oversight

Financial Management: Bureau of Reclamation Sources and Uses of Funds

Published by the Government Accountability Office on 1999-05-26.

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

      United States

GAO   General Accounting Office
      Washington, D.C. 20548

      Accounting and Information
      Management Division

      B-282391


      May 26,1999

      The Honorable John T. Doolittle
      Chairman, Subcommittee on
       Water and Power
      Committee on Resources
      House of Representatives

      The Honorable John R. Kasich
      Chairman
      Committee on the Budget
      House of Representatives

      Subject: Financial Management: Bureau of Reclamation Sources and Uses of Funds

      On November 18,1998, we briefed your staE on the status of our review of the Bureau of
      Reclamation’s sources and uses of funds at federal water projects. On April 7,1999, we
      provided them with a final briefing on the results of the review. The enclosed briefing slides
      (enclosure 1) highlight the results of our work and the information we provided to your staff
      in the two briefings.

      We performed the review in response to your questions about (1) the Bureau’s legal
      authorities and policies and procedures for obtaining, using, and accounting for funds, the
      types and amounts of funding obtained, and how the funds were spent, (2) controls that were
      established to ensure that funds are properly obtained, used, and accounted for,
      (3) operations and maintenance (O&M) activities, expenses, and policies and procedures, and
      (4) other issues, such as the repayment of O&M and construction costs at the Central Valley
      Project (CVP).

      Results in Brief

      The Bureau of Reclamation obtains funds from several sources and uses them in many ways,
      as shown in the enclosed flow chart (enclosure 2). All of these sources are presented in the
      Budget of the United States Government and in the Bureau of Reclamation’s budget
      justification or, in the case of transfer appropriations, in the appropriate agencies’budget
      justification. The Bureau of Reclamation’s major sources of funds for federal water projects
      include (1) appropriations authorizing the use of the Reclamation Fund, which is funded
      through royalties related to oil and mineral extraction, sales of electricity and water,
      repayment of capital construction costs, and other activities, (2) appropriations using General
      Fund receipts of the Treasury, and (3) reimbursable activities, under which the Bureau of
      Reclamation provides services to federal and nonfederal entities for a fee. The tirst two




                           GAO/AIMD-99-200R Bureau of Reclamation’s Sources and Uses of Funds
B-282391


sources of funds are annual appropriations requiring action by the Congress; the third source
is permanent appropriations available without further action by the Congress. The Bureau of
Reclamation’s major uses of funds at federal water projects include (1) O&M, construction,
and general investigation activities under the Water and Related Resources appropriation,’
(2) activities pertaining to the Upper and Lower Colorado River Basins, and (3) policy and
administrative expenses. The total financial resources available to the Bureau of Reclamation
increased from about $1.43 billion in fiscal year 1992 to about $1.76 billion (in nominal
dollars) in fiscal year 1998, representing an average increase of about 3.5 percent annually.

The Bureau of Reclamation has established controls to address key risks associated with the
funds it obtains and uses and has established specific controls intended to safeguard against
those risks. The overall system of controls is intended to ensure that funds are properly
obtained, used, and accounted for. We did not perform a comprehensive review of the
system of internal controls established by the Bureau of Reclamation because of the amount
of time which would have been required to do so. Instead, as agreed with your offices, we
limited our internal control work to assessing the design of the internal control structure
related to key risks, such as assets not being safeguarded from unauthorized use and
transactions not being executed according to budget authority or relevant laws and
regulations. Based on our assessment, nothing came to our attention to indicate that there
were design weaknesses related to the internal controls in these key areas.

The Bureau of Reclamation undertakes a wide variety of O&M activities at federal water
projects. Operations activities include monitoring river flows, operating gates and breakers,
flood control, preparing annual operating plans, carrying out activities designed to manage
land resources and comply with environmental laws, and administering contracts with
customers. Maintenance activities include major repairs of equipment and facilities,
equipment replacements, inspections of facilities, and lubrications of pumps and machines.
The O&M expenses incurred by the Bureau of Reclamation and allocated to customers for
repayment include overhead activities undertaken by the Reclamation Service Center in
Denver, Colorado, and by regional offices. However, the Bureau of Reclamation is by law
prohibited from charging customers for certain activities that are typically considered
overhead. Among these are agency management costs such as the expenses of the Office of
the Cornmiss’loner in Washington, D.C., and certain project planning costs such as the
 expenses related to preconstruction feasibility studies.

Total Bureau of Reclamation O&M (for both municipal and industrial and irrigation uses)
increased from $83.5 million in fiscal year 1993 to about $114.8 million (in nominal dollars) in
fiscal year 1997. According to Bureau of Reclamation officials, this increase was attributable
primarily to the fact that the Central Arizona Project only recently came online with respect
to water deliveries. This resulted in interest costs that had previously been capitalized being
charged as a current period O&M expense, thus significantly increasing total O&M costs.



 ‘Starting in fiscal year 1998, the Bureau renamed these activities water and energy management development, facility operation,
 facility maintenance and rehabiitation, land management and development, and fish and wildlife management and development.




 2                            GAO/AIMD-99-2OORBureau of Reclamation’s Sources and Uses of Funds
B-282391



During the course of our work, we developed information on several other issues. For
example, we found that the CVP water service contract rates are not recovering the full O&M
costs incurred by the Bureau of Reclamation. As of September 30,1996, CVP municipal and
industrial (M&I) customers and irrigation customers had reported accumulated O&M deficits
totaling about $166 million and $33 million, respectively. These represent costs incurred by
the Bureau of Reclamation to operate and maintain CVP facilities that have not been
recovered through rates from the project customers. In addition, the water service contract
rates have recovered little of the original CVP construction costs incurred by the Bureau of
Reclamation which have been allocated to municipal and industrial customers and irrigation
customers for repayment. As of September 30,1996, CVP municipal and industrial customers
had repaid $8 million (about 1.6 percent) of the original federal investment of $490 million
that was allocated to them for repayment. Irrigation customers had repaid $63 million (about
5.6 percent) of their federal investment allocation of $1.12 billion. This situation raises
questions about whether CVP main system construction costs that have been allocated for
repayment by irrigation and M&I customers will be recovered by the year 2030, as required by
the Water Resource and Small Reclamation Projects Act. Additional issues we discussed
during the briefing included changes in the application of revenues that the Bureau of
Reclamation receives for transporting nonproject water via Bureau of Reclamation facilities,
the status of the repayment of the costs allocated to the Western Area Power Administration
(WAPA) for recovery through rates charged power customers, and the funding of the Glen
Canyon Dam environmental impact study.

ScoDe and Methodology

To fulfill our objectives, we reviewed Bureau of Reclamation annual reports, audited financial
statements, and budget documents for fiscal years 1982 through 1998. We also reviewed
various other Bureau of Reclamation documents and reports, including a report on its
operations and maintenance activities for fiscal years 1993 through 1997. While some of the
data we obtained had been audited, most of it had not. We did not verify the accuracy of the
unaudited data In addition to obtaining data from published sources, we interviewed Bureau
of Reclamation officials at various locations, including Bureau of Reclamation headquarters
in Washington, D.C., the Mid-Pacific Region in Sacramento, California, the Upper Colorado
Region in Salt Lake City, Utah, the Lower Colorado Regionin Boulder City, Nevada, and the
Denver, Colorado, Service Center. We conducted our work from August 1998 through March
1999 in accordance with generally accepted government auditing standards. We requested
comments on a draft of our briefing slides from Bureau of Reclamation officials, who
generally agreed with the information in the slides. We incorporated their technical
comments as appropriate.



We are sending copies of this letter and briefing slides to Representative Calvin Dooley,
Ranking Minority Member, Subcommittee on Water and Power, House Committee on
Resources, and Representative John Sprat& Jr., Ranking Minority Member, House Committee
on the Budget. We are also sending copies to the Honorable Bruce Babbitt, Secretary of the
Interior, and the Honorable Elmd Martinez, Conunissioner of the Bureau of Reclamation.




                     GAO/AIMD-99-200R Bureau of Reclamation’s Sources and Uses of Funds
B-282391


Copies will be made available to others on request. If you have questions or desire additional
assistance on any of these matters, please contact me at (202) 512-9508.




Linda M. Calbom
Director, Resources, Community,
 and Economic Development, Accountig
 and F’inancial Management Issues

Enclosures




                      GAO/AJMD-99-ZOORBureau of Reclamation’s Sources and Uses of Funds
GAo   Accounting and Information Management
      Division


      Congressional Briefing:

      The Bureau of Reclamation% Sources and Uses of
      Funds

      April 7,1999




5
GAO Purpose of Briefing



    l   To provide the results of our work on funding issues at the
        Department of the Interior’s Bureau of Reclamation




6
GAo        Objectives of the Job

l   To provide information on:
     l Legal authorities and policies/proceduresfor obtaining, using, and
       accounting for funds, the types and amounts of funding obtained, and how
       funds were actually spent
     l Design of controls that were establishedto ensurefunds are properly
       obtained, used, and accountedfor
     l Operations and maintenance (O&M) expenses;constraints on raising
       O&M charges; roles constituents-havein O&M decisions; and policies
       regarding application of payments
     l Other issues, including changesin the application of revenues that the
       Bureau of Reclamation receives for transporting non-project water via
       Bureau of Reclamation facilities, the status of the repayment of the costs
       allocated to the Western Area Power Administration for recovery through
       rates charged power customers,and the costs of the Glen Canyon Dam
       environmental impact study.

7
GAo        Table of Contents


              Topic               Pages


    Sources and Uses of Funds      5

    Design of Internal Controls   26

    Operations and Maintenance    31

    Other Issues                  43



8
GAo I/ Sources and Uses of Funds



    l   Authorities

    l   Flow of funds

    l   The Reclamation Fund

    l   The Working Capital Fund

    l   Total reported financial resources

    l   Reprogrammings

9
GAo    Sources and Uses: Principal Legal Authorities

       Reclamation Act of 1902
       Town Sites and Power Development Act of 1906
       Warren Act of 1911
       Act for Sale of Water for Miscellaneous Purposes(1920)
       Federal Power Act of 1920
       Contributed Funds Act (1922)
       Fact Finders Act of 1924
       Omnibus Adjustment Act of 1926
      Leavitt Act of 1932
      Interior Department Appropriation Act (1938)
      Reclamation Project Act of 1939
      Flood Control Act of 1944
      Emergency Fund Act of 1948
      Rehabilitation and Betterment Act of 1949
      Interior Department Appropriation Act (1955)
      Drainage and Minor Construction Act of 1956
      Act Relating to the Administration of Contracts (1956)
      Water Supply Act of 1958
      Federal Water Project Recreation Act of 1965
      Reclamation Safety of Dams Act of 1978
      Reclamation Reform Act of 1982
      Reclamation Recreation ManagementAct of 1992
      Reclamation Projects and Adjustment Act of 1992

IO
     GAo         Sources and Uses: Governing Authorities
                                            .                        l   l

Funding Source                        Governmg Authorltles
Treasury General Fund Appropriations Appropriations Legislation

Reclamation Fund Appropriations       Reclamation Act of 1902, through appropriations legislation

Reimbursable Programs                 Contracts

Available Receipt Funds               Cost-sharing Agreements, Contributed Funding
(e.g., Trust Funds)                   Act, Boulder Canyon Repayments, and Miscellaneous
                                      Revenues

Transfer Appropriations               Agreements with other agencies, as authorized by law

Revenue-financed Programs             Project-specific legislation
(Revolving Funds)

Working Capital Funds                 Energy and Water Development. Appropriation
                                      Act of 1985, Agreements with other agencies
     11
              GAo   Bureau of Reclamation Sources and Uses of
                    Funds




                                                 ---..


Rogramr For
Whkh Funde                                               I
                                                             omer
                                                             FUlXk
                                                                     I
                                                         -I-
An lJ*ul




              12
      GAo                                                         Sources and Uses: Flow of Funds

! “’ “.
              -” -_.--l-L--__                                                                                                   i    ---                                               a--.-.-..“..---
II-----       ..      _    -...    .” ..,..-.,-.             _.
                                                                                                                              1 - _._.
                                                                                                              ___.-- -__._...^..   Upper           Lower
                                                                                                                                      _..- _.... --__--_..          .._- __,.^^.___  CA
                                                                                                                                                                                 - _.^_  Eay-... _.....l.. - _.-._ _^__,l.__.l....
                                                                                                                                                                                      “._____
1: .._.^ .                -..-_    -.....--       _-L---“._
                                                                                                                                                                                      Delta            CVP
    Resources
     --_.-----“..^._and Uess  for_._---1_.--
                         .__..^.^. FY 1998


                                                                                                                                                                                                                                                                        --                         J      -.--
                                                                                                                                                                                                                                                                        .--__$0.00         $5xl ..~-._--
                                                                                                                                                                                                                                                                                                   $3 234.M)
     .--Reclamation
          -l.“.--ll_.““-.Fund ~l_-l~-l                                                                 559.98 .-        47.581.“VXI O.OC                                                                                                                                .--_- 0.00          o-00       80794
                                                                                                                                                                                                                                                                                  -.I -._-“___-L--l~-LI..
       Borrowing from_-l--llll_--“-..
    ..._---_...-           Treasury                                                                      0.00            0.00~       0.00                    0.00               15.34            0.00           O.OOl         0.00          0.00                              0.00          0.00          15.34
     -1__ Total Appropriations                                                                         640.48
                                                                                                              I
                                                                                                                        47.581
                                                                                                                              f
                                                                                                                                    17.10,..--              41.40               25.76
                                                                                                                                                                                --              85.00           O.OOl         0.00          0.00            i.00,              0.001        O.WI       857.28{
                                                                                                                                                                                                                   I
‘‘.Reimbursable
    .~~~~;~~~,               Pr-ram
                             ._..             Authority:
                                     .--------.
  ...-_-.... .._-...._-.-_-. -.-.-.-.-^-^.,““.__-~--.._~-.
     Agreements
I. .^_. _^...._-.---...-_I Other Go14Entities
     Power (for O&M)
     Repayment
   .-........
            I: .- .__.”  Contracts
                               ..- ‘-,.‘.-(to
                        -....-.,.          :-.-:Treasury)
                                                 -_ -.--.--.-;-‘--.“‘
     Receipts
     ..-...__..---.Pendmg
                      ---‘3---.-..‘Dlstnbubon       to Ute Tnbe
                                     -.. -_____.-___.
    _Goods. .... &. .Se~ces
                     ._”_._..._-_._......
                                        .._..._--._” .._...._._ _.-.__“_._
     Loans
     .                .        . ,....... __... _ .,                    .
                                                                                                                                                                     - ..-_._.I-..-.---I---          ..-__._
                                                                                                                                                                                                          ._l.l.l_.l - .--_ ,I-...,----A..    -..-..-- -A __..”--.-.- I-.-- ---.I_ .--- 16.411
  . .Job   Corps Rewnue (from Dept.
     ._-----                                of Labor)
                                        -- 1----.----                                                                                           I             I                             I                                1                                      0.921                I
ci -L?g! jj.+@yr=ble               Prop                                                                                             ---2 84 871. -,__.-__II
                                                                                                                                                         87.891 .__-_.-..__
                                                                                                                                                                      11.59 --__.-_-     O.OO/-.““--___.0.00 I.”-...- ,.---.
                                                                                                                                                                                                                         O.OOl_----._---2.60 -“.1---- 0.q .._...- .___
                                                                                                                                                                                                                                                                    0.921 _.._-275.73
                                                                                                                                                                                                                                                                                   -_.-_- -._.-
  --------_                                      -----                                                            --.----i----.-_                                                            .~---~-                         ._-..      --- _.-_            1
                                                                                                                                                                                                                                                        --y%.---           --llt.---_I
  Available--        Receipt Revenues:                 -.-                                         -.                             /
                                                                                                                   --..“--q--------                                                                                                                          -^---         ~              -_---
     Power
  .I._I---      Sales &--.-Consttuc~ Repayments
          -I..^..-                                                                                 .- .I,....________.I__ -+ ..^__.__     - .._._”_..____ _._ ._,___._______   .__.___L___....l__ ~~:~~‘--“.32.2-3.-                                         .-.^_. ..--._
     Other
  -__-_   ^_...Available   Rece$t&-------------
              - .._.__l__-___ll_____~-__l
      Total Available Receipt Revenues ----.-
  ---I-------_--.--                                                                                                     0.00;
                                                                                                   ..-~~~--.._._-~-..~~~__t                0.00 -l-_l-.___--.
                                                                                                                                                         0.00                    0.00 --.. -_--0.00 ..._- 24.82
                                                                                                                                                                                                       ___..-                              34.35 I-.--I.- 0.28 -.-__li.-_._-_
                                                                                                                                                                                                              ...- --_.-.-.32.23 ...-...-.....-ML                     0.00                     0.00 -.--I__-91.48
                                                                                                                                                                                                                                                                                             -II-.
i                                                                                                                               I



                          _._-.._..___- .____._.-.--.-._-- -.__ -__--...

t .____.__.l..~.l._.l.l.l.._.”
                       .__.._.
                             --.- -..-_I.I,____-.- ,--,.--~---~.~~----~-                                                                           -----.+-              . .._ -..-..y---~p-                --1--1   y--II-~_lI.__I~                   -.-.I-       \,--=t‘-
iTrander                  of Prior Year Authoritv                                                                                          O.lid
    .._.--_    - . . . - .--..-.-...          -       --..    -I-_.-_-         .__._   -.-.-       _.^--        -----         I
                                                                                                                            +---------             ‘-__I_               _-_--                           I       __    _____            __..__.__
                                                                                                                                                                                                                                             -.    - _-__           -_-__             --_-       --.--.-
    lntrabureau
    ._1-11                        Etiminations                           ---                                                                                                                                                                                                                          (232.01)
i                                                                                              I                I                           I                       I                   I             I             I             I          I                      I                I          I
I----------
I. . Total
     . .._ Resources
              ._....... _                                         ~-~_-.-.._-
                                                         .._... _ ,... _ .__,.....                 .--.---
                                                                                                    $ 872.88        $-..-----i-----
                                                                                                                           50.77 i $ 115.72~~:GC                        w$-Z+Tf             $   88.00 ( $_--_-50.4Ot$ --.-- 41.26 $ ---45.9K/FT%TFF                          ---__
                                                                                                                                                                                                                                                                               74.91 1,~-.
                                                                                                                                                                                                                                                                                       $ 345.281 .---_.-.
                                                                                                                                                                                                                                                                                                  $1,758.83



       13                              Source: Basedon BOR generateddata used for the Statementof Budgetary Resourcesfor FY 1998, and BOR input.
GAo                 Sources and Uses: Flow of Funds
                           ..-..--...---.- --
    . -...-.-. .-“__“--
                   .“.._
                      --                 1 Water&
                                                     .-_
                                                      P
 I-&~~ii-%,sfm        FY                 I Related   1   /




     Source: Based on BOR generateddata used for the Statementof Budgetary Resourcesfor EY 199%and BOR Input. The Bureau
14   anticipates that $2 1.5 million of the $22.09 million in available unobligated balancesfor the CVP Restoration Fund will be used
     pay amounts billed by the U.S. Fish and W ildlife Service in FY 1999 or thereafter.
GAo        Sources and Uses: The Reclamation Fund

 l   Purpose: Finances reclamation projects and BOR’s normal
     operations
 l   Type: Appropriated fund
 l   Sources of funding:
      l   Power revenues, mineral royalties, water revenues,
          repayment of construction costs, land and timber
          revenues, other
 l   Activities funded
      l   Water and related resource programs
      l   Policy and administration
      l   Loan program
15
     GAo               Sources and Uses: Reclamation Fund Receipts
                       Are Legislatively Determined
                                Reuorted FY98 Receiuts
Type of Receipt                    $           % of       Authorities            Portion Allocated to
                               (in millions)              Total                  Reclamation Fund
Oil and mineral royalties          422.8             45   Mineral Leasing Act    40%
                                                          (30 USC 181 et seq)

Power Sales                        403.5             43   P.L. 95-91             No fixed percentage
                                                          DOE Organization Act

Water Sales                         36.6             4    Reclamation Law        100% (primarily from CVP water
                                                          (43 USC 392a)          service contracts)

Construction Repayment              34.2             4    Reclamation Law        100% if Reclamation Fund is the source
                                                          (43 USC 392a)          of the construction appropriation

Sale of public lands                12.6             1    ReclamationLaw         95%
                                                          (43 USC 391a)

Sale of timber                       6.0             1    30 USC 601             95%
                                                          43 USC 394

Federal water power                  3.8             .4   16USC810               50%
licenses


    16
                   Source: BOR ReclamationFund Reports
GAO Sources and Uses: Reported Reclamation
           Fund Receipts
Receipts              FY 1996           FY 1997           FY 1998
                      ($ in millions)   ($ in millions)   ($ in millions)

Power Revenues        419.6                360.0             403.5

Mineral Royalties     377.2               434.4              422.8

Water Revenues          97.2                 64.8              36.6

Repayment of            51.9                 43.0              34.2
Construction Costs

Land and Timber         12.5                   0.0             18.6
Revenues

Other Revenues          26.4                 51.7               23.9
Totals                984.8                 953.9            939.6
17
GAo         Sources and Uses: Reported Reclamation
            Fund Unappropriated Balance
            Dollars (in millions)

     2000
     1800

     1600
     1400
     1200
     1000
      800
      600
      400
      200
        0
            1992       1993         1994   1995   1996   1997   1998

18
GAO Sources and Uses: Reported Reclamation
    Fund Receipts and Appropriations
 Dollars (in millions)


     1200

     1000

      800

      600

      400

      200




19
GAo           Sources and Uses: Reclamation Fund
              Outflows Are Legislatively Determined


     l   Receipts from the Reclamation Fund are not available for
         obligation without congressional appropriation

 l       Bureau expenditures are to be financed from the
         Reclamation Fund unless the Congress directs otherwise

 l       Some project-specific legislation specifies that
         expenditures are to be financed from the General Fund




20
GAo     Sources and Uses: Budgeted General and
        Reclamation Fund Appropriations
        Dollars (in millions)
1000
 900
 800
 700
 600
                                         n General
 500
                                         W Reclamation
 400
 300
 200
 100
    0



21
GAo       Source and Uses: The Working Capital Fund


      l   Purpose: Provides support services and equipment for
          BOR and other federal and non-federal entities
      l   Type: Revolving fund
      l   Sources of funding
           l   Reimbursements for services provided
          l    Direct appropriations for specific purposes (rare)
      l   Activities funded
          0 Engineering and technical services
          l    Administrative services
          l    Computer and related services

22
GAo          Sources and Uses: Reported Working Capital
             Fund Unobligated Fund Balance
             Dollars (in millions)
     80 1

     70
     60
     50
     40
     30
     20
     10
      0
            1992        1993         1994         1995         1996        1997         1998


23    Note: Of the FY 1998 balance of $53.9 million, the Congress withdrew $25.8 million to fund the Water and
            Related Resourcesprogramfor FY 1999.
--._   ---c
GAO Sources and Uses: Total Reported Resources
    (Including Carryover Balances) by FY (Dollars in millions)
                                           1992        1993        1994      1995        1996       1997        1998

Construction                               797          692        715        667        691        701        N/A

O&M                                        453         468         463        542        552        626        N/A

General                                      16          15          15         16         15         19       N/A
Investigations

General Administration                       57          68          61         60         53         53       N/A

Colorado River                               50          39          40         43         47         51       N/A
Dam Fund

Other                                        59          63          83         83        131       128        N/A


Total                                      1,432       1,346       1,377     1,411       1,487     1,578        1,757


25   Totals include amounts not available to the Bureau. These amountsare repayment contracts which are sent to the Treasury General
     Fund and receivables subject to litigation. The amounts unavailable were, for FYs 1995, 1996, 1997, and 1998, $47.7, $75.9, $159.8,
     and $169.5 million, respectively. Breakdown of FY 1998 total resourceswas not available.
     GAo            Sources and Uses: Reported Available Financial
                    and Staffing Resources for FYs 19824998
Dollars (in millions)                          Number of
                                               Staff

  2000                     Staffing
                                              -10000
  1800                                        - 9000
  1600                                        - 8000
  1400                                        - 7000              Total   Reported        Available

  1200                                        ~6000               Resources
                                                                  Balances)
                                                                                   (Including       Carryover


  1000                  Total Reported        - 5000       -em-   Staffing
               /        Available Resources
   800                  (Including            - 4000
                        Carryover Balances)   - 3000
   600
   400                                        - 2000
   200                                        -1000
       0                                      - 0




     26
GAO Sources and Uses: Reprogrammings




     l   Bureau reprogramrnings are movements of funding
         within an appropriation:
          l Appropriation committees have established specific
            reprogramming criteria
          l The committees expect advance notification of certain
            reprogrammings. These are generally large in amount.
            Other reprogrammings require no notification.
          l No summary reports on reprogrammings are provided to
            Congress


27
        GAo          Sources and Uses: FY 1998 Reprogrammings                                       --
                     Congress Notified
Transfer To              Transfer From                               Amount        Reason
San Bernardino           Milltown Hill Project/Tohono O’odham        $6,255,000    Accelerate project
County/San Sevaine       Nation Project, Schuk Toak District                       completion
Loan Project

Klamath Project          CVP, Auburn-Folsom South UnitYYakima         6,000,OOO    Increasingly complex
                         River Basin Water EnhancementProgram/                     water supply and
                         CVP, Miscellaneous Projects Program/                      environmental
                         Columbia & Snake River Salmon                             restoration issues
                         Recovery Program

EndangeredSpecies        Central Arizona Project/New Waddell          3,200,OOO    Biological opinion
Conservation/            Dam                                                       requirements
Recovery Project

CVP, Sacramento          Columbia & Snake River Salmon                2,900,OOO    Project cost
River Division           Recovery Program                                          increases

Salton Sea Project       Central Arizona Project/New Waddell          1,300,000    Federal cost share for
                         Dam                                                       project planning

Total                                                               $19,655,000*

        28 *Note: This is 2.3% of total FY 1998 appropriations of $857 million.
GAO Sources and Uses: FY 1998 Reprogrammings --
    Notification Not Required
     RECIPIENT                      NUMBER                           AMOUNT
     REGION

     Mid-Pacific                            20                        $14,214,625
     Lower Colorado                         10                         10,270,OOO
     Great Plains                           20                         16,544,OOO
     Denver Office                           7                         10,390,000
     .Pacific Northwest                     20                          5,416,OOO
     Upper Colorado                           9                         3,949,ooo
     Washington Office                      2                           1.318,000

     Totals                                  91                       $62,101,625*

29     *Note: This is 7.2% of total FY 1998 appropriations of $857 million.
GAo       Internal Controls



      l   Steps involved in a comprehensive review of internal
          controls

      l   Our assessmentof the design of the internal control
          structure

      l   Observations




30
GAo       Internal Controls: Steps Involved in a
          Comprehensive Review of Controls


      0
          Gain an understanding of the internal control structure
      0
          Document understanding of the internal control structure
      l   Test understanding of the internal control structure
      0   Assess the design of the internal control structure
      0
          Develop tests used to determine effectiveness of key
          internal controls
      l
          Complete tests, evaluate results, and report on
          effectiveness of internal controls



31
GAo       Internal Controls: Assessment of the Design of
          the Control Structure

      l   As agreed with your offices, we limited our internal
          control work to assessingthe design of the internal control
          structure for receipts, disbursements, and budget
          execution

      l   Specifically, we
           l Gained an understanding of the internal control
             structure
           l Documented and confirmed our understanding of the
             internal control structure
           l Assessed the design of the internal control structure
32
  GAO Internal Controls: Observations

Key Risks                Examples, of                 Observations on
                         Controls                     Designed Controls
Are funds and assets     Large disbursementsand       BOR has designed an
safeguardedfrom          contract modifications       approval control
unauthorized use?        require prevalidation

Are transactions         Budgets are used to          BOR has designed an
executed according to    monitor obligations          authorization control
budget authority or
relevant laws and        Solicitor reviews draft
regulations?             contracts

Is financial & budget    BOR reconciles its cash      BOR has designed an
information              receipts and disbursements   independent check
accurate and reliable?   with Treasury’s records
  33
   GAo        Internal Controls: Observations


Key Risks                  Examples of                Observations on
                           Controls                   Designed Controls
Are reimbursable project   Statementsof Project       BOR has designed a
construction and O&M       Construction Cost and      control for reviewing
costs recovered in         Repayment are used to      summarized data
accordance with            monitor status of
applicable laws and        project repayment
regulations?

Are customers              Standard clausesare used   BOR has designed an
treated equitably?         when drafting contracts    authorization control



  34
GAo           O&M


          l   O&M examples

          l   Allocation of overhead

          l   Reported O&M expenses

      l       Constraints on raising O&M charges and customer input

      l       Deficits at CVP

      l       Application of payments at CVP

      l       Recent changes at CVP

35
GAo        O&M: Examples of Operations Activities


     Operations activities are ongoing tasks such as
          Monitoring river flows
          Operating gates, breakers, generators, and pumps
          Recording instrument readings
          Flood control
          Preparing annual operating plans
          Coordinating operations with WAPA, Bonneville Power
         Administration (BPA), etc.
         Land resource management and environmental compliance
         activities
         Administering laws and contracts (e.g., water service and
         repayment contracts)

36
GAO O&M: Examples of Maintenance Activities


     l   Maintenance activities are different from operations
         activities and include
          l  Major Tasks:
              l   Major repairs and rehabilitation (rewinds)
              * Facilities additions
              * Equipment replacements
          l  Routine Measures:
              l   Testing/Inspecting/rebuilding pumps, generators,
                   and ancillary equipment
               l  Lubricating pumps and machines
               l  Inspecting facilities

37
GAo          O&M: Allocation of Overhead

     l   Included in O&M
            l Adrninis trative services provided by Reclamation Service
              Center
            l Administrative and water and land support services
                                .
              proviaea by regional orrices
                 -1   11        1   rr-




     l   BOR O&M excludes, by law, some costs that are typically
         considered overhead
          l   Expenses of the Office of the Commissioner in
              Washington, D.C. and Denver
          l   Expenses of any offices associated with the development
              of agency-wide policies and procedures
          l   Expenses of General Investigations (e.g., preconstruction
              feasibility studies)
38
GAo         O&M: Reported Total Bureau M&I and
            Irrigation Expenses for FYs 19934997
            Dollars (in millions)


      140

      120

      100

       80

       60

       40

       20

        0


39
GAo           O&M: Reported Total Bureau and CVP M&I
              Expenses for FYs 19934997
              Dollars (in millions)

     45   -


     40
     35
     30
     25                                           W Total
     20                                           q CVP
     15
     10
      5
      0


40
GAo        O&M: Reported Total Bureau and CVP
          ‘Irrigation Expenses for FYs 19934997
          Dollars (in millions)


     90
     80
     70
     60
     50                                           II Total
     40                                           I CVP
     30
     20
     10
      0

41
                                         -



GAo     O&M: Constraints on Raising Charges and
        Customer Input

l   Direct and indirect O&M costs are required to be charged to
    customers, except those excluded by law
  l Water users now have no formal role in setting the O&M budget,
    although there is informal interaction
     l  BOR has developed a policy to more closely involve water
        users in the process
0 Water users have funded certain O&M and capital projects they
    consider vital
l   Water users can choose to directly control O&M activities by
    assuming responsibility for some activities themselves

42
GAo          O&M: Deficits at CVP


0
     CVP contracts have historically been long-term, fixed-price
     “water service” contracts
l    Water rates have not recovered all O&M costs
0    Deficits have accumulated
      l BOR accumulates these deficits and accruesinterest on them
     l    Irrigation users’reported deficits total $33 million
      l   M&I users’reported deficits total $166 million




43
GAo        O&M: Application of Payments at CVP

     Beginning in 1986, irrigators are allocated interest on deficits
     only and M&I users are allocated interest on both deficits and
     construction costs
     For M&I users, interest rates on deficits incurred after 1986 are
     higher than on construction costs
     Payments under water service contracts applied differently for
     irrigators and M&I users:

     Irrigators                M&I Users
     Current O&M               Current O&M
     Interest Expense           Interest Expense
     Deficit O&M                Construction Costs
     Construction Costs         Deficit O&M
44
    GAo         O&M: Application of Payments at CVP
                                                                           -




l        Beginning in 1986, M&I water user payments are applied to
         construction cost recovery before being applied to O&M deficits
          l O&M deficits incurred after 1986 are charged interest at a
            higher rate, so M&I users with deficits are allocated higher
            interest costs

l        To reduce impact of higher interest rates, water users can make
         voluntary O&M deficit payments



    45
GAo        O&M: Recent Changes at CVP


l    The Water Resource and Small Reclamation Projects Act (P.L.
     99-546) required changes in all new and revised contracts
        l Automatic Rate Adjustments
            l If current rates are inadequate to recover full federal
              investment in main system CVP by the year 2030
           l  Include full O&M costs
      l   Market interest rates on O&M deficits incurred after October
          1,1985
      l   Individual contractor ‘balances maintained for both
          construction costs and deficits

46
GAo        Other Issues



l    Warren Act changes in revenue application

l    Western Area Power Administration repayment

l    Glen Canyon Environmental Impact Statement (EIS)

l    CVP cost recovery




47
GAO Other Issues: Warren Act Changes in Revenue
    Application

     l    Warren Act revenues are funds received for transporting
         non-project water via BOR’s facilities
     l   Prior to 1993, BOR credited Warren Act revenues to the
         repayment of project costs
           l  A 1992 Office of Inspector General audit determined the
             Bureau’s application of miscellaneous revenues to be
             unauthorized under current law
           l As a result, the Bureau examined its application of all
             miscellaneous revenues, including Warren Act revenues
 l       Since 1993, Warren Act revenues are paid directly into the
         Reclamation Fund and are not credited to repayment of
         project costs

48
    GAO Other Issues: Warren Act Changes in Revenue
             Application
l    Some CVP water users believe BOR should allocate Warren Act
    revenues to project repayment
       l BOR must collect revenues from project users for purposes of

         repayment of project costs
       Warren Act charges include project repayment costs
         l

       Revenues collected from W-arrenAct users, however, are not
         l

      credited to project repayment
l   BOR interprets federal law as providing no authority to allocate
    Warren Act revenues to specific projects. The Bureau notes that:
       For other revenues, laws have required that it credit revenues
         l

      to project repayment
       The Warren Act is silent with regard to crediting revenues to
         l

      project repayment.
    49
GAO Other Issues: Western Area Power
                Administration     Repayment to Date

l    As of the end of FY 1998:

         l   Western’s maximum allowable federal investment
             outstanding was reported to be $7.39 billion
     l       Western’s actual federal investment outstanding was reported
             to be $6.36 billion

     l       Allowable CVP federal investment outstanding was reported
             to be $482 million
     l       Actual CVP federal investment outstanding was reported to
             be $33 1 million


50
GAo       Other Issues: Glen Canyon Environmental
          Impact Statement (EIS) Funding

     Some environmental studies initiated in 1982
     Formal EIS began in 1989, and was released in 1995
     EIS funded through Upper Colorado River Basin Fund
     (UCRBF) power revenues
     EIS cost reported to be about $7.6 million
     Other various environmental studies cost reported to be about
     $83.6 million (for 19834997)
     Use of power revenues to pay for EIS not typically as
     well documented in the budget process as the use of
     appropriated funds


51
GAo         Other Issues: Glen Canyon EIS Funding


 l   BOR distinguishes between appropriations and funds available
     without further appropriation:

      l   Use of appropriations is justified in detail
      l   Use of funds available without further appropriation is
          generally not justified in detail

 l   BOR compiles statements for each hydroelectric project which
     show how it expects to use power revenues
      l These are not routinely distributed to Congress


52
GAo        Other Issues: CVP Cost Recovery


     Total reported CVP constructi& costs to date:
                             Irrigation          M&I
     Allocated Costs      $1,124,000,000 $490,000,000
     Costs Recovered      $ 63,000,OOO $ 8,000,OOO
     Balance              $1,06 1,OOO,OOO $482,000,000
     Percent Recovered         5.6%     .        1.6%

     All main system construction cost and O&M deficit recovery due
     by the year 2030
     Expiring long-term, fixed-rate contracts being replaced with ones
     requiring annual adjustments
     Result: Higher rates for both irrigation and M&I users likely
53
GAo           Other Issues: CVP Cost Recovery


     l   Reclamation law allows recalculation of irrigators’ ability
         to Pay
     l   Irrigation costs beyond irrigators’ ability to pay are shifted
         to power
     l   Since 1991, additional Aid to Irrigation (AID) was granted
         21 times (totaling about $14.5 million)
     l   Many more requests for AID relief expected as contracts
         expire and are replaced with ones with higher rates
     l   Uncertain how much additional AID WAPA can recover
     l   Result: The federal government might not recover costs

54
This page left intentionally   blank.
                  Enclosure 2


                                          Bureau        of Reclamation          Sources and Uses of Funds



                                                                  Royalties


                                                                                             P
                                Taxes                                                               Reimbursementsfrom
                                Repayments                        Power                              other Government Agencies
                                Other                             Water Revenues                     and Foreign Activtttes
                                                          T       Repayment                         O&M AdvanceIRevenues
                       9.10                                       Other                4,8,9        Revenue fmm Reimbursabte
                                                                                                     Programs
                         I                                                                   I



Funding
SOUllSS




Governing
Authorftiea
(AppropriatMn
Law, contracts.                                                                                                                                          I




                   l
                                     -t
                              Water and Related Resources
                                                              $$I
                                                               r--f--- Policy and
                                                                                         I
                                                                                                        tf               t
                                                                                                                       Lower Colorado


                                                                                                                                            I
                                                                                                 Upper Colorado         River Basin                   Loan
                                                                      Administrative              River Basin
Programs for              Water and Energy Management                                                                   Development                  Program
Which Funds                      and Development                        W=e                          Fund                  Fund
Are Used                Land Management and Development                                                                                     I
                                                                                                                                                         I


                   I
                           Fish and Wildrt Management
                                 and Development
                                   Facility Operations
                        Facility Maintenance and Rehabilitation
                                    I


 Uses and




                                                                                                                                            /L
 Receipts
                                                                                                                                                     Pubtic
 Generated
                                                                                                                                                     Erltlties
                               3m     Construction Repayments
                                      Power Revenues                                                                                                             10
                                      Water Revenues

                               4to    O&M Advances                                                                9
                                                                                                                       .O Conslruction  Repayments
                                                                                                                             Power Revenues
                                                                                                                                                             6 Credit
                                                                                                                                                               Reform
                                                                                                                             Water Revenues                      Repayments
                                                                                                                  Lo         O&M Advances
Enclosure 2




                          Boulder Canyon Revenues                                    Appropriated funds transferred fmm:


                       P
                                                                                                                                           1-O    Reimbursements
                          Funds from Cost Sharing                                      Department of Labor (Job Corps)                            from BOR Prujects
                            Agreements                                                BIA (Navajo Indian irrigation Pmject)
                          Contrtbuted Funding                                                                                              2-o
                                                                                                                                                  Reimbursements
                       11 Fees and Assessments                                                                                                    from Other
                                                                                                                                                  Government
                                                                                                                                                  Agencies
                  ,    +
                                              I
                       Available Receipt                                         Transfer
                            Funds                                              Approprfations
                                              I                    I




              r-----                     -   --------_
                                                                       I
                                                                       ?         *
                                                       Permanent Appmpdatfons
                                                        .
                                                  Colorado River                  Other
                                                   DamFund                      Programs
                                                                                                                                                 Goods and
                                                       I                                                                                          Services
                                                                                                                                           I                 1




                                                                           1      CyPs J            1       Other-
                                                                                                                         I
                                                                                                                                 1-               2-J
                                                                                                                              f                f-
     6 Receipts            bReceipts         6 PowsrRevenues                                                                  0 Reimbursements OReimbursements
                                               ConstructfDn Repayment
                                               Water Revenues
                                               O&M Admnoes                   0 Receipts
                                               Hoover Vritor Center Revenues

                                       Note: The Working Capital Fund can receive direct appropriations                       if needed.
Ordering      Information

The first copy of each GAO report and testimony is free.
Additional   copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent     of Documents, when
necessary. VISA and Mastercard      credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders      by mail:

U.S. General Accounting     Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202)       5122537.

Each day, GAO issues a list of newly available reports and
testimony.   To receive facsimile copies of the daily list or any
list from the past 30 days, please caI.I (202) 512-6000 using a
touchtone phone. A recorded menu wiB provide information          on
how to obtain these lists.
For information on how to access GAO reports on the INTERNET,
send an e-mail message with “info” in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:
United States
General Accounting    Of&e
Washington,   D.C. 20548-0001

Official   Business
Penalty    for Private   Use $300

Address    Correction    Requested