Bureau of Reclamation, Test of Non-Grant Accrued Expenditures--Civil Agencies

Published by the Government Accountability Office on 1971-07-08.

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

                               STATES       GENERAL ACCOUNTING OFFICE
                                          REGIONAL OFFICE
                        7014    FEDERAL     BUILDING.      1961   STOUT     STREET
                                  DENVER,       COLORAOO           88202

Mr. James M. Ingles,    Regional Ulrector
Bureau of Reclamation
Region 7
Building 20, Denver Federal Center
Denver, Colorado     80225
Dear Mr. Ingles:
       We have completed our review of the adequacy of the accounting
procedures and controls         employed by the Bureau of Reclamation,     Region 7,
in recording     and reporting     accrued revenues and expenditures     of selected
receipt,    appropriation    , and fund accounts as of June 30, 1970, and
August 31, 1970. Our review at the Region was part of a study conducted
at selected departments and agencies to determlne if they were reporting
accruals in accordance with the concepts of the Office of Management and
Budget @MB) Bulletin        No. 68-10, as amended by the letter      from the
Director,    OMB, dated April 13, 1970, and Treasury Fiscal Requirements
Manual (TFRM) Transmittal         Letters Numbers 18, 36, 46, and 49. The data
gathered was primarily        for the xnforrnation  of the Steering Committee of the
President's     Commission on Budget Concepts.

       We reviewed instructions      and procedures related   to the recording    and
reporting    of accrued revenues and expenditures.        We obtained information
regarding    these procedures    through a test of transactions,     the response
to a questlonnalre      submitted to the Region, and dlscussrons      with Regional
financial    personnel,
      We have concluded that the accrual procedures employed by Region 7
are generally  in compliance with the OMB and Treasury Department concepts.
However, we ldentified    problems, which have been referred   to the Steering
Committee for resolution,     in connection with (1) long-term   receivables  and
payables p (2) contract holdbacks and (3) disclosure     of unearned income.    The
problems are discussed in the following     paragraphs.
      We found that the Region was reporting    long-term                                    receivables  and
payables along with current receivables     and payables                                    on Its accrued revenue
and expenditure   reports to the Treasury,

                                50 TH ANNIVERSARY                         1921-      1971
    .        ,

                 Ilr.   James M. Ingles                -2-

                       We noted two instances of receivables   that had been outstanding       for a
                 considerable  t&me. They were orlglnally    established  as current receivables
                 but had become the subJect of protracted    negotlatlon  or litigation.       How-
                 ever, as of June 30, 1970, they were still    being classified     and reported
                 as current receivables.
                        Included in accounts payable as of June 30, 1970, was about $465,000
                 representzng reimbursement due an irrigation     district to repay canal
                 rehabilitation    costs.  However, this reimbursement is being effected by
                 appropriation   at the rate of only $8,000 a year.
                        Clarifying     instructions  are needed as to the correct method for
                 reporting     long-term receivables    and payables such as these.
                 COKIXACT HOLDBACKS
                       Holdbacks are included 1n accrued expenditures but are not recorded
                 as liabilities    of the appropriation.  When progress payments are made to
                 contractors,   disbursements (and expenditures)   are recorded against the
                 expenditure account for the total amounts of the progress payments and
                 the holdbacks,     The holdbacks are then recorded as collections   into a
                 deposit fund.

                        The accrued revenue reporting  form (Form No. BA-6728) has a single
                 column, "Accounts Payable", for reporting     liabilities. Region 7 had
                 unearned income transactions    which were being reported as accounts
                 payable.    We believe that the form should be modified to allow for identi-
                 fication   and reporting  of unearned income.

                      In addltlon to the above items referred   to the Steering Comrmttee,
                 we noted the followmg   areas where we believe the Region can take action
                 to improve its procedures for recording and reporting   accrued revenues
                 and expenditures.
                 CONTRACT EARNINGS        REPORTS

                        Procedures provide for reporting   contractor    performance on con-
                 struction,    relocation, and fabrication  contracts.     Reports are not
                 required on a regular basis but only for those months in which perform-
                 ance has taken place.     Since negative reporting    is not required,  the
Mr. James M. Ingles                     -3-

Fegion has assumed that failure       to report    contractor   earnings   has been
due to a lack of performance,

       Although we found no lndlcations        that unreported   performance was
occurring    on construction contracts,       we drd find indlcatzons      that un-
reported performance may be occurring          on relocation   and fabrlcatlon
      As of August 31, 1970, the Reglon had about 21 active relocation
contracts;   August performance was reported         on only 4 contracts.     Our review
of several fabricatllon       contracts   showed that as much as nine months elapsed
between contractor      performance reports and that in some cases the only
report received was the bill          for the total contract  costs.    A representa-
tive of the Region cited another problem m connection with fabrication
contracts   covering a number of equipment components.          The contractor     per-
formance report consisted of a single percentage of completion figure
whereas the components included m the contract aught have varying                costs
and be in varying stages of completion.

        We believe    that Region 7 lacks reasonable    assurances that its monthly
accrual reports to the Treasury include all contractor            performance   and
that the adequacy of the procedures for contractor           reporting    and Region 7
processing should be reviewed.         Specifically,  the Region should period-
ically    test z&s exception reporting      technique and should consider ob-
taining     reporl;ts on percentage of completion by component on applicable
fabricat~n       contracts.

       The Regrfon malntasns a number of income accounts which include income
applicable   to various receipt and appropriation   funds.   Under the Region's
present sysitem, detailed    analysis of each Income account would be required
to arrive   at the amount of accrued revenue for any one fund.

     The Region has, therefore3     elected to use the formula contaxned m
TERM-Transmsttal    Letter No. 18 to detemune the mount of accrued revenue
to be reported    to the Treasury.    While this method 1s acceptable, it does
not provide    the control  that would exist If the balances m the income
accounts were available    by fund for comparison tJlth the amounts derived
by use of the formula.

       For example, in computing the changes m accounts receivable      to be
included in the formula,    the Region did not use the same accounts re-
ceivable   accounts for the June 30, 1970 report,   as were used for June 30,
1969. Had the balances for the same accounts been used to compute both
the beginning    and ending receivables,  the change in accounts receivable
for fiscal year 1970 would have been a decrease of about $366,000 instead
of the zncrease of about $209,000 reported by the Region.
Mr. James M. Inglas                   -4-

       Another instance was noted where the Region did not use the balances
of the &me accounts to compute both ehe beginning       and ending receivables
for a reporting     period.  The general ledger accounts receivable    for fund
14X5000.2 as of August 31, 1970, were not the same accounts as were used
in computbg the July 1, 1970, beginning       balance.  We were advised by a
Region@ 'representative     that the same accounts should have bean used but
that certain accounts were mistakenly      omitted in computing the August 31
      In i&th these instances,  had income accounts been used to compute
revenues *and the Treasury formula used for validation,     the errors would
have been discqvered   prior to report submxssion.    We recommend that the
Region consider early development of a computer program to extract report-
abla rev@nqas by fund from the income accounts.

       Due to a computer progrsmmmg error,    the August 31, 1970, general
ledger aqeahunts payable balances could not be used in the report to
Treasury.    & %egiatal repreaentatlve advised us that the account: payable
balances reported were derived by applying the Treasury formuJ.a.      The
known amounts wer@?inseeted into the formula and the acoounrs.?payable
treated as'the unknown. As a result of the above procedure,       net expend-
itures and accounts payable reported as of August 31, 1970, we& not

       We were advis@$t that'corrections   were be$ng made to the cwnputer
program $0 prevent %ecurrence of the error.       We recommend that f;he Region
review ghe corrective     action to insure that the error has been permanently

       We were advised that during the year travel        advances are reported as
advances on the monthly reports.         Advances outstanding    at yearend are
converted   to accounts receivable     for reporting   purposes.    In order to
recognize this inconsistency      between the monthly and yearend reports,      we
recommend that rhe Region identify        the travel  advances Included in accounts
receivable    by a footnute to the June 30 reports.

       We were advised that at the end of each fiscal year, the Region bills
Government agencies for all unbilled    work performed and records the accounts
receivable    and revenue.  During the year, however, receivables  and revenue
Mr. James M. Ingles                  -5-

are recorded only at the time of billing     which in some instances 1s
quarterly   rather than monthly.   The Region accounts for work in progress
for others and could bill benefiting    agencies for work performed each
month. We recommend that the Region explore the feasibility        of billing
benefiting   agencies each month so as to enable agencies billed     to record
and report payables and expenditures     in the same accountxng period.

     Please notify us as soon as possible         regarding    the changes you have
made ip the areas mentioned above.

     We appreciate the cooperation recexved from your staff.   We wil.1 be
glad to discuss the results of our work with you or your staff if you so
      Cop&es of this letter are being sent to the Commissioner, Bureau of
Recfautat:lom, and the Director, Office of Survey and Review, Department
of *the Interior.
                                      Sincerely       yours,

                                   4 -Regional      Manager