[Survey Report on Water Reuse Program Grants, Bureau of Reclamation]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 97-I-874

Title: Survey Report on Water Reuse Program Grants, Bureau of Reclamation

Date: June 13, 1997
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W-IN-BOR-007-96
United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240

SURVEY REPORT

Memorandum

To:   Assistant Secretary for Water and Science

Subject: Survey Report on Water Reuse Program Grants, Bureau of Reclamation
(No. 97-I-874)

INTRODUCTION

This report presents the results of our review of the Bureau of Reclamation's grants for
water reuse program activities. The objective of our review was to determine whether the
Bureau adequately monitored the costs claimed for reimbursement under grants awarded
to state and local entities for wastewater reclamation and reuse projects.

BACKGROUND

The Bureau's water reuse program was authorized in the Reclamation Wastewater and
Groundwater Study and Facilities Act, 1 which directed the Bureau to undertake a program
to identi$ opportunities for reclaiming and reusing municipal, industrial, domestic, and
agricultural wastewater in 17 Western States and to participate with grantees in planning,
designing, and constructing five specific wastewater reclamation and reuse projects.2
Under the Act, the Federal share of costs for these five construction projects may not
exceed 25 percent of the total costs associated with planning, designing, and constructing
the facilities. Federal participation in the cost of operating and maintaining these project
facilities is specifically prohibited by the Act. The Bureau funded its participation in these
projects through grant agreements and was not directly involved in the physical

1Title 16 of the Reclamation Projects Authorization and Adjustment Act of 1992 (Public Law
102-575).

2The five wastewater reclamation and reuse projects are: (1) the San Jose Area Water Reclamation
and Reuse
Program; (2) the Phoenix Metropolitan Water Reclamation Program; (3) the San Diego Area Water
Reclamation Program; (4) the Los Angeles Area Water Reclamation and Reuse Project; and (5) the
San Gabriel Basin Demonstration Project.

construction of the four projects reviewed.3 The Bureau's 1994 "Procedures for
Reviewing Cost-Share Agreements" requires that cost-share agreements, including grants
applicable to the water reuse program, be audited or reviewed annually.

As of September 1995, the Bureau had established 10 grant agreements totaling an
estimated $544 million, with the Federal share estimated at $135 million, for the four
construction projects that we reviewed. For fiscal years 1994 and 1995, the Bureau
reimbursed grantees approximately $25 million and incurred administrative costs of about
$378,000, for total Federal expenditures of $25.4 million (see Appendix 1). According
to information in the Bureau's 1997 budget justification, the projected cost of these four
projects totaled about $1.6 billion, of which the estimated Federal share was about
$391 million (see Appendix 2). In addition, on October 9, 1996, an amendment to the
Act authorized 15 additional projects totaling about $550 million, with a Federal share
estimated at up to $115 million. However, the Bureau has been appropriated only about
$30 million for fiscal years 1994 and 1995.

SCOPE OF SURVEY

Our fieldwork was performed from March through July 1996 and focused on a review of
program grant activities that occurred during fiscal years 1994 and 1995 at the Bureau's
Mid-Pacific Regional Office in Sacramento, California; the Lower Colorado Regional
Office in Boulder City, Nevada; the Phoenix Area Office in Phoenix, Arizona; and the
Southern California Area Office in Temecula, California, which has oversight
responsibility for 9 of the 10 grant agreements awarded through fiscal year 1995. Our
initial audit objective was to determine whether the Bureau and the grantees complied with
the terms and conditions of their funding agreements. As established under the grant
agreements, the Bureau's principal responsibility was to provide reimbursement of eligible
projects costs. Our preliminary survey work disclosed that the Bureau was not adequately
monitoring grant agreements and that the summary billing information reported to the
Bureau was insufficient to allow a determination of whether the Bureau or grantees
complied with the agreements' cost eligibility requirements. Accordingly, we revised our
objective to determine the adequacy of the Bureau's procedures for monitoring the
grantees' compliance with the agreements in an effort to strengthen the Bureau's program
controls over project cost reimbursements.

To meet our revised objective, we reviewed the Reclamation Wastewater and
Groundwater Study and Facilities Act and its related legislative history, Federal
regulations and Bureau guidance on cost-share agreements, the 10 grant agreements
awarded through fiscal year 1995, and the grantees' requests for reimbursements and
related documentation. In addition, we interviewed Bureau program and budget officials
and officials from the Solicitor's Pacific Southwest Regional Office in Sacramento and the

3Grant agreements are agreements with state or local entities in which the Bureau provides funds
but is not
substantially involved in carrying out the specified program or activity. As of July 1996, no grant
agreements
had been established for the Phoenix Metropolitan Water Reclamation Program.

2

 
Solicitor's Field Office in Phoenix to confh-rn our understanding of the Act and applicable
regulations. We also interviewed the Director of the Bureau's Program Analysis Office
in Denver, Colorado, to clari~ program policy issues.

Our survey was made 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 were considered necessary to accomplish our
revised objective. In planning our survey, we reviewed the Department of the Interior's
Annual Statement and Report, which is required by the Federal Managers' Financial
Integrity Act, for fiscal years 1992 through 1995 and determined that the Department did
not report any material weaknesses related to the objective and scope of our survey.

We also evaluated the Bureau's system of internal controls related to its water reuse
program to the extent we considered necessary. We found that the Bureau could
strengthen internal controls in its monitoring of grant agreements. This weakness and the
recommended corrective actions are discussed in the Results of Survey section of this
report. The recommendations, if implemented, should improve the internal controls in
this area.

PRIOR AUDIT COVERAGE

We identified two Office of Inspector General audit reports and one General Accounting
Office audit report that addressed issues relevant to monitoring the participation of non-
Federal entities in Federal programs or projects. Overall, the reports concluded that
Federal organizations could not merely rely on data reported by participating entities and
that additional oversight was needed to ensure compliance with legislative requirements
and performance of program goals and objectives.

The Office of Inspector General's two reports that addressed monitoring issues are as
follows:

- "Grants for Rural Water Project, Great Plains Region, Bureau of Reclamation"
(No. 95-I-947), issued in May 1995, reported that the Great Plains Region needed to
improve its processes for monitoring rural water system project costs to preclude finding
activities that were ineligible for Federal reimbursement. The report stated that while the
Region, in accordance with Office of Management and Budget Circular-A-133, "Audits
of Institutions of Higher Education and Other Nonprofit Institutions, " required a grantee
to be audited, neither the independent auditors nor the Regional personnel who reviewed
the costs charged by the grantee were familiar with restrictions on grantee administrative
costs imposed by another Federal agency. Therefore, neither the auditors nor the Bureau
took exception to ineligible administrative costs charged by four projects, including over
$7 million charged by one project over a 9-year period. The report did not contain any
recommendations because the grantees had incurred costs sufficient to offset the
inappropriate charges. However, the report suggested that Regional management develop

3

 


procedures to ensure adequate training in applicable laws, regulations, and guidelines for
responsible individuals.

- "Distribution Facilities, Central Arizona Project, Bureau of Reclamation"
(No. 93-1-1271), issued in July 1993, reported that the Bureau did not ensure that water
districts met cost-share requirements related to the construction of water distribution
systems on the Central Arizona Project. According to the report, this condition occurred
because the Bureau had not: (1) established sufficient criteria and procedures for districts
to determine the types of costs that could be claimed for cost-share purposes and for
Bureau personnel to determine whether claimed costs were valid and necessary to
construct the water distribution facilities and (2) performed adequate reviews of the
districts' reported contributions to ensure compliance with the cost-share requirements.
Specifically, the report identified costs of about $8.9 million claimed as district
contributions that were unallowable for cost-share purposes. Reducing the claimed
contributions by the $8.9 million resulted in the districts not meeting their cost-share
requirements by about $3.7 million. The report recommended that the Bureau develop
criteria for the types of costs that could be claimed for cost-share purposes and procedures
for verifying the costs claimed by the districts. In a December 21, 1994, memorandum
to the Office of Financial Management, the Bureau reported that it had developed criteria
and procedures to review cost-share agreements on Bureau projects and, accordingly,
considered the recommendations implemented. However, during our current review, we
found that Bureau program personnel either were not aware of or had not implemented
these criteria and procedures in administering the grant agreements for wastewater
reclamation and reuse projects. Instead, Bureau personnel said that they relied primarily
on the single audit process to ensure grantee compliance with the agreements.

The General Accounting Office, in June 1994, issued the report "Single Audit:
Refinements Can Improve Usefulness" (Report No. GAO/AIMD-94-133). The report
stated that while local government officials credited the single audit process with
improving their fmncial management practices, a number of issues still "burden[ed] the
single audit process" and "hinder[ed] the usefulness of its reports. " Specifically, the
report stated that: (1) the selection of programs for audit based on 1984 dollar thresholds
resulted in "many programs considered highly vulnerable to fraud, waste, and abuse" not
being subject to audit; (2) important findings were not highlighted; (3) the 13-month
reporting time frame limited the report's usefulness; (4) entities were not required to
report on the adequacy of their internal control structures; and (5) results were not
summarized to allow program managers to easily determine the need for follow-on audits
or additional program oversight. Subsequently, in 1996, the Congress amended the
Single Audit Act! to address some of these concerns, although the amended Act still
permits the audit to exclude from review Federal assistance that falls below specified

4The Single Audit Act Amendments of 1996 (Public Law 104-156), which are effective for fiscal
years
beginning after June 30, 1996, included the following: (1) raising the audit threshold; (2) providing
for a risk-
based approach for selecting programs for audit; and (3) shortening the reporting time frame from
13 to
9 months for fiscal years beginning after June 30, 1998.

4

 


dollar thresholds. However, during our current review, we found that the Bureau had not
followed up on deficiencies identified by the single audit process and used the results in
planning additional reviews.

RESULTS OF SURVEY

The Bureau of Reclamation did not adequately monitor the costs claimed by grantees for
four construction projects under 10 grant agreements. The Bureau's 1994 "Procedures
for Reviewing Cost-Share Agreements" requires that Bureau accounting and technical
persomel audit or review grant agreements annually to ensure grantee compliance with
the terms of the agreements, which, in this instance, included compliance with the
Reclamation Wastewater and Groundwater Study and Facilities Act. Bureau personnel
said that they did not perform the required annual reviews but instead relied primarily on
the Single Audit Act process and on reviews of summaries of project costs submitted by
the grantees. However, the Bureau did not follow upon conditions identified in the single
audit reports, and the information required in the summary billings was not sufficient to
allow adequate monitoring. As a result, the Bureau did not have assurance that Federal
reimbursements of about $25 million through fiscal year 1995 were only for costs that
were allowable under the terms of the grant agreements. Without improved monitoring,
the Bureau will not have assurance that the remaining $366 million Federal share of
construction costs for projects authorized through September 30, 1995, will be allowable
under the agreements.

Bureau Procedures

According to a December 6, 1994, Bureau memorandum, the 1994 procedures were
developed by the Bureau's Program Analysis Office at the request of the Lower Colorado
Region because of the "potential for Reclamationwide application. " Based on discussions
with the Director of the Program Analysis Office, we determined that the procedures were
not intended to be optional but were mandatory for grant agreements negotiated under the
Reclamation Wastewater and Groundwater Study and Facilities Act. The procedures
require: (1) that the grant agreements be audited or reviewed annually by Bureau
accounting and technical personnel and (2) that the audit or review contain a program
outlining the steps to ensure grantee compliance with the agreements and with the Act and
be properly documented to support the conclusions reached. Under the Act, Federal
participation cannot exceed 25 percent of the total costs associated with planning,
designing, and constructing authorized projects, exclusive of operation and maintenance
costs, which are specifically prohibited. The 10 agreements incorporated the percentage
limitation on Federal expenditures and the provisions of Office of Management and
Budget Circular A-87, "Cost Principles for State and Local Governments, " which
established the principles for determining the allowability of costs for Federal
reimbursement. However, 9 of the 10 agreements did not specifically identify operation
and maintenance costs as ineligible costs, although such costs were implicitly excluded by
the agreements' reference to the Act.

 


Bureau officials informed us that the required reviews were not performed because: (1)
Mid-Pacific Regional program officials were not aware of the procedures and (2) Lower
Colorado Regional officials believed that the procedures were "optional" and that the
Region was precluded fromperfoming tieamual reviews because grantees were subject
to annual audits under the Single Audit Act. Lower Colorado Regional officials also
stated that they did not have sufficient staff to perform the reviews. In addition, Bureau
officials in both regions stated that they believed that relying on the single audit process
and on reviews of billings submitted by the grantees was sufficient to adequately monitor
the costs claimed under the grant agreements.

Bureau Monitoring

We found that the Bureau did not effectively use single audits to facilitate its monitoring
of project costs and that billings submitted by grantees were not sufficiently detailed to
permit an evaluation of the costs claimed for reimbursement.

  Single Audit Process. Personnel in the Mid-Pacific and Lower Colorado Regions
stated that they primarily used the single audit process to monitor the agreements. We
acknowledge that the Single Audit Act was enacted, in part, "to improve the financial
management of State and local governments with respect to Federal financial assistance
programs and . . . to promote the efficient and effective use of audit resources. "
However, the Act does not preclude additional audits. Sections 7503 (b) and (e) of the
Act state that "a Federal agency shall conduct any additional audits which are necessary
to carry out its responsibilities under Federal law or regulations . . . [including] program
results audits, and program evaluations. "  Section 7503 also states that "to avoid
duplication of effort, " Federal agencies "shall rely" on and use the information obtained
under the single audit process to "plan and conduct . . . [their] own audits. " As such, we
believe that the single audit process, while an important oversight tool, does not provide
a comprehensive review of grants or programs and should not be viewed as a substitute
for management oversight and program review. As indicated in the General Accounting
Office's report (No. GAO/AFMD-94-133), Federal grants may not be considered major
programs5 and therefore may not be audited if they fall below prescribed dollar
thresholds.  In addition, under generally accepted auditing standards, reportable

`To be considered a major program under the Single Audit Act of 1984 (Public Law 98-502), a
program had
to meet dollar thresholds, which varied depending on the non-Federal entity's total Federal
expenditures for
all programs. Under the Single Audit Act amendments of 1996, however, a Federal program may
be selected
based on the auditor's assessment of risk. For example, a higher risk is present when the program is
in its
initial and final years, when there are large Federal expenditures, or when deficiencies have been
identified.
However, these amendments were not applicable to fiscal years 1994 and 1995, the period of our
audit.

6

 
conditions may be presented to the grantee either orally or in management letters that are
incorporated into the single audit report only by reference. Thus the grantor may not be
able to identify deficiencies other than material weaknesses without additional oversight
or monitoring.

In this regard, we reviewed the single audit report for fiscal year 1995 for the grantee in
the Mid-Pacific Region and three single audit reports for fiscal years 1994 and 1995 for
two grantees in the Lower Colorado Region. We found that: (1) the Mid-Pacific
Region's project was not reviewed as part of the grantee's single audit for fiscal year 1995
because the Federal share of project expenditures did not meet the audit threshold required
to be considered a major program under the Single Audit Act and (2) the Lower Colorado
Region had not followed up on issues identified by the single audit process that could
affect the costs claimed for reimbursement. Specifically:

- For the Mid-Pacific Region's project to have been considered a major program under
the Act, the 1995 Federal share of project expenditures would have had to have exceeded
about $780,000. Although Federal fi.mds expended for this project in 1995 totaled nearly
$600,000, the project was not audited under provisions of the Act. In addition, the
Region had not requested and did not have a copy of the single audit report for fiscal year
1995.

- The 1994 single audit report of one grantee whose project was administered by the
Lower Colorado Region identified a reportable condition applicable to the grantee's "job
cost" system that could affect its ability to accumulate project operation and maintenance
costs . This same deficiency, although not identified as a reportable condition, was
reported in the auditor's fiscal year 1995 management letter to the grantee and was
referred to in the 1995 single audit report. However, Lower Colorado Regional personnel
had not followed up on the status of the condition identified by the auditors in 1994 and
1995, including requesting a copy of the management letter, to determine whether the
grantee had established sufficient controls to ensure that operation and maintenance costs
were not and would not be billed.

%tatement on Accounting Standards No. 60, issued by the American Institute of Certified Public
Accountants,
effective January 1989, states that reportable conditions are "matters coming to the auditor's attention
that, in
his [or her] judgment, should be communicated to the audit committee because they represent
significant
deficiencies in the design or operation of the internal control structure, which could adversely affect
the
organization's ability to record, process, summarize, and report financial data consistent with the
assertions
of management in the financial statements." The Standard further states, "Such deficiencies may
involve
aspects of the internal control structure elements of(a) the control environment, (b) the accounting
system,
or (c) control procedures. "

7Standard 60 also states that material weaknesses are "reportable conditions in which the design or
operation
of one or more of the internal control structure elements does not reduce to a relatively low level the
risk" that
noncompliance with laws and regulations material to a Federal financial assistance program "may
occur and
not be detected within a timely period by employees" in the normal performance of their duties.

7

 


- For the other grantee whose project was administered by the Lower Colorado
Region, the 1995 single audit report referenced a 1995 management letter that reported a
deficiency in the grantee's "job cost" system that could affect the grantee's ability to
identify operation and maintenance costs. Again, Regional personnel did not request a
copy of the management letter and follow up to determine whether the grantee had
established sufficient controls to ensure that operation and maintenance costs were not and
would not be billed. A Regional accountant reported that followup would be initiated
only if the single audit report had identified a material weakness.

We acknowledge that the Bureau has limited staff available to follow up on the single
audit reports and perform the reviews required under the 1994 procedures. However, we
believe that the Bureau could perform its annual reviews with existing staff by effectively
building on the single audit process. Specifically, the Bureau should: (1) obtain and
review single audit reports and management letters for project grantees; (2) follow up on
identified material weaknesses, reportable conditions, and other relevant internal control
deficiencies; and (3) determine which projects were not reviewed as part of the single
audit process and review these projects accordingly. For example, had the Bureau chosen
to use the single audit reports received for two grantees in the Lower Colorado Region as
the foundation for other audits, it would have reviewed about 74 percent of the
$25 million of Federal reimbursements through September 30, 1995. Also, had Mid-
Pacific Regional officials requested and obtained a copy of the single audit report for their
project, they would have determined that the project was not considered a major program
and was therefore not specifically reviewed by the audit.

Billings. The Lower Colorado Region's Southern California Area Office requested
summary billings from the grantees to substantiate amounts requested for reimbursement.
However, based on our review of the summary billings for three construction projects, we
determined that the billings were intended as only a basis for payment and did provide
sufficient detail to allow the Bureau to monitor the eligibility of costs claimed for
reimbursement.  However, the Area Office made two payments totaling about
$3.7 million to one grantee based on a summary billing that consisted of a one-sentence
certification in a July 1994 letter from the grantee's general manager, which stated, "I
hereby certify that [the] . . . District has expended $16,918,517 through May 30, 1994,
on the... Recycling Program. " The summary billings are not a means to monitor the
eligibility of costs for reimbursement. Instead, we believe that effective implementation
of the Bureau's 1994 procedures will provide adequate assurance that costs incurred by
grantees are eligible for Federal reimbursement.

Recommendations

We recommend that the Commissioner, Bureau of Reclamation, direct appropriate Bureau
officials to:

1. Implement the 1994 "Procedures for Reviewing Cost-Share Agreements. "

8

 
2. Follow upon thesingle audit actprocess by:

  - Obtaining copies of single audit reports from project grantees and following up
on any identified reportable conditions or material weaknesses.

  - Requesting copies of management letters and information on deficiencies
communicated orally to the grantees.

- Obtaining information on corrective actions planned or taken.

Bureau of Reclamation Response and Office of Inspector General Reply

The April 16, 1997, response (Appendix 3) to our draft report from the Commissioner,
Bureau of Reclamation, concurred with the two recommendations. Based on the
response, we consider the two recommendations resolved but not implemented.
Accordingly, the unimplemented 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 4).

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

We appreciate the cooperation of Bureau of Reclamation personnel during the conduct of
our audit.

 
APPENDIX 1

  ESTIMATED AND ACTUAL COSTS FOR
WATER REUSE PROJECT GRANT AGREEMENTS
    AS OF SEPTEMBER 30,1995

              Total
             Estimated
Proiect           costs'

San Jose Area Water Reclamation and Reuse3  $130,000,000
San Diego Area Water Reclamation       83,125,410

Los Angeles Area Water Reclamation and Reuses 256,362,000

San Gabriel Basin Demonstrationb        74.750.000

Total                $544.237.410

            Federal
           Expenditures
Non-Federal   Federal    Through
Cost-Share'  Cost-Sharel   9-30-952

$97,500,000  $32,500,000   $661,036

62,165,308   20,960,102   3,209,119

193,521,500   62,840,500  14,728,429

56.062.500  18.687.500  6.788.103

$409.249.308  $134,988.102  $25.386.687

I Estimates are from the grant agreements

`Amount includes $377,861 of Bureau administrative costs and $25,008,826 of reimbursements to
grantees,

3As of September 30, 1995, this project, which is administered by the Bureau of Reclamation's
Mid-Pacific Region, had
one established grant agreement.

4As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had four
established grant agreements.

`As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had two
established grant agreements.

6As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had three
established grant agreements.

10

 
APPENDIX 2

   ESTIMATED COSTS FOR
WATER REUSE PROJECTS AUTHORIZED
  THROUGH SEPTEMBER 30,1995

       Proiect

San Jose Area Water Reclamation and Reuse2
San Diego Area Water Reclamation
Los Angeles Area Water Reclamation and Reuse4
San Gabriel Basin Demonstrations
Total

Total
Estimated Costs'

$480,959,000
691,245,000
279,880,000
152.360.000
$1.604.444.000

Non-Federal    Federal
Cost-Sharel    Cost-Share]

$371,000,000   $109,959,000
518,255,000   172,990,000
209,910,000   69,970,000
114.270.000   38.090.000
$1.213.435.000   $391.009.000

`Estimates are from the Bureau of Reclamation's fiscal year 1997 budget j ustitication except for the
San Diego Project.
The amounts for the San Diego Project were derived from the 1997 budget justification and from
one grant agreement not
included in the j ustitication.

2As of September 30, 1995, this project, which is administered by the Bureau's Mid-Pacific Region,
had one established
grant agreement.

3As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had four
established grant agreements.

4As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had two
established grant agreements.

`As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had three
established grant agreements.

11

 


APPENDIX 3
PaQe 1 of 2

United States Department of the Interi&

BUREAU OF RECLAMATION
WASHINGTON, D.C. 20244)

MEMORANDUM

To:     Office of Inspector General
     Attention: Acting Assistant ~pector General for Audits
               L

Subject:   Draft Survey Report on "Water Reuse Program Grants, Bureau of
     Reclamation" (W-IN-BOR-007-96)

The Bureau of Reclamation offers the following comments in response to the
recommendations in the subject report:

Re commendation 1
Implement the 1994
  Res~onse

"Procedures for Reviewing Cost-Share Agreement."

Concur. Reclamation's regional offices will be re-instructed to implement these
procedures. However, the procedures will be modified to clarify the applicability
of the single-audit-act process required by Office of Management and Budget
Circular A-1 28, "Audits of State and Local Governments." In addition, the
"Reclamation Financial Assistance Handbook, Grants and Cooperative
Agreements," will be modified to incorporate the cost-sharing policies and
procedures identified in the 1994 "Procedures for Reviewing Cost-Share
Agreements, as revised.
The responsible officials are the Director, Program Analysis Office, for revising
and distributing the 1994 procedures and the Manager, Acquisition and
Assistance Management Services, for revising the Financial Assistance
Handbook. The target implementation date to complete all actions is
December 31, 1997.

12

 
APPENDIX 3
?%age 2 of 2

2

Recommendation 2

Follow up the single audit act process by:

-Obtaining copies of single audit reports from project grantees and following up
on any identified reportable conditions or material weaknesses.

-Requesting copies of management letters and information on deficiencies
communicated orally to the grantees.

-Obtaining information on corrective actions planned or taken.

Concur. These requirements will be incorporated into the modifications
discussed above; i.e., these modifications will instruct appropriate Reclamation
ollicials to perform these tasks in fulfilling single audit responsibilities.

If you have any questions or require additional information, please contact Luis Maez at
(303) 236-3289, extension 245.

cc:  Assistant Secretary - Water and Science, Attention: Margaret Carpenter

13

 


                       APPENDIX 4

STATUS OF SURVEY REPORT RECOMMENDATIONS

Finding/Recommendation
  Reference       Status         Action Required

1 and 2     Resolved; not   No further reponse to the Office of
       implemented    Inspector General is required. The
              recommendations will be referred to the
              Assistant Secretary for Policy, Management
              and Budget for tracking of implementation.

14

 
ILLEGAL OR WASTEFUL ACTMTIES
   SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY

Sending written documents to:

Calling:

Within the Continental United States

U.S. Department of the Interior         Our 24-hour
Office of Inspector General          Telephone HOTLINE
1849 C Street, N.W.             1-800-424-5081 or
Mail Stop 5341               (202) 208-5300
Washington, D.C. 20240

TDD for hearing impaired
(202) 208-2420 or
1-800-354-0996

Outside the Continental United States

Caribbean Re@on

U.S. Department of the Interior         (703) 235-9221
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

North Pacific Re~on

U.S. Department of the Interior         (700) 550-7428 or
Office of Inspector General          COMM 9-011-671-472-7279
North Pacific Region

238 Archbishop ~.C. Flores Street
Suite 807, PDN Building
Agana, Guam 96910

 
Toll Free Numbers:
1-800-424-5081
TDD 1-800-354-0996
FIX/Commercial Numbers:
(202) 208-5300
TDD (202) 208-2420

HOTLINE

1849 C Street N.W.
Mail stop 5341
Washington. D.C. 20240

s

?..,    -
  . ..** b P

 
U.S. Department of the Interior
Office of Inspector General

SURVEY REPORT

WATER REUSE PROGRAM GRANTS,
BUREAU OF RECLAMATION

REPORT NO. 97-I-874
  JUNE 1997

 


W-IN-BOR-007-96

United States Department of the Interior

OFFICE OF INSPECTOR GENERAL
   Washington, D.C. 20240

JUN I3 m

SURVEY REPORT

Memorandum

To:   Assistant Secretary for Water and Science

From:  Robert J. Williams       Cd' Lx i&
   Assistant Inspector

Subject: Survey Report on Water Reuse Program Grants, Bureau of Reclamation
    (No. 97-I-874)

INTRODUCTION

This report presents the results of our review of the Bureau of Reclamation's grants for
water reuse program activities. The objective of our review was to determine whether the
Bureau adequately monitored the costs claimed for reimbursement under grants awarded
to state and local entities for wastewater reclamation and reuse projects.

BACKGROUND

The Bureau's water reuse program was authorized in the Reclamation Wastewater and
Groundwater Study and Facilities Act,' which directed the Bureau to undertake a program
to identify opportunities for reclaiming and reusing municipal, industrial, domestic, and
agricultural wastewater in 17 Western States and to participate with grantees in planning,
designing, and constructing five specific wastewater reclamation and reuse projects.*
Under the Act, the Federal share of costs for these five construction projects may not
exceed 25 percent of the total costs associated with planning, designing, and constructing
the facilities. Federal participation in the cost of operating and maintaining these project
facilities is specifically prohibited by the Act. The Bureau funded its participation in these
projects through grant agreements and was not directly involved in the physical

`Title 16 of the Reclamation Projects Authorization and Adjustment Act of 1992 (Public Law
102-575).

2The five wastewater reclamation and reuse projects are: (1) the San Jose Area Water Reclamation
and Reuse
Program; (2) the Phoenix Metropolitan Water Reclamation Program; (3) the San Diego Area Water
Reclamation Program; (4) the Los Angeles Area Water Reclamation and Reuse Project; and (5) the
San Gabriel
Basin Demonstration Project.

 
construction of the four projects reviewed.3 The Bureau's 1994 "Procedures for
Reviewing Cost-Share Agreements" requires that cost-share agreements, including grants
applicable to the water reuse program, be audited or reviewed annually.

As of September 1995, the Bureau had established 10 grant agreements totaling an
estimated $544 million, with the Federal share estimated at $135 million, for the four
construction projects that we reviewed. For fiscal years 1994 and 1995, the Bureau
reimbursed grantees approximately $25 million and incurred administrative costs of about
$378,000, for total Federal expenditures of $25.4 million (see Appendix 1). According
to information in the Bureau's 1997 budget justification, the projected cost of these four
projects totaled about $1.6 billion, of which the estimated Federal share was about
$391 million (see Appendix 2). In addition, on October 9, 1996, an amendment to the
Act authorized 15 additional projects totaling about $550 million, with a Federal share
estimated at up to $115 million. However, the Bureau has been appropriated only about
$30 million for fiscal years 1994 and 1995.

SCOPE OF SURVEY

Our fieldwork was performed from March through July 1996 and focused on a review of
program grant activities that occurred during fiscal years 1994 and 1995 at the Bureau's
Mid-Pacific Regional Office in Sacramento, California; the Lower Colorado Regional
Office in Boulder City, Nevada; the Phoenix Area Office in Phoenix, Arizona; and the
Southern California Area Office in Temecula, California, which has oversight
responsibility for 9 of the 10 grant agreements awarded through fiscal year 1995. Our
initial audit objective was to determine whether the Bureau and the grantees complied with
the terms and conditions of their funding agreements. As established under the grant
agreements, the Bureau's principal responsibility was to provide reimbursement of eligible
projects costs. Our preliminary survey work disclosed that the Bureau was not adequately
monitoring grant agreements and that the summary billing information reported to the
Bureau was insufficient to allow a determination of whether the Bureau or grantees
complied with the agreements' cost eligibility requirements. Accordingly, we revised our
objective to determine the adequacy of the Bureau's procedures for monitoring the
grantees' compliance with the agreements in an effort to strengthen the Bureau's program
controls over project cost reimbursements.

To meet our revised objective, we reviewed the Reclamation Wastewater and
Groundwater Study and Facilities Act and its related legislative history, Federal
regulations and Bureau guidance on cost-share agreements, the 10 grant agreements
awarded through fiscal year 1995, and the grantees' requests for reimbursements and
related documentation. In addition, we interviewed Bureau program and budget officials
and officials from the Solicitor's Pacific Southwest Regional Office in Sacramento and the

3Grant agreements are agreements with state or local entities in which the Bureau provides funds
but is not
substantially involved in carrying out the specified program or activity. As of July 1996, no grant
agreements
had been established for the Phoenix Metropolitan Water Reclamation Program.

2

 
Solicitor's Field Office in Phoenix to confirm our understanding of the Act and applicable
regulations. We also interviewed the Director of the Bureau's Program Analysis Office
in Denver, Colorado, to clarify program policy issues.

Our survey was made 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 were considered necessary to accomplish our
revised objective. In planning our survey, we reviewed the Department of the Interior's
Annual Statement and Report, which is required by the Federal Managers' Financial
Integrity Act, for fiscal years 1992 through 1995 and determined that the Department did
not report any material weaknesses related to the objective and scope of our survey.

We also evaluated the Bureau's system of internal controls related to its water reuse
program to the extent we considered necessary. We found that the Bureau could
strengthen internal controls in its monitoring of grant agreements. This weakness and the
recommended corrective actions are discussed in the Results of Survey section of this
report. The recommendations, if implemented, should improve the internal controls in
this area.

PRIOR AUDIT COVERAGE

We identified two Office of Inspector General audit reports and one General Accounting
Office audit report that addressed issues relevant to monitoring the participation of non-
Federal entities in Federal programs or projects. Overall, the reports concluded that
Federal organizations could not merely rely on data reported by participating entities and
that additional oversight was needed to ensure compliance with legislative requirements
and performance of program goals and objectives.

The Office of Inspector General's two reports that addressed monitoring issues are as
follows :

- "Grants for Rural Water Project, Great Plains Region, Bureau of Reclamation"
(No. 95-I-947), issued in May 1995, reported that the Great Plains Region needed to
improve its processes for monitoring rural water system project costs to preclude funding
activities that were ineligible for Federal reimbursement. The report stated that while the
Region, in accordance with Office of Management and Budget Circular-A-133, "Audits
of Institutions of Higher Education and Other Nonprofit Institutions," required a grantee
to be audited, neither the independent auditors nor the Regional personnel who reviewed
the costs charged by the grantee were familiar with restrictions on grantee administrative
costs imposed by another Federal agency. Therefore, neither the auditors nor the Bureau
took exception to ineligible administrative costs charged by four projects, including over
$7 million charged by one project over a g-year period. The report did not contain any
recommendations because the grantees had incurred costs sufficient to offset the
inappropriate charges. However, the report suggested that Regional management develop

3

 


procedures to ensure adequate training in applicable laws, regulations, and guidelines for
responsible individuals.

- "Distribution Facilities, Central Arizona Project, Bureau of Reclamation"
(No. 93-I-1271), issued in July 1993, reported that the Bureau did not ensure that water
districts met cost-share requirements related to the construction of water distribution
systems on the Central Arizona Project. According to the report, this condition occurred
because the Bureau had not: (1) established sufficient criteria and procedures for districts
to determine the types of costs that could be claimed for cost-share purposes and for
Bureau personnel to determine whether claimed costs were valid and necessary to
construct the water distribution facilities and (2) performed adequate reviews of the
districts' reported contributions to ensure compliance with the cost-share requirements.
Specifically, the report identified costs of about $8.9 million claimed as district
contributions that were unallowable for cost-share purposes. Reducing the claimed
contributions by the $8.9 million resulted in the districts not meeting their cost-share
requirements by about $3.7 million. The report recommended that the Bureau develop
criteria for the types of costs that could be claimed for cost-share purposes and procedures
for verifying the costs claimed by the districts. In a December 21, 1994, memorandum
to the Office of Financial Management, the Bureau reported that it had developed criteria
and procedures to review cost-share agreements on Bureau projects and, accordingly,
considered the recommendations implemented. However, during our current review, we
found that Bureau program personnel either were not aware of or had not implemented
these criteria and procedures in administering the grant agreements for wastewater
reclamation and reuse projects. Instead, Bureau personnel said that they relied primarily
on the single audit process to ensure grantee compliance with the agreements.

The General Accounting Office, in June 1994, issued the report "Single Audit:
Refinements Can Improve Usefulness" (Report No. GAO/AIMD-94-133). The report
stated that while local government officials credited the single audit process with
improving their financial management practices, a number of issues still "burden[ed] the
single audit process" and "hinder[ed] the usefulness of its reports." Specifically, the
report stated that: (1) the selection of programs for audit based on 1984 dollar thresholds
resulted in "many programs considered highly vulnerable to fraud, waste, and abuse" not
being subject to audit; (2) important findings were not highlighted; (3) the 13-month
reporting time frame limited the report's usefulness; (4) entities were not required to
report on the adequacy of their internal control structures; and (5) results were not
summarized to allow program managers to easily determine the need for follow-on audits
or additional program oversight. Subsequently, in 1996, the Congress amended the
Single Audit Act! to address some of these concerns, although the amended Act still
permits the audit to exclude from review Federal assistance that falls below specified

4The Single Audit Act Amendments of 1996 (Public Law 104-156) which are effective for fiscal
years
beginning after June 30, 1996, included the following: (1) raising the audit threshold; (2) providing
for a risk-
based approach for selecting programs for audit; and (3) shortening the reporting time frame from
13 to
9 months for fiscal years beginning after June 30, 1998.

4

 
dollar thresholds. However, during our current review, we found that the Bureau had not
followed up on deficiencies identified by the single audit process and used the results in
planning additional reviews.

RESULTS OF SURVEY

The Bureau of Reclamation did not adequately monitor the costs claimed by grantees for
four construction projects under 10 grant agreements. The Bureau's 1994 "Procedures
for Reviewing Cost-Share Agreements" requires that Bureau accounting and technical
personnel audit or review grant agreements annually to ensure grantee compliance with
the terms of the agreements, which, in this instance, included compliance with the
Reclamation Wastewater and Groundwater Study and Facilities Act. Bureau personnel
said that they did not perform the required annual reviews but instead relied primarily on
the Single Audit Act process and on reviews of summaries of project costs submitted by
the grantees. However, the Bureau did not follow up on conditions identified in the single
audit reports, and the information required in the summary billings was not sufficient to
allow adequate monitoring. As a result, the Bureau did not have assurance that Federal
reimbursements of about $25 million through fiscal year 1995 were only for costs that
were allowable under the terms of the grant agreements. Without improved monitoring,
the Bureau will not have assurance that the remaining $366 million Federal share of
construction costs for projects authorized through September 30, 1995, will be allowable
under the agreements.

Bureau Procedures

According to a December 6, 1994, Bureau memorandum, the 1994 procedures were
developed by the Bureau's Program Analysis Office at the request of the Lower Colorado
Region because of the "potential for Reclamationwide application. " Based on discussions
with the Director of the Program Analysis Office, we determined that the procedures were
not intended to be optional but were mandatory for grant agreements negotiated under the
Reclamation Wastewater and Groundwater Study and Facilities Act. The procedures
require: (1) that the grant agreements be audited or reviewed annually by Bureau
accounting and technical personnel and (2) that the audit or review contain a program
outlining the steps to ensure grantee compliance with the agreements and with the Act and
be properly documented to support the conclusions reached. Under the Act, Federal
participation cannot exceed 25 percent of the total costs associated with planning,
designing, and constructing authorized projects, exclusive of operation and maintenance
costs, which are specifically prohibited. The 10 agreements incorporated the percentage
limitation on Federal expenditures and the provisions of Office of Management and
Budget Circular A-87, "Cost Principles for State and Local Governments, " which
established the principles for determining the allowability of costs for Federal
reimbursement. However, 9 of the 10 agreements did not specifically identify operation
and maintenance costs as ineligible costs, although such costs were implicitly excluded by
the agreements' reference to the Act.

 


Bureau officials informed us that the required reviews were not performed because: (1)
Mid-Pacific Regional program officials were not aware of the procedures and (2) Lower
Colorado Regional officials believed that the procedures were "optional" and that the
Region was precluded from performing the annual reviews because grantees were subject
to annual audits under the Single Audit Act. Lower Colorado Regional officials also
stated that they did not have sufficient staff to perform the reviews. In addition, Bureau
officials in both regions stated that they believed that relying on the single audit process
and on reviews of billings submitted by the grantees was sufficient to adequately monitor
the costs claimed under the grant agreements.

Bureau Monitoring

We found that the Bureau did not effectively use single audits to facilitate its monitoring
of project costs and that billings submitted by grantees were not sufficiently detailed to
permit an evaluation of the costs claimed for reimbursement.

  Single Audit Process. Personnel in the Mid-Pacific and Lower Colorado Regions
stated that they primarily used the single audit process to monitor the agreements. We
acknowledge that the Single Audit Act was enacted, in part, "to improve the financial
management of State and local governments with respect to Federal financial assistance
programs and . . . to promote the efficient and effective use of audit resources."
However, the Act does not preclude additional audits. Sections 7503 (b) and (e) of the
Act state that "a Federal agency shall conduct any additional audits which are necessary
to carry out its responsibilities under Federal law or regulations . . . [including] program
results audits, and program evaluations. "  Section 7503 also states that "to avoid
duplication of effort, " Federal agencies "shall rely" on and use the information obtained
under the single audit process to "plan and conduct . . . [their] own audits. " As such, we
believe that the single audit process, while an important oversight tool, does not provide
a comprehensive review of grants or programs and should not be viewed as a substitute
for management oversight and program review. As indicated in the General Accounting
Office's report (No. GAO/AFMD-94-133), Federal grants may not be considered major
programs5 and therefore may not be audited if they fall below prescribed dollar
thresholds.  In addition, under generally accepted auditing standards, reportable

5To be considered a major program under the Single Audit Act of 1984 (Public Law 98-502) a
program had
to meet dollar thresholds, which varied depending on the non-Federal entity's total Federal
expenditures for
all programs. Under the Single Audit Act amendments of 1996, however, a Federal program may
be selected
based on the auditor's assessment of risk. For example, a higher risk is present when the program is
in its
initial and final years, when there are large Federal expenditures, or when deficiencies have been
identified.
However, these amendments were not applicable to fiscal years 1994 and 1995, the period of our
audit.

6

 
condition6may be presented to the grantee either orally or in management letters that are
incorporated into the single audit report only by reference. Thus the grantor may not be
able to identify deficiencies other than material weaknesses7 without additional oversight
or monitoring.

In this regard, we reviewed the single audit report for fiscal year 1995 for the grantee in
the Mid-Pacific Region and three single audit reports for fiscal years 1994 and 1995 for
two grantees in the Lower Colorado Region. We found that: (1) the Mid-Pacific
Region's project was not reviewed as part of the grantee's single audit for fiscal year 1995
because the Federal share of project expenditures did not meet the audit threshold required
to be considered a major program under the Single Audit Act and (2) the Lower Colorado
Region had not followed up on issues identified by the single audit process that could
affect the costs claimed for reimbursement. Specifically:

- For the Mid-Pacific Region's project to have been considered a major program under
the Act, the 1995 Federal share of project expenditures would have had to have exceeded
about $780,000. Although Federal funds expended for this project in 1995 totaled nearly
$600,000, the project was not audited under provisions of the Act. In addition, the
Region had not requested and did not have a copy of the single audit report for fiscal year
1995.

- The 1994 single audit report of one grantee whose project was administered by the
Lower Colorado Region identified a reportable condition applicable to the grantee's "job
cost" system that could affect its ability to accumulate project operation and maintenance
costs. This same deficiency, although not identified as a reportable condition, was
reported in the auditor's fiscal year 1995 management letter to the grantee and was
referred to in the 1995 single audit report. However, Lower Colorado Regional personnel
had not followed up on the status of the condition identified by the auditors in 1994 and
1995, including requesting a copy of the management letter, to determine whether the
grantee had established sufficient controls to ensure that operation and maintenance costs
were not and would not be billed.

%tatement on Accounting Standards No. 60, issued by the American Institute of Certified Public
Accountants,
effective January 1989, states that reportable conditions are "matters coming to the auditor's attention
that, in
his [or her] judgment, should be communicated to the audit committee because they represent
significant
deficiencies in the design or operation of the internal control structure, which could adversely affect
the
organization's ability to record, process, summarize, and report financial data consistent with the
assertions
of management in the financial statements." The Standard further states, "Such deficiencies may
involve
aspects of the internal control structure elements of (a) the control environment, (b) the accounting
system,
or (c) control procedures."

of one or more of the internal control structure elements does not reduce to a relatively low level the
risk" that
noncompliance with laws and regulations material to a Federal financial assistance program "may
occur and
not be detected within a timely period by employees" in the normal performance of their duties.

7

 
- For the other grantee whose project was administered by the Lower Colorado
Region, the 1995 single audit report referenced a 1995 management letter that reported a
deficiency in the grantee's "job cost" system that could affect the grantee's ability to
identify operation and maintenance costs. Again, Regional personnel did not request a
copy of the management letter and follow up to determine whether the grantee had
established sufficient controls to ensure that operation and maintenance costs were not and
would not be billed. A Regional accountant reported that followup would be initiated
only if the single audit report had identified a material weakness.

We acknowledge that the Bureau has limited staff available to follow up on the single
audit reports and perform the reviews required under the 1994 procedures. However, we
believe that the Bureau could perform its annual reviews with existing staff by effectively
building on the single audit process. Specifically, the Bureau should: (1) obtain and
review single audit reports and management letters for project grantees; (2) follow up on
identified material weaknesses, reportable conditions, and other relevant internal control
deficiencies; and (3) determine which projects were not reviewed as part of the single
audit process and review these projects accordingly. For example, had the Bureau chosen
to use the single audit reports received for two grantees in the Lower Colorado Region as
the foundation for other audits, it would have reviewed about 74 percent of the
$25 million of Federal reimbursements through September 30, 1995. Also, had Mid-
Pacific Regional officials requested and obtained a copy of the single audit report for their
project, they would have determined that the project was not considered a major program
and was therefore not specifically reviewed by the audit.

Billings. The Lower Colorado Region's Southern California Area Office requested
summary billings from the grantees to substantiate amounts requested for reimbursement.
However, based on our review of the summary billings for three construction projects, we
determined that the billings were intended as only a basis for payment and did provide
sufficient detail to allow the Bureau to monitor the eligibility of costs claimed for
reimbursement.  However, the Area Office made two payments totaling about
$3.7 million to one grantee based on a summary billing that consisted of a one-sentence
certification in a July 1994 letter from the grantee's general manager, which stated, "I
hereby certify that [the] . . . District has expended $16,918,517 through May 30, 1994,
on the . . . Recycling Program. " The summary billings are not a means to monitor the
eligibility of costs for reimbursement. Instead, we believe that effective implementation
of the Bureau's 1994 procedures will provide adequate assurance that costs incurred by
grantees are eligible for Federal reimbursement.

Recommendations

We recommend that the Commissioner, Bureau of Reclamation, direct appropriate Bureau
officials to:

1. Implement the 1994 "Procedures for Reviewing Cost-Share Agreements. "

8

 
2. Follow up on the single audit act process by:

  - Obtaining copies of single audit reports from project grantees and following up
on any identified reportable conditions or material weaknesses.

  - Requesting copies of management letters and information on deficiencies
communicated orally to the grantees.

- Obtaining information on corrective actions planned or taken.

Bureau of Reclamation Response and Office of Inspector General Reply

The April 16, 1997, response (Appendix 3) to our draft report from the Commissioner,
Bureau of Reclamation, concurred with the two recommendations. Based on the
response, we consider the two recommendations resolved but not implemented.
Accordingly, the unimplemented 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 4).

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

We appreciate the cooperation of Bureau of Reclamation personnel during the conduct of
our audit.

 
I

  i

APPENDIX 1

ESTIMATED AND ACTUAL COSTS FOR
WATER REUSE PROJECT GRANT AGREEMENTS
    AS OF SEPTEMBER 30,1995

3A~ of September 30, 1995, this project, which is administered by the Bureau of Reclamation's
Mid-Pacific Region, had
one established grant agreement.

4As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had four
established grant agreements.

`As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had two
established grant agreements.

6As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had three
established grant agreements.

10

 


APPENDIX 2

   ESTIMATED COSTS FOR
WATER REUSE PROJECTS AUTHORIZED
THROUGH SEPTEMBER 30,1995

San Jose Area Water Reclamation and Reuse*
San Diego Area Water Reclamation3
Los Angeles Area Water Reclamation and Reuse4
San Gabriel Basin Demonstration5

Total

`As of September 30, 1995, this project, which is administered by the Bureau's Mid-Pacific Region,
had one established
grant agreement.

`As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had four
established grant agreements.

4As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had two
established grant agreements.

`As of September 30, 1995, this project, which is administered by the Bureau's Lower Colorado
Region, had three
established grant agreements.

11

 


IN REPLY
REFER TO:

D-501 0
ADM-8.00

APPENDIX 3
Page 1 of 2

United States Department of the Inter&

BUREAU OF RECLAMATION
WASHINGTON, D.C. 20240

MEMORANDUM

To:

Office of Inspector General
Attention: Acting Assistant *pector General for Audits
           rl

From:

Subject:

Draft Survey Report on "Water Reuse Program Grants, Bureau of
Reclamation" (W-IN-BOR-007-96)

The Bureau of Reclamation offers the following comments in response to the
recommendations in the subject report:

Recommendation 1

Implement the 1994 "Procedures for Reviewing Cost-Share Agreement."

Resoonse

Concur. Reclamation's regional offices will be re-instructed to implement these
procedures. However, the procedures will be modified to clarify the applicability
of the single-audit-act process required by Office of Management and Budget
Circular A-128, "Audits of State and Local Governments." In addition, the
"Reclamation Financial Assistance Handbook, Grants and Cooperative
Agreements," will be modified to incorporate the cost-sharing policies and
procedures identified in the 1994 "Procedures for Reviewing Cost-Share
Agreements, as revised.

The responsible officials are the Director, Program Analysis Office, for revising
and distributing the 1994 procedures and the Manager, Acquisition and
Assistance Management Services, for revising the Financial Assistance
Handbook. The target implementation date to complete all actions is
December 31, 1997.

12

 


APPENDIX 3
3.3ge 2 of 2

2

Recommendation 2

Follow up the single audit act process by:

-Obtaining copies of single audit reports from project grantees and following up
on any identified reportable conditions or material weaknesses.

-Requesting copies of management letters and information on deficiencies
communicated orally to the grantees.

-Obtaining information on corrective actions planned or taken.

Response

Concur. These requirements will be incorporated into the modifications
discussed above; i.e., these modifications will instruct appropriate Reclamation
officials to perform these tasks in fulfilling single audit responsibilities.

If you have any questions or require additional information, please contact Luis Maez at
(303) 236-3289, extension 245.

cc:  Assistant Secretary - Water and Science, Attention: Margaret Carpenter

13

 


APPENDIX 4

STATUS OF SURVEY REPORT RECOMMENDATIONS

Finding/Recommendation
  Reference

Status         Action Required

1 and 2

Resolved; not
implemented

No further reponse to the Office of
Inspector General is required. The
recommendations will be referred to the
Assistant Secretary for Policy, Management
and Budget for tracking of implementation.

14

 
ILLEGAL OR WASTEFUL ACTIVITIES
   SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:            Calling:

Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street, N.W.
Mail Stop 5341
Washington, D.C. 20240

Our 24-hour
Telephone HOTLINE
l-800-424-5081 or
(202) 208-5300

TDD for hearing impaired
(202) 208-2420 or
l-800-354-0996

Outside the Continental United States

Caribbean Region

U.S. Department of the Interior
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

(703) 235-9221

North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. Flores Street
Suite 807, PDN Building
Agana, Guam 96910

(700) 550-7428 or
COMM 9-011-671-472-7279

 
Toll Free Numbers:
l-800-424-5081
TDD l-800-354-0996

FTS/Commercial Numbers:
(202) 208-5300
TDD (202) 208-2420

HOTLINE

1849 C Street, N.W.
Mail Stop 5341
Washington, D.C. 20240