[Audit Report on Rosebud Sioux Rural Water System, Mni Wiconi Rural Water Supply Project, Bureau of Reclamation]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-499

Title: Audit Report on Rosebud Sioux Rural Water System, Mni Wiconi
       Rural Water Supply Project, Bureau of Reclamation

Date:  May 28, 1999




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


AUDIT REPORT
ROSEBUD SIOUX RURAL WATER SYSTEM,
MNI WICONI RURAL WATER SUPPLY PROJECT,
BUREAU OF RECLAMATION


REPORT NO. 99-I-499

MAY 1999



MEMORANDUM

             TO:  The Secretary

           FROM:  Robert J. Williams
                  Acting Inspector General

SUBJECT SUMMARY:  Final Audit Report - "Rosebud Sioux Rural Water
                  System, Mni Wiconi Rural Water Supply Project,
                  Bureau of Reclamation" (No. 99-i-499)

Attached for your information is a copy of the subject final
audit report. The objectives of the audit were to (1) determine
whether the costs incurred by the Rosebud Sioux Tribe to plan,
design, and construct its portion of the Mni Wiconi Rural Water
Supply Project were expended in accordance with Federal law,
regulations, and funding agreements and (2) identify the source
of any incurred or projected cost overruns.  The audit was
performed as part of our audits of the four non-Federal sponsors
of the Project, including the Rosebud Sioux Tribe. The results of
the audits of the other Project sponsors will be presented in
separate reports. The audit of the Mni-Wiconi Project was
requested by three members of the Congress.

We found that the costs of $10 million incurred by the Rosebud
Sioux Tribe as of September 30, 1998, for planning, designing,
and constructing the Rosebud Sioux Rural Water System were
expended in accordance with the Mni Wiconi Project Act of 1988,
as amended; Federal regulations; and the terms of the cooperative
agreement between the Bureau of Reclamation and the Tribe.  We
also found that a cost overrun was not projected for the Rosebud
System.

The report did not contain any recommendations; therefore, a
response was not required.

If  you have any questions concerning this matter, please contact
me at (202) 208-5745.


Attachment

cc: Assistant Secretary for Water and Science
Assistant Secretary for Indian Affairs
Commissioner, Bureau of Reclamation
Chief of Staff
Deputy Commissioner for Indian Affairs
Office of Communications




AUDIT REPORT                              W-IN-BOR-004-98(B)-R

Memorandum

     To:  Assistant Secretary for Water and Science

   From:  Robert J. Williams
          Assistant Inspector General for Audits

Subject:  Audit Report on Rosebud Sioux Rural Water System,
          Mni Wiconi Rural Water Supply Project,
          Bureau of Reclamation (No. 99-i-499)

INTRODUCTION

This report presents the results of our audit of the Rosebud
Sioux Rural Water System,[1] which is part of the Mni Wiconi
Rural Water Supply Project, located in South Dakota.  The
objectives of the audit were to (1) determine whether the costs
incurred by the Rosebud Sioux Tribe to plan, design, and
construct its portion of the Project were expended in accordance
with Federal law, regulations, and funding agreements and (2)
identify the source of any incurred or projected cost overruns.
The audit was performed as part of our audits of the four
non-Federal sponsors of the Mni-Wiconi Project, including the
Rosebud Sioux Tribe. The results of the audits of the other
Project sponsors will be presented in separate reports. The audit
of the Mni-Wiconi Project was requested by three members of the
Congress.

BACKGROUND

The Mni Wiconi Project Act of 1988 (Public Law 100-516)
authorized and directed the Secretary of the Interior to
construct the Mni Wiconi Rural Water Supply Project to ensure a
safe and adequate municipal, rural, and industrial water supply
for both Indian and non-Indian residents of southwestern South
Dakota.  The Act authorized construction of the Oglala Sioux
Rural Water Supply System to serve the Oglala Sioux Tribe on the
Pine Ridge Reservation and the West River and Lyman-Jones Rural
Water Systems to serve residents of seven counties[2] in South
Dakota.  In 1994, the West River and Lyman Jones Systems were
merged into one system, known as the West River/Lyman-Jones Rural
Water System.  The Mni Wiconi Act Amendments of 1994 (Title 8 of
Public Law 103-434) added construction of the Rosebud Sioux Rural
Water System and the Lower Brule Sioux Rural Water System to
serve the respective reservations, thereby increasing the number
of Project sponsors to four.  The Amendments also raised the
authorized appropriation ceiling for the Project from $87.5
million to $263.2 million, subject to indexing,[3] and provided
that the Project would generally be constructed in accordance
with the Project's Final Engineering Report, dated May 1993.

The Act, as amended, also authorized the Secretary to enter into
cooperative agreements with the three tribes subject to the
provisions of the Indian Self-Determination and Education
Assistance Act (Public Law 93-638), as amended, to provide funds
for planning, designing, constructing, operating, maintaining,
and replacing their respective systems.  Separate cooperative
agreements were authorized for planning, designing, and
constructing the West River/Lyman-Jones System, with the project
sponsor responsible for 20 percent of these costs and for the
entire cost of operating, maintaining, and replacing the System.
The Bureau of Reclamation serves as the oversight agency for the
Project, with the authority and responsibility to enter into
cooperative agreements and to provide the technical and
administrative oversight necessary to complete the planning,
design, and construction of the Project.  The Bureau's oversight
included review and approval of reports, construction plans,
specifications, work schedules, fund requests, and change orders.

The overall Project includes a water treatment plant, 4,500 miles
of pipeline, 60 booster pump stations, and 35 water storage
reservoirs.  The Project will ultimately serve more than 50,000
people, including more than 40,000 Indians on three reservations.
In its May 1998 Master Plan,[4] the Bureau estimated that the
total cost to complete the Project would be $387 million, or $60
million more than the indexed Project costs of $327 million.  The
projected overrun was attributable to the Oglala Sioux and Lower
Brule Sioux Systems.  In the Master Plan, the Bureau also
estimated that at current funding levels,[5] the Federal share of
$327 million would not be appropriated until 2006.  However, the
authorization to appropriate funds for the Project expires in
2003.  As of September 30, 1998, the Bureau had allocated Federal
funds of $107.5 million to Project sponsors, including $4.3
million for Bureau administration and oversight expenses charged
to the sponsors.

The Rosebud Sioux Rural Water System as authorized consists of
about 450 miles of pipeline, 18 booster pump stations, and 18
water storage reservoirs, all of which will serve approximately
17,000 people on the Rosebud Indian Reservation.  Construction,
operation, and maintenance of the Rosebud System are managed by
the Tribe's Office of Water Resources.  The cost of the Rosebud
System, originally estimated at $47.2 million in the Final
Engineering Report, was indexed in the Master Plan to $61.8
million (October 1999 dollars). As of September 30, 1998, about
$15.3 million (25 percent of the estimated cost) had been
appropriated, and about $10 million (16 percent of the estimated
cost) had been expended.

SCOPE OF AUDIT

Our fieldwork was performed at the Rosebud Indian Reservation in
South Dakota and the offices of the Tribe's accounting firm in
Sioux Falls, South Dakota.  The scope of the audit included a
review of records and expenditures for the Rosebud System from
initial planning in fiscal years 1992[6] through 1998.  To
accomplish our audit objectives, we interviewed personnel from
the Rosebud Sioux Tribe and the Bureau's offices in Billings,
Montana; Bismark, North Dakota; and Pierre, South Dakota.  We
also interviewed personnel from the Tribe's engineering firm in
Billings.  We reviewed applicable legislation, including the Mni
Wiconi Act of 1988; Title 8 (Mni Wiconi Act Amendments) of the
Yavapai-Prescott Indian Tribe Water Rights Settlement Act of 1994
(Public Law 103-434) and related Congressional hearings; and the
Indian Self-Determination and Education Assistance Act (Public
Law 93-638), as amended.  In addition, we reviewed the Bureau's
May 1998 Master Plan, the System's quarterly financial reports,
the cooperative agreement between the Bureau and the Tribe, and
the Project's May 1993 Final Engineering Report.  We also
reviewed the Tribe's financial statements and supporting
documentation; procurement procedures; annual workplans; the
Municipal, Rural, and Industrial Water Needs Assessment Final
Report,[7] dated July 1993; a cost reduction plan; and
construction bid documents.

Our analysis of the financial status of the System was based on a
review of expenditures, cost estimates, and other financial and
planning data available as of September 30, 1998.  As such, our
conclusions regarding any actual or projected cost overruns may
be affected by subsequent events concerning the cost and design
of the System.  These events include modifications to, additions
to, and deletions of construction components; revisions of cost
estimates based on current data; increases in authorized project
costs attributable to cost indexing; and efforts by the Bureau
and the Tribe to implement cost-saving measures.  In that regard,
the Bureau issued a draft Cost Containment Report in December
1998, which included various options for reducing Project costs.

Our audit 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 audit objectives.  As
part of our audit, we reviewed the Secretary's Annual Statement
and Report to the President and the Congress, required by the
Federal Managers' Financial Integrity Act, for fiscal years 1994
and 1995; the Departmental Reports on Accountability for fiscal
years 1996 and 1997, which include information required by the
Act; and the Bureau's annual assurance statements on management
controls for fiscal years 1997 and 1998.  Based on those reviews,
we determined that no material weaknesses were reported that
directly related to the objectives and scope of our audit.  In
addition, we reviewed the Tribe's single audit reports and the
certified public accountant's working papers for fiscal years
1994 through 1997 and found that this documentation did not
disclose any reportable conditions[8] or material weaknesses[9]
related to the Rosebud System.  We also reviewed the Tribe's
internal controls related to the Rosebud System to the extent
necessary to accomplish our audit objectives and did not identify
any material weaknesses.  We did not review the administrative
costs incurred by the Bureau to oversee the planning, design, and
construction of the Rosebud System.

PRIOR AUDIT COVERAGE

During the past 5 years, neither the Office of Inspector General
nor the General Accounting Office has issued any reports on the
Mni Wiconi Rural Water Supply Project.

RESULTS OF AUDIT

We found that the costs of $10 million incurred by the Rosebud
Sioux Tribe as of September 30, 1998, for planning, designing,
and constructing the Rosebud Sioux Rural Water System were
expended in accordance with the Mni Wiconi Project Act of 1988,
as amended; Federal regulations; and the terms of the cooperative
agreement between the Bureau of Reclamation and the Tribe.  We
also found that a cost overrun was not projected for the Rosebud
System.

Cost Compliance

The Act, as amended, established the general parameters of the
System, and Federal regulations and cooperative agreements
provide criteria governing the allowability and reasonableness of
the Tribe's costs.  Our conclusions that the costs incurred by
the Tribe were in compliance with these requirements were based
on a review of the financial statements, general ledger,
subsidiary reports, and supporting records of the Tribe's Office
of Water Resources for fiscal years 1994 through 1998 and the
working papers of the Tribe's certified public accountant for
fiscal years 1994 through 1997.  Our review included both
construction and noncontract[10] costs.  Specifically, we
reviewed all construction contract payment vouchers and all
payment vouchers to the Tribe's engineering firm for planning and
design, which totaled $8,032,931.  In addition, we tested costs
of $96,914 recorded for Tribal personnel, vehicles,
rights-of-way, and easements to determine whether these costs
were allowable, reasonable, and necessary.  The amounts reviewed
made up 81 percent ($8,129,845) of the recorded Rosebud System's
costs through September 30, 1998.  We also reviewed the working
papers of the Tribe's certified public accountant to verify that
the Tribe's system of accounting and internal controls was
adequate to safeguard and properly account for funds for the
Rosebud System.  Based on our review of the Tribe's records and
the certified public accountant's working papers, we did not
identify any material amounts of unsupported or questioned costs.

Changes to the Rosebud System

The Mni Wiconi Act, as amended, limits the costs for the Rosebud
System to the amount cited in the May 1993 Final Engineering
Report for the Mni Wiconi Project, subject to indexing.  The
indexed costs for the Rosebud System as determined by the Bureau
for fiscal year 2000 totaled $61.8 million.  The Tribe's
consulting engineering firm estimated the costs to construct the
Rosebud System to be $59.6 million (excluding non-Project funds
of $195,000) based on changes to the System.  As a result, the
estimated costs to construct the Rosebud System are approximately
$2.2 million less than the indexed costs determined by the
Bureau; consequently, a cost overrun is not projected for the
Rosebud System.

The latest estimate by the Tribe's engineering consulting firm
resulted from changes in the design of the Rosebud System.  The
Final Engineering Report and the Tribe's July 1993 Municipal,
Rural, and Industrial Water Needs Assessment Final Report are
planning documents that generally describe the system to be
constructed.  However, according to representatives of the
Tribe's engineering firm, design and engineering changes made
during field-level planning, which we confirmed, resulted in
numerous additions, deletions, and other revisions to the System.
These revisions, which were approved by the Bureau, included the
addition of an administrative/operation and maintenance building
and shop, the elimination of four booster pumps/stations, and six
changes to System storage reservoirs.  We found that the net
effect of the changes was that the estimated cost of constructing
the Rosebud System was less than the Bureau's computed indexed
amount.

Other Matters

We found that, through September 30, 1998, the Rosebud Sioux
Tribe incurred noncontract costs at an overall rate of 57 percent
of System construction costs, which exceeds the 41.2 percent rate
provided for in the Tribe's July 1993 Needs Assessment.  Bureau
officials stated that noncontract costs are usually higher in the
beginning phases of a construction project because of higher
"front-end" costs for planning and design and that noncontract
costs generally decrease as construction progresses, which has
occurred for the Rosebud System. Specifically, the overall rate
of 57 percent through September 30, 1998, is lower than the 94
percent rate through September 30, 1997, and the 130 percent rate
through September 30, 1996.  While the rate is decreasing as
expected, we believe that the Bureau and the Tribe need to
monitor the System's noncontract costs to ensure that the System
can continue to be constructed within the indexed amount of $61.8
million.

Since this report does not contain any recommendations, a
response is not required.

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 assistance of Bureau and Tribal personnel in
the conduct of our audit.

**FOOTNOTES**

[1]:The Rosebud Sioux Tribe also refers to the Water System as
the Sicangu Mni Wiconi Project.  However, for purposes of this
report, the term Rosebud Sioux Rural Water System is used.

[2]:The seven counties are Haakon, Jackson, Jones, Lyman,
Mellette, Pennington, and Stanley.

[3]:Indexing is the process of updating the Congressionally
authorized appropriation ceiling of a project for changes
generally attributable to economic factors, usually inflation.

[4]:The Master Plan established the construction schedule for
each segment of the Project and documented historical and
projected costs to enable the Bureau and Project sponsors to
track the status of the Project.  The Plan also enabled the
Bureau and Project sponsors to estimate the effect of changes in
annual appropriations and prices on the construction schedule.
The Plan projected a Project construction ceiling of $327
million, indexed through October 1999, as presented in Bureau
budget documents for fiscal year 2000.  The Plan also included a
breakdown of this ceiling for individual Project sponsors.  The
total estimated Project costs of $387 million were based on
information provided by Project sponsors.  The Bureau said that
it plans to update the Master Plan periodically.

[5]:In fiscal years 1996 through 1998, annual funding levels for
the Project averaged about $25 million.

[6]:Prior to authorization of the Rosebud System in 1994, the
Tribe received funds totaling $461,000 for initial planning,
including Project funds of $266,000 and non-Project funds of
$195,000.

[7]:The Tribe's July 1993 Needs Assessment identified the current
and future municipal, rural, and industrial water needs of the
Tribe and included cost estimates for the alternatives proposed
to meet those needs.

[8]:Statement on Auditing Standards No. 60, "Communication of
Internal Control Structure Related Matters Noted in an Audit,"
issued by the American Institute of Certified Public Accountants,
states that "reportable conditions" are matters coming to the
auditor's attention that, in the auditor's judgment, should be
communicated to agency management.  These matters relate to
significant deficiencies in the design or operation of the
agency's internal control structure that could adversely affect
the agency's ability to record, process, summarize, and report
financial data consistent with the assertions of management in
the financial statements.

[9]:Statement on Auditing Standards No. 60 also states that a
material weakness is a reportable condition in which the design
or operation of one or more of the specific internal control
structure elements does not reduce to a relatively low level the
risk that errors or irregularities in amounts which would be
material to the financial statements being audited may occur and
not be detected within a timely period by employees in the normal
course of performing their assigned functions.

[10]:The May 1993 Final Engineering Report defined noncontract
costs as those costs incurred prior to and during construction
that relate primarily to engineering and administration of
construction.



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