Fiscal Year 1970 Financial Audit of Commercial Power Operations of Corps of Engineers

Published by the Government Accountability Office on 1971-03-04.

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

                                                 REGIONAL              OFFICE
                                3086   FEDERAL   OFFICE     BUILDING      909 FIRST   AVENUE

                                          SEATTLE.        WASHINGTON            9s 104

-.   Brigadier General B, s. Kelley
     Division Engiaeer
     North Pacifdc Dzivis~on
     U.se &my Caqxs of Engineers
     210 cust6m BQWE
     Portfaaat,     ckegon       97209

     Dear Gem?E;al Kelley:
           We have cmpleted      our review of the accounts and account%xsg pro-
     cedares for the Corps of Engineers' mftiptxrpose        projects   that were
     ~cluded    in fzhe Federal Columbia Mver Power: System (FCRPS) fos the
     fiscal yeas ended June 30, 1970 o Our review, which %ncl.uded an evalua-
     tion of adu&mfst~atlve procedures and controls,        was directed toward
     determining the reasonableness and propr%ety of the ptogects' financfal
     statements submitted by the Corpse I3oreh Pacific       Ditisi~n   (NPD) to the
     Bg~egtsjllp BS7W~P                 cz for CGnsGlf;catauu and h2lus~on in the
                         ..--w.e  c..aWla,
     33 1970 F@RPSfinancz~al statements.
            Our fimU.ngs were dIscussed with appropriate District    and DfvisnBon
     corps officials   * We were pleased w%th the corrective   actfon taken or
     prtised 0 Whfle we fomd that admBn%strative procedures and controls
     in the Corps' basic accounting system were geuerally adequate, we would
     like to comment on the following   matters~
     Walfa Walla Dfst~ict
             The John Day Project workpapers contaiued numerous computational
     errors 2n the Construction Work in Progress Account which resulted in
     an approximte     $230,000 overstatement of power assets.  The workpapers
     which support the fPnancia3. statement showed QO evidence of supez%Lsory
     review by the Corps. We brought this matter to the attention of Corps
     officials    who made the necessary recomputations and assured us that
     adequate rev$ew procedures would be established.
     Seattle      District

     1.   Computational errors in supportdng workpapers for the Libby Dam
          Project caused an understatement of power assets of about $182,000.
          Corps officials made the necessary corrections.

                                       50TH ANNIVERSARY 1921- 1971
i-         -l   Brigadier     General R.S. Kelley            -2-

                2.   The Seattle District   was not completely follow%ng the Balance Sheet
                     account allocation   procedures which were agreed to by BPA, the
                     Bureau, the Corps, and GAO on May 20, 1965.
                     a.     The Corps incorrectly    allocated Libby Dam "Facility     Costs" on
                            a pro-rata basis with direct Construction Work in Progress
                            costs.    Since the "Facflitfes   Costs" were specifically    identified
                            to features by the Corps engmeering division       they should have
                            been charged to the identified     features.  The Corps officials
                            prepared revxsed workpapers usang the proper method.
                     b.     The Corps allocated the costs of Libby Dam Balance Sheet Accounts
                            on a pro-rata basis with the Construction Work in Progress
                            Account.    The procedures agreed to on May 20, 1965, require
                            that accounts should be analyzed and the identified     costs charged
                            to the appropriate features.      Differences xn the two methods were
                            not signsfxcant   enough to warrant revised statements for FY 1970
                            but the Corps officials    assured us that the proper procedures
                            would be followed +%Ithe future.
                Portland     District

                       During our revLew of the financial          nts for the John Day
                Project, we noted that the Portland and Walla Walla Districts      used
                differem     methods in allocating joint Constructaon Work in Progress
                (CWIP) costs to the various purposes, such as power and navigation,
                       The Portland Distrfct      accounts for the portion of the John Day
                ProJect that has been completed and is %n operation, Walla Walla accounts
                for the portion of the project which is still          under construction.     Portland
                prepares the financial       statements for the John Day Project and obtains
                information    on construction-work-in-progress      from Walla Walla.     During
                fiscal. year 1970, Portland xncluded fox finzancial statement purposes
                construction-work-in-progress        cost figures supplied by Walla Walla but
                recognized that the method used by WaUa Walla in allocating             construction-
                work-in-progress      to purposes was different   from the method provided in
                the Portland instructions.
                      The difference between the two dastricts     occurs after a purpose has
                gone rimto service, and the total estimated cost for that purpose has been
                transferred    to plant-in-service,  Subsequently, Walla Walla will charge
                all future joint costs to the remaining purposes still       under construction
                whereas Portland will continue to allocate joint costs to all joint cost
                purposes, on the basis of allocation     percentages computed on total costs
                to date, whether or not some of tha purposes have been completed and
                transferred    to plant-in-service.  (See attachment for a more detailed
                explanation    and the significance of the two methods.)
        c   -w
i                Brigadier   General R.S. Kelley          -3-

                      We have discussed this matter t.,-fth Corps officials   at the DPvisPon
                 level and at the Portland and Walla Walla Dfstricts.       Corps officaals   at
\                the Division level told us they w&l1 review and evaluate this matter
                 and prepare needed guidelines %n order to Provide for consistency in
                 Interest Rates
                        During our review of interest   computations    at the Portland District
                 we noted that the 2-l/2 percent interest rate used during initial        con-
                 struction,   also had been used to compute znterest costs on new construction
                 for the Dalles and Bonneville Projects.       The 2-l/2 percent rate had been
                 used although justification    data for new construction     at the new proJects
                 provided for 3-l/8 end 3-l/4 percent interest       rates,
                       Our computation of interest costs using the higher rates disclosed
                 that additional   interest     costs for the two projects were not significant
                 enough to warrant exception to our financzal statements as of June 30,
                 1970. We belLeve!, however, that the differences         in interest costs will
                 become mire sSgn%ficant as rm~ constructl~on funds see beufg expended.
                 Portland District    officials     told us that the North Pacnfic Divisron is
                 pursuing these matters at the Chief of Engineer's level.

                       With respect to interest rates9 the Secretary of the Interior
                 issued Ordec Ilo. 2924 on January 29, 1970, Accordmg to the Order End
                 subsequent guidelines,   a 4-7/8 percent interest rate would apply during
                 ffsca% year 31970 to any Corps or Bureau of Reclamation eonstsuction
                 initiated  after January 29, 1970. We understand that Carps and Department
                 of the Interior  officials have met to discuss the appP%cation of the
                 Secretary's Order but that no agreements have been reached to date.

                        A copy of this letter is being sent to the Engineer Comptroller,
                 and to the District   Engineer at the Portland, Seattle, and Walla Walla
                      We wish to acknowledge the courtesy       and cooperation   extended to
                 our representatives durzng this review.

                    Bxample of CMIP Costs
                 cc:   Engineer Comptroller
                       Portland District   Engineer
                       Seattle District   Engineer
                       Walla Walla Dis&rict Engrneer
                                                                                           Page 1

                        EXAMPLE - ALLOCATION OF JOINT


1.   Both Portland           and Walla Walla collect          actual      costs in their           CWIP
2.   Both Portland           and Walla Walla transfer             total   estimated       costs to

     Plant-In-Service           as purposesr such as navigation,                 go into         service.
3.   After      a purpose (navigation)           goes Into        service:
        a.    Walla Walla - Stops allocatang              joint     CWIP costs to this             purpose
                                 once it has gone into service.                  All     joint     costs
                                 henceforth      will    be charged to the remaining                  purpose
                                 (power) which 1s still             under construction.
     b.       Portland   -       Continues to allocate             jomt      costs to this         purpose
                                 (navigation)       in the CWIP account,

Note:        The method of allocating           joint    CWIP costs starts             to differ
             between the two districts           after    one purpose has gone into                 service.

             (See next page for an illustration               of these methods.)
                                                                                           Page 2

                                    ILLUSTRATION OF JOINT CKCP COST

         1,      Total Estkated    Joint Costs at completion   = $300
         2.      Total Actual Joint Costs at titerim   balance
                 sheet  date                                   13 200
         3.      Joint Cost Allocatfon    Percentages:
                       Joint to Power                          m    80 percent
                       Joint to Navigation                     sle 20 percent
         4.      Navigatxon is paaced in service during ffscal year                                     !A
         5.      At end of fiscal year project is not yet completed, but
                 unallocated cost to date 1s allocated                                                  I!?
    Balance Sheet - Per Walla Walla mthod:                                                              I=-4
                                    Total Joint             Jt.     Power
    Plant Account
    CfzJIP     Accoll.nt

    Balance Sheet - Per Portland                  Hethod:

                                    Total Joint             Jt.     Power            Jt.     Nav.
    Plant Account                                                  -o-                     $60
    WE Account                                                    $lbOd                    -20
,         Total                                                   $160
                                                                  _I                       gg

             The estimated Navigation Jt. Costs are transferred                   to Plant:
                20 percent x $300 Total Estimated Costs = $60

    -b/ All         remaining     Joint   Costs of $140 go to Jt.         Power

    cl       $200 actual        Costs x 80 percent     to Joint     Power - $160