[Survey Report on Costs Incurred Under Selected Federal Agreements With the Chickasaw Nation of Oklahoma]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 99-i-484
Title: Survey Report on Costs Incurred Under Selected Federal Agreements
With the Chickasaw Nation of Oklahoma
Date: May 21, 1998
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U.S. Department of the Interior
Office of Inspector General
SURVEY REPORT
COSTS INCURRED UNDER SELECTED
FEDERAL AGREEMENTS WITH THE
CHICKASAW NATION OF OKLAHOMA
REPORT NO. 99-I-484
MAY 1999
MEMORANDUM
TO: The Secretary
FROM: Robert J. Williams
Acting Inspector General
SUBJECT SUMMARY: Final Survey Report - "Costs Incurred Under
Selected Federal Agreements With the Chickasaw
Nation of Oklahoma" (No. 99-i-484)
Attached for your information is a copy of the subject final
survey report. The objective of the survey was to determine
whether costs incurred under Federal funding agreements,
principally those from the Department of the Interior, were
eligible for reimbursement. We conducted the survey in response
to a request from two members of the Congress.
Except for the matters discussed in the report that relate to
indirect costs and procurement, no significant issues came to our
attention concerning the Chickasaw Nation's accounting for costs
incurred under Department of the Interior funding agreements
during the period of October 1, 1996, through September 30, 1997.
Of the costs of $518,000 we tested under the Department of Health
and Human Services Self-Governance Compact, we questioned costs
of $36,800 and identified interest expenses of $9,500, resulting
from late payments, which were incorrectly charged to the
Nation's indirect cost account. In addition, we found that 27
purchase transactions, totaling $336,100, were made without
adequate competition. As a result, the Nation did not have full
assurance that goods and services were acquired at an economical
and reasonable price.
In its response, the Bureau agreed with the report's three
recommendations to address these issues. Based on the response,
we considered all of the recommendations resolved and
implemented.
If you have any questions concerning this matter, please contact
me at (202) 208-5745.
Attachment
cc: Assistant Secretary for Indian Affairs
Chief of Staff
Deputy Commissioner for Indian Affairs
Office of Communications
SURVEY REPORT C-IN-BIA-004-98-R
Memorandum
To: Assistant Secretary for Indian Affairs
From: Robert J. Williams
Assistant Inspector General for Audits
Subject: Survey Report on Costs Incurred Under Selected Federal
Agreements With the Chickasaw
Nation of Oklahoma (No. 99-i-484)
INTRODUCTION
This report presents the results of our survey of costs incurred
under selected Federal agreements with the Chickasaw Nation of
Oklahoma. The objective of the survey was to determine whether
costs incurred under Federal funding agreements, principally
those from the Department of the Interior, were eligible for
reimbursement. We conducted the survey in response to a request
from two members of the Congress.
BACKGROUND
The Indian Self-Determination and Education Assistance Act
(Public Law 93-638) directed the Secretaries of the Interior and
of Health and Human Services to contract with any tribal
organization to plan, conduct, and administer programs or
services that otherwise would be administered by the respective
departments for the benefit of Indians. The standards for tribal
financial management of self-determination contracts are
contained in the Code of Federal Regulations (25 CFR 900, Subpart
F). The Act also established a tribal self-governance program
for Indian tribes. Under a self-governance program, tribes are
authorized to plan, conduct, redesign, and administer programs,
services, functions, and activities that meet the needs of the
individual tribal communities, including decision making and
control over funding provided through compacts with the
Department. On June 29, 1993, the Chickasaw Nation signed a
self-governance compact with the Secretary of the Interior, and
on June 30, 1994, the Nation signed a compact with the Secretary
of Health and Human Services. Under the compacts, the Nation
agreed to abide by generally accepted accounting principles and
applicable circulars of the Office of Management and Budget.[1]
Also, the Department of the Interior, on February 12, 1998,
published draft rules and regulations for tribal self-governance
programs that require the tribes to maintain management systems
and practices at least comparable to those in existence when the
tribe entered the self-governance program. In addition, the
Nation has implemented its own policies and procedures for the
administration and management of tribal and Federal funds.
In fiscal year 1997, the Chickasaw Nation received approximately
$4.9 million from the Department of the Interior for the
following programs: Self-Governance - $3.2 million, Carter
Seminary - $604,000, Roads Construction and Maintenance - $1.0
million, Transportation Improvement - $26,000, Title Documents
Acquisition - $5,000, and Kullihoma Building Demo - $18,000. A
September 3, 1998, expenditure schedule for fiscal year 1997
prepared by the Nation for its independent public accountants
showed that the Nation had expended an estimated $4.9 million
under the Department of the Interior programs cited. The Nation
also received approximately $43.3 million from the Department of
Health and Human Services under a self-governance compact for
Indian health service programs. A July 21, 1998, working trial
balance showed that the Nation had expended an estimated $41.1
million under the Department of Health and Human Services
programs.
SCOPE OF SURVEY
Our survey was conducted 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
under the circumstances. To accomplish our objective, we
obtained and reviewed applicable criteria related to the
procurement of services and payment of expenditures for Federal
programs, reviewed and discussed financial controls over these
functions with Nation officials, and selected and reviewed
samples of Federal program expenditures.
The Nation's general ledger system identified 2,150 Department of
the Interior program transactions, totaling $5 million,[2] for
the period of October 1, 1996, through September 30, 1997. From
these transactions, we judgmentally selected a sample of 49 (2.3
percent) transactions, totaling $881,000 (17.7 percent), which
represented different object class costs (such as payroll,
training, travel, and contracts) and various construction- and
assistance-related programs.
We also reviewed certain purchases made with Department of Health
and Human Services Compact funds. Of 745 transactions, totaling
$692,000, disbursed by the Nation to two Chickasaw Nation
business enterprises during the period of October 1, 1996,
through July 23, 1998, we judgmentally selected 16 transactions
equal to or greater than $2,000, totaling $235,000. In addition,
we selected 23 Department of Health and Human Services program
transactions, totaling $283,000, that former Nation employees had
suggested we review and certain interest costs charged to the
Nation's indirect cost account funded by Federal programs from
June 15, 1995, through May 21, 1998.
Our scope was limited to the review of the Nation's unadjusted
accounting records for fiscal year 1997 because, at the time of
our review, the Nation's independent accountants had not
completed the audit of the Nation's financial statements for
fiscal year 1997.
As part of our review, we evaluated the Nation's system of
internal controls over the procurement of goods and services and
payment of expenditures to the extent we considered necessary to
accomplish our objective. The internal control weaknesses
identified are discussed in the Results of Survey section of this
report. If implemented, the recommendations should improve the
internal controls in these areas. Our survey fieldwork included
visits to the headquarters of the Chickasaw Nation, in Ada,
Oklahoma.
PRIOR AUDIT COVERAGE
During the past 5 years, neither the Office of Inspector General
nor the General Accounting Office has performed any audits that
specifically addressed the Chickasaw Nation's procurement and
payment activities related to Federal programs. However, on July
14, 1997, the Nation's independent accounting firm issued the
report entitled "Chickasaw Nation, General Purpose Financial
Statements and Other Financial Information for the Year Ended
September 30, 1996." The report did not contain any
recommendations or questioned costs, and it stated that the
independent accounting firm's tests disclosed no instances of
noncompliance with regulations or weaknesses in internal control
structures related to Federal financial assistance programs.
RESULTS OF SURVEY
Except for the matters discussed in this report that relate to
indirect costs and procurement, no significant issues came to our
attention concerning the Chickasaw Nation's accounting for costs
incurred under Department of the Interior funding agreements
during the period of October 1, 1996, through September 30, 1997.
Of the costs of $518,000 we tested under the Department of Health
and Human Services Self-Governance Compact, we questioned costs
of $36,800: $16,900 for Christmas gifts and $19,900 for salary
payments to an employee who had resigned. We also identified
interest expenses of $9,500 resulting from late payments, which
were incorrectly charged to the Nation's indirect cost account.
In addition, we found that 27 purchase transactions, totaling
$336,100, were made without adequate competition and that 3 of
these purchases were not awarded to the lowest bidders. As a
result, the Nation did not have full assurance that goods and
services were acquired at an economical and reasonable price, and
it incurred costs of about $10,000 in excess of the low bids
offered.
Department of the Interior Programs
Based on our review of 49 transactions, totaling $881,000,
incurred by the Nation under Department of the Interior-funded
programs, we did not question any costs for the following
programs:
-------------------------------------
| |Costs
| Program |Incurred
-------------------------------------
Self-Governance $138,000
-------------------------------------
Carter Seminary 100
-------------------------------------
Roads Construction and 742,000
Maintenance
-------------------------------------
Transportation Improvement 900
-------------------------------------
Title Documents 0
Acquisition
-------------------------------------
Kullihoma Demo 0
-------------------------------------
Total |$881,000
-------------------------------------
We also found that the system used to account for direct costs
was in compliance with applicable financial management standards.
The Nation's accounting system provided effective control and
accountability over program funds; adequate identification of the
source and application of funds; and adequate source
documentation such as contracts, purchase orders, payroll detail,
canceled checks, and general assistance eligibility forms.
Department of Health and Human Services Programs
Of the 39 transactions reviewed, totaling $518,000, we questioned
costs on 2 transactions, totaling $36,800, charged to Department
of Health and Human Services self-governance programs (Agreement
No. ISG 950020-01-3) as follows:
On January 23, 1998, the Nation spent $16,900 for turkeys that it
had distributed to all tribal employees as Christmas gifts.
Circular A-87 (Attachment B, Item 18) states that costs of
entertainment, including social activities and any related costs
such as meals, are unallowable. Also, the Federal Acquisition
Regulation (48 CFR 31.205.13(b))[3] states that using Federal
funds for gifts is unallowable.
From August through November 1997, the Nation spent $19,900 for
regular salary payments to an employee who had resigned effective
July 29, 1997. Circular A-87 (Attachment B, Item 11) requires
that compensation for personal services be for services rendered
during the period of performance under Federal awards. At the
time of our review, the Nation could not provide documentation to
support that the employee had performed any work after the date
of resignation.
Indirect Costs
The Nation established an account funded by Federal programs to
record the Nation's indirect costs. During our review of payment
transactions, we identified two transactions, totaling $9,500,
for interest charged to the Nation for late payments on invoices
billed by an independent contractor for the planning and
implementation services of the Nation's network information
system. Specifically, the Nation charged $4,300 on May 21, 1998,
and $5,200 on June 15, 1995. Circular A-87 (Attachment B, Item
26) provides that costs incurred for interest, however
represented, are unallowable.
Procurement
The Chickasaw Nation made purchases without adequate competition
and without selecting the lowest bidder, and there was no
documentation in the files to justify these actions. Section B
("Basic Policies") of the Nation's Procurement Manual requires
that all procurement actions, whether by formal advertising or
negotiation, be made on a competitive basis to the maximum extent
practicable. Section J ("Procurement Methods") requires price or
rate quotations to be obtained from a sufficient number of
qualified sources, and Section L ("Procurement Records") requires
that procurement records include contractor selection or
rejection information, a basis for the cost or price, and a
rationale for the method of procurement. The lack of competition
occurred principally because the Nation established a program to
support purchasing from its enterprises without modifying its
procurement procedures to provide for an evaluation of the
reasonableness of the costs of enterprise products. Specifically,
the Governor of the Nation issued a policy on October 15, 1996,
in support of making purchases from the Nation's enterprises as
follows:
It is the policy of the Chickasaw Nation Executive Department to
fully support all tribal businesses in every way possible. To
that end, please be advised that all tribal programs which
operate motor vehicles must be utilizing our tribal motor fuel
outlets as much as possible. Computer supplies should also be
purchased through our computer company. . . . The staff at
Chickasaw Enterprises will help you if you have any problems or
special concerns.
We reviewed 27 furniture and equipment purchases, totaling
$336,100, of which 24 purchases, totaling $262,500, were from
tribal enterprises. Of the 27 purchases, 19 purchases were made
with Department of Health and Human Services funds ($308,800),
and 8 purchases were made with Department of the Interior funds
($27,300). Based on our review of the procurement files, we
found that 20 purchases, totaling $260,600, were made without any
competition or justification for the noncompetitive procurement
and that 7 purchases, totaling $75,500, were made without
adequate competition. Of the seven purchases made without
adequate competition, three purchases were also made without the
lowest bidder being selected or a justification documenting the
selection. Examples of these procurements are presented in the
paragraphs that follow.
The following procurements were made with no competition:
The Nation's Carl Albert Indian Hospital, during the period of
March through April 1997, used Department of Health and Human
Services self-governance funds (Agreement No. ISG950020-01-3)
totaling $154,000 to purchase furniture from a Nation enterprise.
The Nation's Carl Albert Indian Hospital, on August 25 and
December 19, 1997, used Department of Health and Human Services
self-governance funds (Agreement No. ISG950020-01-3) totaling
$41,667 to purchase carpet from an outside vendor.
The Nation, on November 26, 1997, used Department of Health and
Human Services Early Childhood program funds (Agreement No.
90CI1543\19) totaling $8,679 to purchase three computers and
three printers from a Nation enterprise.
The following procurements were made with inadequate competition:
The Nation, on March 3, 1998, used self-governance funds
(Agreement No. ISG950020-01-3) totaling $4,819 to purchase three
computers from the Nation's business enterprise. Based on our
review of the procurement file, we found that computers could
have been purchased from another vendor for $2,727. However, the
specifications for the computers offered by the competing vendor
were different. There was no documentation of the Nation's needs
or justification supporting the decision to purchase the more
expensive computers. As a result, there was no assurance that
the additional costs of $2,092 charged to the Department of
Health and Human Services self-governance program were warranted.
Three procurement files contained vendor costs that were not
current or that were obtained from catalogue listings which were
not updated to the current date of purchase.
Two procurement files indicated that procurement specifications
were changed but that the changes were not communicated to both
competing vendors.
One procurement file showed that the procurement officer had
provided the cost estimate of another vendor to the Nation's
business enterprise and requested that the enterprise meet the
price.
The following procurements were made with the lowest bidder not
being selected:
The Nation's Carl Albert Indian Hospital, on July 23, 1997, used
self-governance funds (Agreement No. ISG950020-01-3) totaling
$30,984 to purchase carpet from a vendor that had not offered the
lowest price. Based on our review of the procurement file, we
found that the same type of carpet could have been purchased from
another vendor for $25,200. As a result, excess costs of at
least $5,784 were charged to the Department of Health and Human
Services self-governance program.
The Nation, on September 30, 1997, used self-governance funds
(Agreement No. ISG950020-01-3) totaling $24,156 to purchase 17
computers from the Nation's business enterprise, which had not
offered the lowest price. Based on our review of the procurement
file, we found that the same types of computers could have been
purchased from another vendor for $20,338. As a result, excess
costs of at least $3,818 were charged to the Department of Health
and Human Services self-governance program.
Indian preference in employment, contracting, and subcontracting
is authorized by the compacts. However, we believe that the
Nation's procurement manual should provide guidance in
determining whether the prices of goods offered by the Nation's
enterprises are competitive. For example, the Nation's
enterprises could submit bids or price quotations on proposed
procurement transactions and receive the award if their bid or
quote is responsive and within a designated percentage of the
lowest bid or quote.
Recommendations
We recommend that the Assistant Secretary for Indian Affairs
instruct the Chickasaw Nation to:
1. Adjust the indirect cost account for the questioned interest
charges of $9,500.
2. Comply with Federal and Nation requirements for competitive
procurements and for selection of the lowest responsive bid.
3. Develop and implement specific procedures for evaluating and
awarding procurements to the Nation enterprises.
Although we did not make any recommendations to the Department of
Health and Human Services, we have informed them of the results
of this review and will provide them a copy of this report.
Bureau of Indian Affairs Response and Office of Inspector General
Reply
In the April 21, 1999, response (Appendix 2) to the draft report
from the Assistant Secretary for Indian Affairs, the Bureau
concurred with the three recommendations. Based on the response,
we consider the recommendations resolved and implemented (see
Appendix 3).
Additional Comments on Audit Report
In its response, the Bureau included as an attachment the April
8, 1999, response from the Governor of the Chickasaw Nation. The
Nation's response provided additional comments on the section of
the report related to procurements made with the lowest bidder
not being selected. The Nation said that "[w]e agree that our
files were lacking in documentation to justify the purchases
mentioned in the survey" report but that "we believe that
competitive prices were obtained for the merchandise." The Nation
included additional details on two of the examples in the report
as follows:
For example, the survey [report] stated that we [the Nation]
purchased three computers for $4,819 and the same types of
computers could have been purchased from another vendor for
$2,727. The lower price was obtained from a flyer of a company
with which we had not done business and had no knowledge of their
reputability. Also, the computers did not have comparable memory
or speed. The computers we purchased had 4.3GB hard drives, 32MB
RAM and pentium 233 processors, whereas the computers listed on
the flyer had 1.2GB hard drives, 16MB RAM and pentium 166
processors.
Another example was the carpet purchase mentioned in the survey
[report]. It stated that we [the Nation] could have purchased the
same type of carpet for $45,784 less than the price we paid.
Even though the higher priced carpet was of better quality, our
main reason for selecting it was the process in which an
antibacterial agent is applied to the carpet. The agent is
applied to the more expensive carpet during the manufacturing
process, whereas the agent is sprayed on the lower priced carpet
after completion. Also, we would like to mention that we
purchased the carpet directly from the wholesaler used by the
other vendor. We were able to purchase the more expensive carpet
at a wholesale price.
The Nation stated that its "failure to maintain supportive
documentation for these purchases gave the appearance that
competitive prices were not obtained" and that the cited examples
"also indicate that we [the Nation] did not seek new bids from
the vendors when we changed our procurement specifications."
Regarding the computers, we agree that the procurement document
supporting competition from a source other than the Tribal
enterprise was for computers that had specifications different
from those offered by the Tribal enterprise. However, the vendor
is a national computer supply company that has been in business
since 1978 and that offers computers with the same specifications
as the computers offered by the Tribal enterprise. Since the
documented specifications were different, we have changed the
classification of the example to a procurement made with
inadequate competition.
Regarding the carpet purchase, our report stated that the carpet
purchased could have been purchased for $5,784 less than the
price the Nation paid, not the $45,784 cited in the Nation's
response. Also, we disagree that the carpet offered by the
vendors was different. According to notes included in the
procurement file, a competing vendor said that he can "get carpet
at $10.50/ sq. yd. vs. [versus] the $12.91/sq. yd. from [vendor
name] w/o Frt. [without freight] (add .55/sq. yd.)." The vendor
confirmed that his bid, a difference of $2.96/square yard, was
based on specifications that were provided to him by the Nation
and that were identical to the specifications provided to the
other vendor. In addition, the vendor said that he told the
Nation that he could provide carpet from other manufacturers
which met or exceeded the specifications and at prices which were
lower than the $12.91/square yard price offered by the vendor
being considered by the Nation. We believe that because the
Nation did not obtain documentation which clarified the terms of
the competing offers or seek additional bids when it appeared
that a competitive market existed, there was no assurance that
procurements were the most economical. Therefore, we did not
change the classification of this example.
Since the recommendations are considered resolved and
implemented, no further response to this report is required (see
Appendix 3).
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 (see
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 assistance of Bureau of Indian Affairs and
Chickasaw Nation personnel in the conduct of our audit.
**FOOTNOTES**
[1]:Office of Management and Budget Circulars A-128,"Audit
Requirements for State and Local Governments"; A-87, "Cost
Principles for State, Local, and Indian Tribal Governments"; and
A-102, "Grants and Cooperative Agreements With State and Local
Governments." Circular A-102 states that the President directed
all affected Federal agencies to issue a grants management common
rule to "adopt government-wide terms and conditions for grants to
State and local governments [including Indian tribal
governments], and they did so."
[2]:Expenditures are greater than the amounts awarded in fiscal
year 1997 because of the carryover of unspent Federal funds from
prior years. Also, the fiscal year 1997 program transactions
were unaudited at the time of our review and therefore may be
adjusted as a result of an audit by the Nation's independent
public accounting firm.
[3]:In response to our inquiry, the Nation's Administrator of the
Division of Support Services stated, in an August 27, 1998,
letter, that the Nation's "procurement department does in fact
use the Federal Acquisition Regulation (FAR) as a model for our
own purchasing procedures. In addition, the FAR is used as a
reference tool in the event that our own policies do not address
a specific topic and the purchasing officer was unable to
determine that pricing was fair and reasonable using his own
expertise."
APPENDIX 1
CLASSIFICATION OF MONETARY AMOUNTS
Findings
Questioned
Costs
Department of Health and Human Services Programs
Indirect costs
Total
$36,800
9,500
$46,300
APPENDIX 2
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APPENDIX 2
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APPENDIX 2
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APPENDIX 2
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APPENDIX 2
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APPENDIX 3
STATUS OF SURVEY REPORT RECOMMENDATIONS
Finding/Recommendation
Reference
Status
Action Required
1, 2, and 3
Implemented.
No further action is required.
ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED
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