We have reviewed the bookkeeping and accounting system used by the Shoalwater Bay Indian Tribe to account for Federal grants and contracts. In our opinion, the procedures used within the system which we observed and which were explained to us do not meet the standards of Section 276.7 of Appendix B of PL93-638 for the following reasons:

Paragraph (a)(1) of Section 276.7 requires that the system provide
"accurate, current and complete disclosure..." While the chart
of accounts and the necessary books of original entry, including
cash receipts and cash disbursement journals and a voucher register,
have been set up, neither a general ledger nor a grant ledger has
been established. The absence of these ledgers means that no
controls are established to detect many errors and inaccuracies.
Since the controls available from the use of these ledgers are not
in use, the information generated by the system cannot be relied
on to a degree sufficient to meet the requirement of the Federal
regulation for accurate disclosure.

Paragraph (a)(1) of Section 276.7 also requires that the system
provide for the conversion of information generated from a non-
accrual basis to an accrual basis if a grant or contract requires
accrual basis reporting. Since a general ledger is not established,
this conversion cannot be made with sufficient accuracy to meet the
regulations.