Mr. Harold E. Aldrich regional IXrector, Region 6 Bureau of Recl~atio~ P.0. BQX 2553 BiZlings, Montana 59103 Dear Mr. Aldrich: The General. AccounC.t~g Office has made a review of the operations of the Ffissouri River Basin (MRB) Project and the integrated projects through June 30, 3.969. The review was performed in Regilara 6 and Region 7 of the Brnreau of Reclamation, Department of the Xnterior, and the On1aha District, Corps of Engineers, Department of the Army, fhr revier+ included an examination of administrative practices and procedures, an evaluation of internal. controJ.c, and such tests of the financial trarksacticms as we considered necessary. The cave~akl resdts of QUK review relating to the consolidated operation and fimnci.a% position of the integrated projects will be covered in a separate repar% to the Congress. At iRe,&xk 6 of the Bureau of Reclamatim we gewlerally found the administrative procedures and controls tmobe adequate. I-k?weweP) during our review various matters which reqlaire carrection OK resolut;ion were identified. The following have been discussed with you and ycsur staff. These items are being reported to you since corrective action had already been taken or was contem-plated on many of the items and ~7e would appms- date goclr comments especially arj; they relate to accomplished or proposed corrective action. %* Preparation of the Statement of Project Cost and Repayment; the Power System Average Rate and Repayment Study; and the computations of interest on investment, provision for depreciation, and interest during construction a13 take place shortly after the close of the fiscal year. However, inconsistent rates were used for allocating Mr. IlaroPd E. Aldrich 4. Rep,ional Director 1 Region 6 -2- multipurpose plant to the purposes served by the project. For exampk, the rates used for allocating multipurpose plant to power far the Yellow- tail Unit during fiscal year 1969 were as follows: Description Statement of Project Cost and Repayment - June 30, 1968 Average Rate and Repayment Study - June 30, 1968 34.57 Interest on commercial power - Ey 1969 34.57 Provision for depreciation - I?Y 1969 62.3 Interest during construction - FY 1969 62.16 Aho, Reclamation Instructions 116.5.9 states that annual operation and maintenance (O&H), replacement, and investment costs shall be allocated concurrently, We found that the ultimate development rates for allocating nultiptzrpose O&Ff to pwrposcs served did in some cases equal the current- " use sates but these rates were not those actually used to allocate mul'ti- purpose plant costs for the sane purpose. For' example, the Allocation of Cosll of Operation and Fkimtenance of Multipurpose Facilities and Qther Joint Works, CY 1969-1912, dated Februasl~ 24, 1969, stated that thle ultimate development rate and the current-use rate for allocating multipurpose O&X to power for the Yellowtail Unit was 42 percent; yet, this rate equaled none of those used above for allocating plant costs. We were tmable to determine which, if any, of the above allocation Z"ates used were official. We believe that all unit rates for allocating multipurpose plant and O&X for functions developed as ultimately planned shauld be properly established, reviewed, and communicated to all interested parties for consistent application in the accounting records and reports, During our exit conferemce members of your staff commented that this resulted from a lack. of communicaeion of official allocation rates, but advised that steps wctuld be taken to correct thfs matter. we %E'E! c omnlend 9 in addition, that the applicable finance offices make a review to deterneine what effect the uc of inconsistent allocation rates has had OR the accounting records and that appropriate adjustments be made when the effect is determined to be material. 2. The Allocation of Cost of Operation and M8aintenance of Multi- purpose Facilities and other Joint Works, CY 1969-1972, dated February 24, 1969, indicated in some cases, that O&PI allocated to "Other Irrigation" on ultimate development should be charged fully to flood control in the current-use allocation. * * Mr. Harold E. Aldrich Regional Director, Region 6 -3- We believe that the charging of all "Other Irrigation" O&M to flood control may not give proper distribution to these costs if other purposes currently benefit from the use of water ultimately planned for "Other Irrigation.'" We believe such costs should be distributed to all active purposes of the unit or project. We recommend that the current distributions of O&M ultimately allo- cated to "Other Irrigation " be re-exa&ined to consider distribution of such costs to all other purposes currently benefiting from the use of water ultimately planned for “Other Irrigation. II i INTEREST ON INVESTMENT Under provisions of the Reclamation Act of 1939 interest expense shall be charged on that part of the construction costs allocated to municipal ‘I ,-?I1 water supply or other miscellaneous purposes, if the Secretary determines I ,,,. an interest expense rate to be proper. had been charged However, as of June 30, 1969, no interest OR any of the applicable MRB Project units. I After bringing this to th'e attention of Finance officials, interest expense of $93,494 for the Helena Valley Unit (which includes the Canyon Ferry Unit for M&l water) and $60,416 for the Oahe Unit-James Section was charged into the accounts during FY 1970, including the retroactive adjust- ments through FY 1969. Subsequently, in FY 1971, interest expense of $453,219 for the Rapid Valley Unit was charged to interest expense. Since the other units are either exempt or interest being deferred-- Dickinson was said to be exempt because an interest component had not been included in the M&I rates approved by the Secretary and Yellowtail interest expense was being deferred under provisions of the Water Supply Act of 1958 until the water supply is actually used--we are making no further recommendations at this time. INTEREST DURING CONSTRUCTION 1. Computations of IDC in the Missouri-Souris Projects Office contained errors as discussed below: a. In computing IDC for FY 1964, the amount recorded on line 13c of the Report on Budget Status was inadvertently used instead of current year disbursements for the Transmission Division. As a result, the amount used as current year disbursement was understated by $2,210,747. Therefore, IDC for FY 1964 was understated by $22,301 computed as follows: $2,210,747 + 2 = $1,105,374 $1,105,374 x 80.7% x 2.5% = $22,301 . p’k. Hardd E. Aldrich Regioml Director, Region 6 -4- b. In 33 1965 and subsequent years IDC has been incorrectly computed due to: 1* The carry forward affect of a. above, 2. Use of 81.3 percent to coalpute comercial power rathex- thaxt 80,7 percetat as set forth in the Repcmg: om Finmcial Position, December 1963, and 3. Nonrecognition of the 83-17 percentage basis for ccmputing YIRC at the 2.5 and 3 percent rates as provided by ehe Regiotzal Office letter dated June 9, 1.966. All of the LDG was computed at 2.5 percent. We recommend tzhat appropriate adjustments be made to correct IDC fur fiscal year 1964 IX date. 2. lh accordance with the Actitag Regioolal Director”s letter of June 3, 1956, to the Pmjcct Manager-Bismark axed Hurcx~, IDC far FY I.966 and subsec~ucut years for the Transmission Division was computed at 2.5 percent cm 83 percent af the anntd. disbursements and at 3 percent on the 17 percent balance associated with the Bureau. But, Itu mention was made of the rate to be used on the Bureau’s production plauzt, Subsequently IDG ltas been computed at 2,5 percent for the YeLllow- flail Mmi.1: production plant. We bekieve that the use of 2.5 percent fom IDC for the Bureau procluctiorn plant is inconsistene with the application Qf 3 percent for IDC for rhe Bureau’s share of Transmission D:Lvlsion. We recommend thar: the Bureau adjust the XIX for the Yel.Lo~ta:il. Unit production plant since F”Y 1966 to reflect 3 percent for JDC and to be consistent with the June 9, 1966, Iet:ter ciiked above, During our exilt conference we ‘were advised that XeX1ow~G.l was the only project affected and corrective action would be taken %o reflect IRC at 3 percent on production plant. 1. Plant-in-service, other than movable property, was depreciated using the compound-interest method of deprecia*U.on, This method includes the c@Entpuraision lof intexest on1 rshe reserve for depreciation. Movable property was depreciated using khe straight-line method. When computing interest on the reserve for depreciation under the compound-interest method, the Bureau has nor removed the reserve for depreciation for movable properI:y before applying the interest factor. We believe that the application of an interest factor to the reserve for depreciation for movable property violates the straight-line depre- ciation concept and inflates depreciation charges related to plant-in- service which results in creating a reserve which will. eventually exceed the value of the assets being depreciated, We recommend that the reserve applicable to movable property be excluded from the computation of interest on the depreciation reserve. TJe believe that this problem could be eliminated if movable property were not included in plant-in- service but instead identified separately, similar to service facilities, We believe that movable property would be better identified in its own classification and we recommend that the possibility of excluding movable property from plant-in-service be explored. Depreciation 2. charges consist of an annuity portion and a com- ptltation of interest on the reserve. In computing depreciation for Canyon Ferry Transmission Division the Regional Office used 3 percent rate factors in the annuity portion but interest on the reserve was computed using 2.5 percent and 3 percenlt rates after allocation of the reserve on the 83-17 percent basis (Pllblic Law 83-108). Proper computations require that both the &nuity portion and the interest on the reserve be camp~ted on the same basis a Thus, Transmission Division plane: costs being depreciated should be nI.l.ocated on the 83-1.7 percent: basis with the annuity portion al.so computed using the 2.5 and 3 percent rate factors. We further point lout that the Canyon Ferry production plant is part af the Bureau's 3 pbrcr3nnl: illVeStiT!~llt and not subject to the 83-17 percentage allocation. However 9 in FY 1969 interest on 'the production plar~t reserve ~7as computed by using the proper 3 percenBl rate buk: ,che rate was applied to only 53 percent of the reserve, instead of I.00 percent, ide recommend that these be corrected in the future. 3. Ina. computing the provision for depreciation for the Yellowtail Unit in FY 1968 and 1969, a rate factor of 0,00465358 was used. Recla-- mation Instructions provided that a rate factor of 0.00225556 was to be used. After we brought this to the attention of Finance officials action was taken to correct depreciation for FY 1968 and 1969 and an adjustment 0f $283,404 was 392corded. Howezrc%9 in both the original computation.and the adjustment for FY 1969 only 83 percent of the reserve for depreciation was subjected to interest, instead lof 1.00 percent. & Mr, Harold E. Aldrich RcgfonaL Diarector, Region 6 -Q- Sde recommend that a review be made to determine the significance of the errors in the depreciation adjustment and, if material, an amended adjustment be made. --QTHER 1.Account 107.1, Construction Work in Progress - Genera1 Construc- tion for the HRE, contains $124,164 of investigations costs for the Trans- nzission Divfsim. These costs have not c'nanged in amount at least since June 30, 1360, and we were told that there is no plan to constrwt the facilities for which these costs were incurred. Ne ~ecaamnend that actim be taken to remove these costs from account 107.1 and charge them to account 116.9 - Investigations of Abandoned lGork3 . 2, Cossl Authori:ky No. 68 flnr the Lower Marias Unit authorized the installation of perforated pipe and the repair of concrete gutters on the spillway. The Cost Az~tho.b*ity c-ited account 107,3 - Operation and tlaintenance Construc'tion. Eiowever p, the completion report cited account 821.3 - Elaintenance of Dams and Waterways and the costs for Cost Authorit-y K'o. 68 were expensed. tk were told that tlzc installation of drains was an improvement and that the drains did not exise: formerly. We believe that these costs should be capital costs and rewmmend that the costs assocjiated with drains fnstalla~ion be capital.ized instead of expensed * Account 117.3. Settlers 3, Assistance Costs (Transitional I?evelopment Costs) for the Shoshone I?roject was $616,309, This sum had not changed a~ least since June 30, 1960. Other projects also have entries in account 1317. ,1 iiJe believe that a~cclount 137 was not intended to be a permanent account for costs originally charged there. WE!believe scttkrs assistance costs and future years capacity prwxisions should be re- moved from account 1117 and charged to nonreimbursable expense when it is determined that the project or project uni.t on which these costs were incurred will not be developed as planned. We beliieve that only those cnsts associated with planned. future construction should be re- tained in account 117 and then only m~til the construction is complete. Once the cons tsx~tim is complete, we believe these costs should be capitalized in the plant-in-service accounts and their reimbursability shssuld be established. We recommend that a reulew be made of these costs and similar costs in caller projects to determine their status and that action be taken to transfer these costs to plant--in-@ Jervice or that authority be re- quested to charge them off as nonreimbursable. 4, A Bill for Collection for the costs of 0&N allocated to the Angostura Imjigation District was issued and recorded in the fiscal year prior to the year in ~7hich these charges were due. In 1ot.u~ opinion this action distorted the amou3nt of accounts receivable and irrigation income in the yeax the bill was recorded. He recommend that these bills be handled in such a manner as to record the receivable and the income in the year in ~hE-nich the bill is actually due * Articles 5. 5(a) Y S(b) 9 and S(c) of repayment contract No. 14-06-600-1302 with the Fdest~ern Heart River Irrigation Dfs,trict staCe in essence that each year after the development period the district wiP1 pay to the United States $2.57 foa: each acre irrigated. The contract. states that if the $0.57 per acre is less than the district’s ~&are of the total cost of operation and maintenance for thy supply works during any year, the djiffcrencc wil.1. be added to the district’s next payment. The Allocation of Cost of Opcrati.on and Naintenance of Mu3.tipurpose Facilities and Other Joint Warks 9 CY 1969-1972, dated February 24, 1969, stated that the districl: ‘s allocation nE joint O@X was 1.0 e7 percent but that this was limited to $7Gl.M (SO,30 x 2537 irrigab1.e acres) 1 In I.968 and 1969, the Bureau collected Sl.,ri46 -09 annually, which fs $0,57 for each Qf 2,537 acres; but in accordance with the 0&N alloca- tion s tatement ab owe ?, only $761,10 applies to payment of the district ‘s 13624 evan thoug’rt. the district “s share iof 0&N. exceeds the $761.30. The additional. $0 -27 per acre has been applied %o repayment of the investment in the supply works, The district’s 0&H in excess of $0.30 per acre was allocated to non- district water users and to nonreimbursable flood control and fish and wildlife + We beli.ewc thait the provisions of article 5 are not being properly applied 0 We ch not believe that the contractz guarantees $0.27 per ac+e for repayment of the supply works nor does it limit the O&X chargeable to the district: to $361,lQ, It appears that to properly apply the contract provisio~~s in article 5, the Bureau should first apply al.1 the revenues from the distsict to repay the district"s share of O&M and then apply only the excess revenue to repayment of the investment in the Supply works. We recommend that the provisions of article 5 be PevieT.ed to determine if these provisions are properly applied and that any necessaq corrective action be taken. We wish to acknotqledge the cooperation given OUT representatives duarilag the review. Pour comments and advice as to the action taken on the matters discussed above ~2.11 be appreciated. A copy of this letter is being sent to the Commissioner, Bureau of Reclamation. Sincerely yours )
Financial Activities of Missouri River Basin Integrated Projects for Fiscal Year 1969
Published by the Government Accountability Office on 1971-04-12.
Below is a raw (and likely hideous) rendition of the original report. (PDF)