operation and maintenance rates based
on the estimated full cost of delivering irrigation water and maintaining Project
facilities. Rates assessed by the Project Office included primarily routine operating
costs but did not include costs for the systematic maintenance, rehabilitation, and
replacement of Project facilities and equipment. Although the Code of Federal
Regulations and the Bureau Manual require full cost-based rates, these regulations
were general, and neither the Bureau nor the Portland Area Office had developed
specific guidance on what costs should be included in the rates and how the costs
should be developed. Accordingly, the Project Office continued to assess rates that
were insufficient to properly maintain the Project.

   The Project Office did not mail annual operation and maintenance bills
to all water users and landowners of idle allotted Indian trust lands. The bills were
not mailed primarily because Yakima Agency Realty personnel did not provide the
Project Office with the current names and addresses of the owners and lessees of
these lands and the Project did not modify its billing practices to conform with the
Departmental requirement that the landowners and lessees should be notified in
writing of their debt. For fiscal years 1993 and 1994, we identified bills representing
assessments of $1 million that had not been mailed.

   The Portland Area and Project Offices did not follow required procedures,
such as the use of administrative offset or placing holds on individual Indian money
accounts, to collect delinquent operation and maintenance charges. Area Office and
Project personnel said that they were reluctant to pursue debt collection from the
Yakima Indian Nation and individual Indians, who owe 93 percent of the
$6.5 million delinquent debt owed to the Project, because of the Nation's belief that
payment of operation and maintenance charges was part of the Bureau's trust
responsibility. We identified $1.2 million that had not been collected for fiscal
years 1993 and 1994. In addition, neither the Portland Area nor the Project Office
had a plan for collecting the delinquent debt.

   The Area Office allowed the Yakima Agency to discontinue requiring
surety bonds or other security instruments for the lessees of Indian lands, even
though Federal regulations require such instruments to ensure that lessees honor
their contractual obligations. The Agency had also negotiated and renegotiated
leases with lessees who owed operation and maintenance charges. Agency personnel
stated that the Yakima Indian Nation believed that the bond requirement lessened
their lease revenues and, as such, had requested that the bonds be discontinued. We
believe, however, that the discontinuance of the bonds, in effect, encouraged
delinquencies, increased the debt against Indian-owned lands, and provided
unintended subsidies to non-Indian irrigators.

To correct the deficiencies noted in this review and in our 1988 audit report
(No. 88-42), we recommended that the Project Office, with oversight by the Portland
Area Office, take the following actions: determine the full cost of properly operating
and maintaining the Project; establish reserve funds to rehabilitate and replace
facilities and equipment; comply with Departmental billing regulations and
procedures; and enforce debt collection procedures. In addition, we recommended
that the Portland Area Office develop a plan for collecting the Project's $6.5 million
of delinquent operation and maintenance charges and that the Yakima Agency renew
its enforcement of surety bonds or other security instruments.
The September 25, 1995, response (Appendix 4) to our draft report from the
Assistant Secretary for Indian Affairs generally concurred with the six
recommendations and was sufficient for us to consider all the recommendations
resolved but not implemented. Accordingly, the recommendations will be referred
to the Assistant Secretary for Policy, Management and Budget for tracking of
implementation, and no further response to the Office of Inspector General is
required (see Appendix 5).

In addition, we suggested that the Bureau request a Solicitor's opinion to determine
whether the $2.1 million in delinquent Project operation and maintenance debt being
proposed for cancellation under the Leavitt Act would be subject to the Revenue
and Reconciliation Act of 1993. This Act requires that the Internal Revenue Service
be informed of the cancellation of individual debts over $600. The Bureau requested
a Solicitor's opinion on March 31, 1995.

The legislation, as amended, creating the Office of Inspector General requires
semiannual reporting to the Congress on all audit reports issued, the monetary
impact of audit findings (Appendix 1), actions taken to implement audit
recommendations, and identification of each significant recommendation on which
corrective action has not been taken.

We appreciate the participation of Bureau officials in the conduct of our audit.