Review of the National Credit Union Administration's Internal Control System

Published by the Government Accountability Office on 1977-02-28.

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

                                    UNITED STATES GEMERAL~CCCIUMTING BFFKE
                                              WASHINGTON                    REGIONAL            OFFICE
                                                                   FIFTH     FLOOR
                                                          803   WEST     BROAD     S-I REET
                                                  FALLS         CHURCH,         VIRGINIA       22046                           FEE! 2 8 KU’7
Mr. Harvey J. Baine III
Assrstant    Adms.nlstrator    for Fztscal                                                 Affairs
National    Credit   Union Administration                                                                1
                                                                                                                 f 2267
2025 M Street,      NW.
Washington,     D.C      20456
Dear          Mr.         Baine:
          As you know, we have recently                completed     our annual audit
of the National            Credit   Union Admlnlstratlon's             flnanclal
statements           In connecti<nwlth            that-effort,       we revlewed
selected        aspects     of the Internal
                                      --            control     system In effect
          Based on our review,           we found controls          over payments        to
contractors,         cash receipts        and deposits,         and voucher      reviews
could be strengthened              and recommended          improvements       as dls-
cussed below             In addition,       we found the Admlnlstratlon's
lidblllty        for security       services      Drovlded      had not been prop-
erly recorded          In the accounting          records        We discussed       these
points      with the Director,           Division      of Financial       Management                                                                        :s2qc/
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\UAL’/,             and      &i-i   all   cases             w2re          ,nformed              that     b”LLcrLL.l.“cz                  UbLJ.“II
would          oe iza~erl
Payments                  to contractors
        The Administration          had 18 active\ non-Federal            Government
contracts      totaling      in excess of $346,000         as of June 24, 1976.
These are contracts            for products      and services       to various
offices    throughout        the Adminlstratlon           Offlclals       in the
receiving      offlces      are aware of contractual           terms and contrac-
tor performance,           and effective      fund control       requires     that
such offlclals          play a key role in processing              contractor      bill-
ings for payment
        We found,     however,    that lnvolces      against       contracts    are
not sub3ect      to approval      by the reclplert         prior    to payment by
DFM      DFM personnel      do not routinely        verify      that the terms
of the contract        were met and that the charges               do not exceed
the contract      price    before    processing     an invoice        for payment
This practice       could result       in erroneous      payments       to con-
tractors     or payments       for inadequate     contractor        performance
       We recommended    action  be taken to insure      effectrve
management    control  of disbursements    to contractors          The
Director,    DFM, also recognized     tne weaknesses     in this    system
He informed     us that a new procedure           would be lnstltuted         that
would require     prior  approval       of certlfylng      contractor      per-
formance    by the cognizant      offlclal       recelvlng   the service
before    any payments   are made and would develop              a control
wlthln    DFM to insure   payments       do not exceed contract          price
Cash receipts
        Daily    receipts      through     the mall        are logged by the cash
clerk    for DFM         Mailroom      personnel       occasionally    open mall
when the clerk         1s not present,         and     some receipts    are not
recorded      lmmedlately.          The risk     of    theft   or loss could be
mlnlmlzed       by requiring        the presence         of the cash clerk   when
mall 1s opened.                                                       l

        We recommended   to the Director,     DFM, that mail be opened
only when the cash clerk       1s present   to record   the cash
receipts.      He agreed and informed     us that corrective    action
would be taken
Daily        deposits
        An     aCC:OuilkiG$   LLEChiilClXi   iii   v-+tT,h
                                                   YI II          dSi:f     Cash
receipts      for deposit      wrth the Admlnlstratlon's              bank account.
The deposits        are taken to the DFM Director's             office      and
remain without         safeguard    in his secretary's         outgoing      mail box
until    picked     up by a messenger        and taken to the bank.              The
messenger       signs   for deposits      but does not obtain            a bank
receipt     for funds deposlted.           These practices        provide      Inade-
quate control         and unclear     responslblllty       for cash receipts,
and could result          in the loss of cash receipts.
       We dlscussed   this matter        with the Director,     DFM, and he
assured    us that dally     deposits     would be locked    in a bag and
safeguarded     while  awaltlng     messenger    pickup   and that the
messenger    would carry     dally    deposits   to the bank in the
locked   bag.
Voucher        review
         The Administration's           procedures       require    documentary
evidence      that the transaction            voucher      review   phase of the
system of internal           control      LS being practiced.             Our review
of the Administration's              accounting      records      showed that trans-
actlon     vouchers     in many cases were not signed by approving
officials.        Personnel      in DFM should         indicate      their   reviews by

signature             or lnltlal   to substantiate                       the       system           of   Internal
control             is being followed   In DFM.
      We discussed    this matter  with the                                    Director,             DFM, and
he informed    us he would emphasize    this                                   internal             control
point   to his staff.
Liability             for   security     services
        Security     services     for the Administration's               headquarters
office     are provided       by the General       Services        Admlnlst~ation
(GSA) under contract            on a fiscal     year basis.          The Administra-
tlon    recorded     no llablllty       for fiscal        year 1976 services          at
yearend pendlng         receipt     of a bill    from GSA. Accounting               prin-
ciples     require    the recognltlon         of llabllltles         lnrflnanclal
statements       even when precise         amounts are unknown,             in order to
provide      a proper matching        of revenue and expenses.                 The secu-
rity    service    expense could be reasonably                estimated       and
recorded      In the accounting         records    based upon periodic            bill-
ings from GSA.
            As a result           of our dlscusslons                    with       officials             in DFM,
t_he   ~c~ountln~            records     wp~-   adpcted                  In     flccal.        year       1977
 LO  rzflozt      the sech~it3 5.2.~<ice                  I~i;Li.litg                 Gf   $9,2CC         IiGf
fiscal       year 1976, and the expense                          ~111          be recognized                as
Incurred        in the future.

       We appreciate     the corrective         actions     promised     and taken
by the Director,      DFiY. If you have any questions                 concerning
the matters    discussed    in this     letter,       please    contact    us
Thank you for the courtesy         and cooperation           provided     our staff
during   the review.

                                                                        David P. Sorando
                                                                        Regional Manager
                                                                                                                 $ ",rs-