Audit of the Corps of Engineers Project Financial Statements

Published by the Government Accountability Office on 1977-03-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                        REGIONAL            OFFICE
                              ROOM      201   415 FIRS-     AVENUE   NORTH

                             SEAmLIZ,          WASHlNGTON             98 i 09

X~JOZ-   General Wesley E Peel
Dxvlslon    Engxneer, North
  Pacxflc Dlvxsion
U S Army Corps of Engineers
210 customs House
Portland,    Oregon 97209

Dear General     Peel

       We have completed our review of the Corps of Engineers                 (Corps)
proJect financxal         statements for the fiscal       year ended June, 30, 1976
The purpose of our review was to deteraune the reasonableness                   and
propriety     of the pro3ect financial         statements    submitted by the North
Pacrfx     Division      (NPD) to the Bonneville      Power AdmInistration      for
xncluslon     1n the fiscal        year 1976 Federal Columbxa River Power System
consolzdated       flnancxal     statements     Our review Included such test of
accounting      records,     financial   procedures,   and controls      as we considered
necessary In the cxcumstances                Our 1976 detailed     review work was
performed     prxnarlly      at the Portland     and Seattle Dzstrxts

        Matters requxrlng      changes on the financial       statements were brought
to the attention       of responsxble     dxstrxt   offlcxals     and resolved during
our audrt         In addxtlon,   we ldentifxd     several areas where procedures
affectlug      the fxnancxal    records could be xmproved

TRiU?SACTIONS WHICH REQUIRED                      -

      1. Interest was incorrectly                       stated on the fxnanclal    statements
of the Libby, Ice Harbor, Little                      Goose, and Lower Granite    ProJects

          --Interest     on the Federal Investment was understated                   by
              $3,961,434   on the Statement of Assets and Llabllities
                   and understated       by $4,093,020 on the Statement of Revenues
                   and Expenses         These understatements were caused by the

                                                      Statement of   Statement of
                                                       Assets and    Revenues and
                               Reason                 Llabllltles      Expenses
                   Operating   interest  was
                   understated    due to an
                   error In calculation               $5,489,592      $5,489,592

                   Interest   on construction
                   was overstated    due to an
                   error in calculation               (1,528,l58)     (1,528,158)

                   Interest    account not
                   recorded    correctly                                 131,586

                                                      $3,961,434      $4,093,020

      Ice Harbor

               --Interest     on the Federal Investment was understated   by
                   $3,353,404 on the Statement of Assets and Llabllltles,      and
- -                $543,327 on the Statement of Revenues and Expenses        These
                   understatements   were caused by the followmg.

                                                      Statement of    Statement of
                                                       Assets and     Revenues and
                              Reason                  Lrabllltles       Expenses

                   The Statement of Assets
                   and Llabilltles     was
                   understated     due to
                   incorrect     computer data        $3,364,260

                   Operating   interest  was
                   understated    due to an
                   error In calculation                   148,349       $148,349

                   Interest    accounts    not
                   recorded    correctly                (159,205)        394,978

                                                      $3,353,404        $543,327

Little   Goose

          --Interest    charged to construction was understated     by $533,557
              on the Statement of Revenues and Expenses.     This error had
              no effect  on the Statement of Assets and Llabilitxes

Lower Granite

          --Interest   on the Federal Investment            was understated       by $64,549
              due to a calculation  error.

       We belleve that the Interest    calculation           should    be more thoroughly
reviewed and a "reasonableness"     test applxed            so that    large errors in
Interest   ml1 not go undetected.

             The Bonneville    ProJect's  Accounts Payable were overstated  by
$162,;;6      The overstatement     was caused by two mxsstatements of accrued
contractors'    earnings     (a) an understatement   of $121,120 and (b) an
overstatement    of $284,036

       3.   Unfunded contractors'   earnings for the Little   Goose, Lower
Monumental, Lower Granxte, and Dworshak ProJects were classlfled       as
deferred   credxts rather than as accounts payable.      As a result, accounts
payable were Incorrectly     stated by $397,935, $353,653, $400,265, and
$400,230, respectively.


     During our fxnanclal          audit we noted several         areas where accounting
and management procedures          could be improved.

        1      The criteria    used to classify       claxms as contingent        liabilities
or as accounts payable differed             among the distracts           Corps offxxals
stated that at present,         there 1s no dlvxxon-wade            regulation    on this
matter        The Portland    and Seattle Distrxts         classify     claims as accounts
payable after the claim has been settled,                whereas, the Walla Walla Dxztrict
classlfles      portlons    of claims as accounts payable when there 1s a proba-
bilxty     that a payment will have to be made on the claim                    We believe     that
NPD should take actlon to standardxe               the procedures       used by the districts
to establish      contingent    llabxllties     resulting     from claims

       2.   Accruals for contractors'         earnings xn the Portland Dlstrxt
could not be verified        because the Fxnance and Accounting       Branch had not
obtalned the necessary supporting         documentatxon      We were advised by
Portland  District     offxials     that procedures wxll be establlshed      to require
the contracting     offxer      at the constructron    site to provide a written

report of the contractors'      estimated earnings.   TEus documentation
vrll  enable the Finance and Accountmg Branch to verify          the amount of
estzmated contractors'     earnxngs reported   by the Construction    Branch.

      3.    In the Seattle Dlstrxt,      movable eqzupment which cost more
than  $200 was generally   not capitalized       Items not capztalized totaled
about  $85,000 and Included     such items as a $10,701 street sweeper and a
$5,068 hrgh-performance     recorder.

        The Portland    and Walla Walla Dxstrxcts           have interpreted   Corps'
regulations      to requxre  that such eqrupment           be capitalized

        We suggest that NPD reevaluate    the Corps' mnstructions       and consider
clarzfying    the emstIng   x&ructions      relating  to capitalxzation     of
movable equapment.      We also believe   that the Seattle District       should
t&e action to capxtalxe        the eqtipment referred    to above.

        4.   NPD Internal      Audzt officials     advised us that the Division's
internal   fxnancial     operations      had not been revlewed durxng the year,
because alJ. xnternal       audltor    effort  had been expended on contract       reviews.
The Budget and Accounting Act of 1950 requxres the head of each agency
to assure that appropriate          internal   audits are performed.      To be effective,
we belreve    that mnternal audits should extend to all financial             activxtxes
of the agency        Therefore,     we recommend that approprrate      action be under-
taken to assure that xnternal            audrt coverage includes   a review of internal
fxtanclal    operatxons

       A copy of this letter  IS bexng sent to the Engineer Comptroller,
to the Dxatrxt    Engineers at the Portland,  Seattle,  and Walla Walla
Distrxts,    and to the Army Audit Agency.

     We wzsh to acknowledge the courtesy and cooperation  extended                      to
our representatives  during thus review.  Your comments and advxe                       as
to actxons taken or planned on these matters would be appreciated.
                                               SIncerely     yours,

                                               RegIonal    Manager