Revolving Fund Activities of the Corps of Engineers (Civil Functions)

Published by the Government Accountability Office on 1971-12-21.

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

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                   Czar    Ger;efal       Clarke:

                          The General         Accowting         Office   has reviewed         certain     activities
                   of the revolving           fund of the Corps of Engineers,                  Department         of the                     '
                   Army.      Our review        included       an examination        of accounting        axd billing
                   procedures;       calculation         of replacement         charges;      equipment       and facil,-
                   ity utilization'        , cznd the overall          management      control       of revolving
                   fund activities.             Our work was performed             at Corps district            offices
                   in Seattle,       Kashington;         Portland,      Oregon;      Omaha, Nebraska;           Kansas
                   C=ity, Eissouri;         St. Louis,        Kssouri;       and Memphis,        Tennessee;         and at
                   the Office       of the Chi.ef of Engineers                (OCE) in Washington,            D. C.

                           The Corps'      revolving        fund centralizes          the operation       and
                   financing    of cowon          services       and facilities         used in the civil         works
                   program,     Obl-&ations          incurred       by the fund are about           $603 mil.lion
                   annually    and cover expenses              incurred       in providing     scrviccss     to
                   authorized     projects,        for which the fund is reimbursed                  through      bill-
                   ings to appropriated            funds.,

                             Our review       of accounting      and management         activities       of the
                   revolving          fund.showed     weaknesses     in the operation            of repair       facili-
                   ties,       application       of replacement      charges,      reporting       of eq,uipment
                   Utilization           ) and enforcement      of accdunt-ing       procedures.        These specific
                   weaknesses           are discussed      in subsequent      sections       of this     report.

                           The Corps owns and operates                       two maintenance           and repair           facilities
                   on the Missouri               River--Omaha,           Nebraska,      and Gasconade,          Missouri--which
                   were. needed,          over the years,              to ‘service      the various        types of floating                     .
                   pl.ant   and support               equipment      necessary       to meet construc.tion                and mainte-
                   nance requ%rements                  on the Missouri          River.       To day , new work on the
                   Ri.vcr    is at a minimum,                 and the ~~orkload         at the repair         facilities               has           '
                   declined        to the point              where continued         operation        of the repair             and
                   maintenance          facf.l.ities          is no Longer        economical        and, in fact,             is con-
                   trary     to    the COXPS’            policy    of requiring         maximum economic             utilization
                   of all       revolving          ftlnd-owned       equipment       2nd faci.litics.
         Our review of ectj.vities         at the Gasconadc: Boatyarcl which has
  been in operation      since November 1, 189.2, illustrates           the need to
  evaluate   the operation       of thesc facilities.       It has about 74,000
  square feet of floor       space located on about 30 acres of land adja-
  cent to the confluence          of the Missouri     and Gasconade Rivers.         No
  boats have been built        at the facility       since 1349 and the maintenance
  F;orkload has been declining          since that time.      The cost of operating
  the boatyard during fiscal           year 1370,including     repair and maintenance                    .
  of operating     plant and cquipmsnt, manufacture           and fabrication       of
  parts, flood control       and rescue services , and services           furnished    to
  other Corps offices,       FJ~S   about .$506,OdO.

          At the time of our review,  most of the shops t:'ere vacant and
  the ec;uipment was idle.     The machine shop .houses a tool room and
  about 20 pieces of equipment such as metal lathes,      drill  presses,  *
  milling    machines, and power saws. The equipment appeared to be in
  working condition,    but records showed that the 20 pieces of equipment
  were used only a total of 482 hours during fiscal      year 1970.

           We discussed the situation         at Gasconadc with the Chief of the
  Kansas City District's          Operation    Division  who advised us that he was
  initiating      a study to determine        a more economic:al way of repairing
  the District's       equipment.

          With the gradual phase down of construction                work on *the Missouri
   Riveir and the improved condition      of the. river         itself,       the present
   workload et the maintenance and repair facilities                    indicates     a ques-
   tionable   need to retain   these facilities           in their present capacity.
 . We balieve    the necessary repair work could be accomplished                    in a more
   economical manner by consolidating          facilities      or by closing certain
. of the facilities     and contracting      for the required             services.     --

         We recommend that the        need for the Gasconade Boatyard and similar               .
  repair  facilities     at other     locations  be evaluated and a determination
  made as to whether it would           bs more economical to consolidate   or close
  some of the facilities       and    have the work performed by contract.

  -             CHARGES

         The Corps revised      its accounting       methods in fiscal       year 1964 to
  provide funds for the replacement             of existing     plant and equipment
  without requesting     direct      appropriations.        A charge to provide      reve-                   ._
  nues for the increasing         cost of replacing       plant and equipment was
  added to the rental      rates being billed         to projects     on which the
  equipment   w& used.       We noted the following          inconsistencies      in the
  manner in which certain         districts      wore developing     and applying    the            '.
 .rcplacement   charges:
      1. Because     OCE establishes               the r+lacement               charge      for dredges
         and aircraft,            the charges         do not refl.ect             any additions           and
         betterments         made to the plant               after        the charge        is established.
         For example,           in September          1969, a replacement                 charge      of
         $64,000      was established              for the dredge              BUl?.GESS owned by the                     .
         Memphis      District.            Although       ad:!i.tions        and betterments            costing
         about     $205,000         were added to the dredge                    during      fiscal      year
         1970, 0% made no adjusti...-. "Ont to the replacement                                 charge     until
         1971 b;hen all           replacement         charges         for dredges         and aircraft
         were revised.              In contrast,          however,          annual     repl.acenent
         charges      computed         by the FIemphis             District       for its towboqt
         NISSISSJ.PPE         increased         from $17,989            to $20,677         after     additzions
         and betterments              costing       $278,000        were made.

      2. Annual    replacement         charges     of about      $29,000      were established
          for a group of excess barges                converted       to a floating       dock in
          the Nemphis      District.        The charges        were- computed       and billed
          on the basis      that     the barges       were still        being   used as barges
         -and were to be replaced             although      the District        had no plans     to
          repl.ace   them.

      3.   Numerous      mathematical     errors    were made in the calculation            of
           replacement       charges  by the Seattle      District    during     fiscal
           years 1.970 and 1971:        .I.n addition,    replacement      charges       of
           $20,285     for snag boats EVWLA and PRESTON had not been col-
           lected    from projects     on which they were used during               fiscal
           year 1970.
      4. From January         1, 1964, to September                  22, 1969, OCE did not                   :
         revise     the indicessused             dy the districts              to compute         the     1_
         replacement         charges,       even though          price. levels          were rising
         each year.          Although       other     districts         unofficially          updated
         the indices,.         the Portland         and Seattle           Districts        continued
         to use the original              indices.during             that    period      and, as a
         result,      (11 charges         for plant         and equipment            acquired       prior
         to January        1, 1964,       were not increased               annually        as the price
         level    climbed,        and (2) no replacement                  charges       were estab-
         lished     for plant        and equipment            acquired       during      the period.
         These deficiencies             resulted        in projects          in the Portland
         District      being      undercharged          by about         $205,750.

       We believe     that   improvements       in developing      and applying     replace-
ment charges      would result      not only in billing        appropriated      funds    on a
more- equitlable    basis,     but would also provide         a uniform~basis       for eval--
uating   the effectiveness         of similar       types of plant     and equipment      owned                       ,
by the revolving        fund in various       districts.

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    Recommendation --

            We recommend       that    the policies     and practices     for establishding
    and applying       replacement        charges   be evaulated      and appropriate       revi-
    s-ions made to ensure           that    such charges    *are properly    calculated       and
    equitably     applied      on a consistent       basis.

            The utilization            of fl.oating         plant , as we!.]. as methods             of account-
    ing for and reporting                 such utilizationj             variec? among the district
    offices      examined.          Corps regulations             require      each district         to report
    annually       to OCE al.1 equipment              with less than 30 days utilization                       and
    to either        justify      retention       of that        equipment       or dispose.      of it.
    Engineering         Regulation         1125-2-300,         effective       June 22, 1971,          revised
    the time       period     to‘45      days.      These utilization             retention       reports      used
    by the districts            appear       to be of questionable               value     as a management
    tool     because       El) even 10 minutes              usage counts         as a utilization           day and
     (2) the reports          are not always            suhmitte<,

            We found that           the Kansas City        District        Office     &as maintaining
    several     pieces    of     floating      plant   with little           or no utilization         which
    were justified        on     the utilizatron         report      on the basis           of emergency
    operations,       possible         use on unpredictable            river      conditions,     or as
    spare pieces.         We     questioned       the need $0 r the retention                 of some of the
    equipment      and the       District      subsequently         declared        32 items    of equipment
    excess , resulting           in a savings        to the Corps of about'$170,000.
             The Seattle      District     Office       did cot prepare         the required         repor!x
    justifying      retention        of equipment         used less       than 30 days in fiscal
    years 1.968, 1969, and 1970.                 Eecause      the Seattle       District      Office      did
    not prepare       these-reports,         we, as well          as OCE, could        not determine          how
    long     five items      exccssed     durini     fiscal       year 1970 wrere underutilized.
    The District,        however,      was incurring          charges       of about     $G,850    annually                .
    to operate      and maintain        the equipment           itAcventually        excessed.

             Although        the Memphis         District       prepared     reports     on equipment        used
    less than 30 days, we were unabl.e                        to evaluate        the effectiveness         of the
    equipment        because        the utilization           reports      were based on the days the
    equipment        was rented         rather      than on the days the equ-ipment                was used.
    Rental       charges       on a piece        oE equipment         begin    one day prior       to the day
    it leaves        its home station             and cont-inues         for the period        it is away from
    the home station              regardless        of whether        it is actuam.-beir:g           used.      We
    believe       that    this      method     of reporting          does not provide         OCE with     a rea-
    sonable       basis      to accurately          determine        whether    the equipment        is being
    effectively         utilized.

           The    utilization        reports  required           by 0.X to justify           retention          of             %.         -
    equipment       is dzsigncd        as a manigement           tool  to moiGtor         and plan       for         the

                                                                                                               - 4 -
equipment     needs of the districts          and obtain       maximum     utilization         of
equipment     owned by thn~revolving          fund.      However,      we believe       that     the
problems     noted   during     our review    detract     from the value            of such
reports     and indicate      the need fcr revised          procedures       to ensure       timely                                                                   .
reporting     on a uniform       basis   that   reflects      actual    use rather        than time
billed    to the using      project    or agency.


              We recommend                    that  the submission                         of    utilization                 reports             be more
    closely      monitored                    to ensurcuniformreporting                                   on the            basis    of          actual

l-_----_----~_--l__          E@ORCEPIE~T

            Our review    disclosed      numerous      weal:nesses       in accounting       for
    revolving     fund activities        which we believe          continued      undetected      and
    uncorrected      because     neither    tlte districts'        internal     review     staffs    nor
    the Army Audit       Agency reviewed         the financial'managcmont              of the fund.

            Some of the                     weaknesses            noted,           mostly          in       the        Seattle           District,              are
    indicated    below.

              --Kcvolvtng     fund plant  and equipment                                            F!ere          used       on projects                  but
                 the projects     were not always hilled                                             for          their       usage.

              --Transportation                      expenses    on ner:ly   purchased  equipmdnt     received
                  from   other                Government     agencies     were not always capitalized.

              --In    so&me instances  income                              was not              recorded               in    the        month        in
                  which it was earned.

              --The      costs   of operating       a snagboat     and a survey boat as part
                 of a community        relations       program    were charged   to an appro-
                 priation      for clearing       debris     from nav-igabl.e  waters instead
                 of to an overhead           account.

              -.T-,          2   subsidiary  and general       ledger                            accounts                 wdre not recon-
                      &led          and the necessary     year-end                              adjustments                 had c-ither   not
                      bi2n        made or were incorrect.

              --Many     depreciation                   charge          s for          new equipment                        were        incorrect               OS
                 inconsistently                     computed.

              --Dcprcciation                    expense   was not                    always      charged     from                       the first
                 clay of the                  month ncarcst   the                    acquisition         date of                        equipment.

              ---Sdvag~                 VCI~UCS     varied         considcrabLy                    iit      relation               to    total        book                L.

I                     Cost        for     similar            equj pment           items.

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         While      many of these errors              are not material,           we believe        they are
indicative          of a 1tcec1 for a greater             emphasis       on improving         accounting
practices.           The overall          audit    of revolving        fund activities           is the
responsibility            of the Army Audit            Agency;     the Corps'        internal       review
staffs       are used.to           ensure    that management         is effective,          operations
are efficient           and economical           , and internal.       controls     are adequate           and
consistently           appljed.          The financial       aspects      of the revolving            fund.in
some of the districts                   we reviewd       have not been audited              by the Corps'
internal         review      staff      or the Army Audit        Agency since          1968; financial
aspects        of other       districts        have not been audited            since      1966.

       We recommend          that  internal     controls     be strengthened                to   ensure
improved    accounting          on a continuing       basis.


         We appreciate     the cooperation     and assistance       given    to our staff
 by your representatives         during    the review.     We shzll      appreciate
-receiving     your co-mwnts     regarding    any actions     taken on the matters
 discussed     i1: this  report.

                                                             Sincerely    yours,

                                                             Assistant    Director

Lieutenant     General.  F. J.          C.Larlce
Chief     of Engineers
Department     of the Army
Room 4D-013
1000 Independence       Avenue,           S. TJ.
Washington,      D. C.   20314
                                 UNITED STATES GENERAL ACCOUNTING OFFICE
                                             WASHINGTON,       D.C.   20548


          Dear Mr. Hollingsworth:

                  The General Accounting Office has reviewed the actions taken by
          the Atomic Energy Commission (AEC) to provide                     for the development         and
          implementation          of adequate quality       assurance programs in conducting              its
          various     activities.        Our review was performed at AEC Hea'dquarters,
          Germantown, Maryland;            AEGIS Chicago, 'Idaho, and Richland Operations
          Offices;     and at contractor         locations     under the jurisdiction            of these
          offices--Argonne          National    Laboratory,     Argonne, Illinois;           Atlantic
          Richfield      Hanford Company, Richland,            Washington;      Douglas United Nuclear,
          Inc.,    Richland,       Washington;     Idaho   Nuclear   Corporation,         Idaho Falls,
          Idaho; National          Accelerator     Laboratory,     Batavia,     Illinois;       and WADCO
          Corporation,         Richland,     Washington.

               With respect to the licensing               of production       and utilization         facilities,
          AEG has defined  quality assurance              as comprising:

                  " **    all   those planned and systematic              actions nsessary       to
                  prGY.i&    adrqu  ate     C.!d.
                                        CoiLL    dice   th%C    6   Stru;t'Ufi,   s-yakai,   or
                  component will perform Satisfactorily                 in service.      Quality
                  assurance includes       quality     control,      which comprises those
                  quality    assurance actions related            to the physical       charac-
                  teristics     of a material,      structure,       component, or system
                  which provide      a means to control         the quality      of the material,
                  structure;      component, or system to predetermined               requirements."

                The programs of the Divisions          of Space Nuclear Systems, Naval Reactors,
          and Military   Application    have had formal quality          assurance procedures     for
          many years.     For the past several years, AEC officials              have emphasized the
          need for increased attention        to and more effective        application   of quality
          assurance practices      in reactor     development     programs to (1) help prevent
          costly expenditures      due to deficiencies,        (2) conserve materials     and
          manpower, and (3) provide       greater     assurance of the successful       achievement
          of program objectives.

                In our report to the Congress, dated August 17, 1971, on the "Cost,
          Schedule; and Design Aspects of Selected Atomic Energy Commission
          Construction   Projects" (B-164105),  we pointed out that a quality        assurance
          program was instituted   and emphasized by the Division      of Reactor Develop-
          ment and Technology (RDT) for the Loss of Fluid Test Facility         project
          because of problems being encountered    in the construction     of  certain    other