Review of Settlement of Account of Certifying Officer of Region III, HUD, Philadelphia, Pennsylvania

Published by the Government Accountability Office on 1971-01-18.

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

                  I--- .
                                                   REGIONAL      OFFICE
                         502   U S CUSTOMHOUSE,         SECOND     AND   CHESTNUT       STREETS
                                   PHILADELPHIA,         PENNSYLVANIA               19106

Mr. Warren P. Phelan
Regional         Administrator
Department         of HOUSI ng and Urban Development
Region       iii
900 Curtis         Bullding
6th Q Walnut           Streets                                                                    ,
Philadelphia,            Pennsylvanta 19106

Dear Mr. Phelan:
         We have made a review      for the settlement          of the accounts   of the
certifying      officer   of Region    III,   Department      of Housing   and Urban
Deve 1eprnent ) Phlladelphla,       Pennsylvania,       through    fiscal  year 1969,

         The revlew       consisted       of an evaluation          of selected         administrative
procedures        and internal         controls      relative     to receipts         and disburse-
ments and included             such tests       of financial        transactions         and records           ’
as we considered            appropriate.          Examinations         into   selective       program
activities       were made to determine                the adequacy         of the financial
management        system     as It pertained           to transactions         for which the
certifying       officer      was responsible,              We also reviewed          the audit
reports      issued      by the HUD Office          of Audit       as they related          to the
act IVI t yes we exams ned into.

         We found the administrative                   procedures        and internal           controls
to be generally             satisfactory         and the tested          financial         transactions
to be processed             tn a satisfactory            manner.       Further,       our review          of
selected        program      activltles        showed that        the frnanclal           management
system was generally                 adequate      to assure that disbursement                   and
collection         transactions          were valld,        appropriate,           and legal.          We
did note,         however,       certain      rndicatrons        of weaknesses           in the Imple-
mentatron-of           the system,        which are described               below.      These were
discussed         with the Acting           Assistant       Regional       Admlnlstrator           for
Administration,            who informed          us that corrective             actions       had been
taken      or were planned.

        1.     We found that      an Inspection        and audit        fee of $750 was
               not deducted     from the initial          grant     payment       made to a
               public    body particlpatlng         in the urban beautification
               and Improvement        program.     The grant         contract      provided
               that   the Government        be compensated         at a fixed        fee for
                its inspections       and audits     ot the proJeCt,            that    this
              <fee be payable       when the first        requlsltlon         for a grant
               payment    was approved,        and that     it   be pard by deducting
     the ent 1 re amount        from the f 1 rst     grant     payment     made to
     the pub1 tc body.          We found,    however,      that the inspection
     and audit       fee was not deducted         from the lnltral           payment
     made to the public           body,   on March     10, 1969.       After     we
     brought     this    matter    to the attentton        of the officer         who
     had certified         the disbursement      voucher,       an invotce       Yor
      repayment      of the $750 was marled          to the public         body,
     thrs    amount     was subsequently      remitted       to the Government.
2.   Our audit    of the           Imprest    fund        showed      the     following         weak-
     nesses    in internal           controls

     a.    The cashier          had made one of the purchases             as shown
           by a receipt           In the fund.        HUD Handbook      1911.1,
           dated   August         1969,  provides      that  for   sound    internal
           control    the       person   designated       as a cashier      should
           not make or          approve    purchases.

     b.    No alternate            cashier        had been designated                 for the
            1mprest      fund.         We were         Informed       that,      In the
           absence       of the         Imprest        fund cashier,           one of the
           certlfytng          officers         acts      as the fund cashier.
           This      sltuatlon          IS contrary           to sound       internal
           control       procedures            and HUD InstructIons,                  which
           require       that       the performance              of both certlfylng
           and disbursing               functions          by one I nd~v~dual            be
           avow ded.         Thrs      pornt      will      take     on added sig-
           nlflcance         rf the Regronal                Office      implements          Its
           plan to 1 ncrease               the amount           of the fund from              $75
           to $500 I n order               to handle          travel      advances       on a
           cash basis.

3.   We found       that  employees           who kept      time   and attendance
     records      also   engaged        in the drstributlon            of employees’
     salary     checks.       The General           Accounting      Off ice Pol rcy
     and Procedures          Manual       for    Gul dance of Federal         Agencies,
     title    6, section         15.7 provides          that persons       who keep
     time and attendance             records        should     not deliver     salary
     checks.        This   Internal         control     weakness      was also
     reported       on June 2, 1967,             at the completton         of our
     prior    settlement        review.

4.   Our review         showed      a need for          improvement         in the
     procedures         for    posting        hours    used and leave            taken
     to the time and attendance                     reports.         In three        of
     the four       secttons         reviewed,        we noted      that      the ttme-
     keepers       were     prepostlng          80 hours       at the beginning
     of each pay period                and posting         all   absences         in total
     at the end of the period.                     The total       absences         were
     posted      from da1 ly entries               made on the t I mekeepers’
     desk calendars            or from the employees’                  leave      records.
     This    practice         IS In vlolatlon            of HUD instructions
     which     require        dally      postings      to the ttme and attend-
     ance report        s.

5.   Our review         of the     Elderly    and Handicapped               Housing       Loan
     Program       drsclosed       the following    weaknesses               In the
     admtnlstration          of    the program:

     a.    HUD procedures            require        that      the field      engineer
           approve      certain        designated           proJect     costs     prior
           to the payment            of costs         from the applicant’s
           construct      I on account.             Our detailed          revfew of
           one project         showed that            the fteld        engineer       did
           not approve         the project            costs designated            for
           his approval          even though             the costs had been
           paid by HUD.            We were advl sed by cognl zant HUD
           offlcrals        that     this     same srtuatlon            existed       with
            respect     to other         proJects          wlthrn    the program
           and this       was primarily             due to the failure              of the
            borrowers       to provide         sufficient           documentation
           support I ng the project                 expendrtures.            When docu-
           mentat Ion was provided,                    it was not understandable
           and did not contain                sufficient          data upon which to
           base an approval.                We were also advised                that      HUD
           program      personnel          dtd not take positive                action      to
           assure     that      prolect       adml nistrators           provided        the
            requ I red support I ng data.

           We recommend      that responsible        HUD personnel     be
           Informed    of the importance        of having     adequate
           documentat    ton to support      project    expend1 tures
           prror    to approval   and payment        of such costs.

           The above situation     was also brought                       to your
           attention     by the HUD Office  of Audit                       in a
           report    dated May 19, 1969.

     b.    Our review        of one prOJeCt        disclosed      three     in-
           stances     In which funds requisitioned                 and
           rece I ved by the borrower            exceeded      the HUD-
           approved      line     item costs      by a total      of about
           $809.      Our review       of the proJeCt        showed no
           rndicatlon        as to the reason for the excess
           payments.         Program    personnel       suggested      that
           the overpayment           was most 1 I kely the resu 1t
           of an oversight,

     c.    Our review       of this     prOJeCt          also disclosed
           that    the borrower        was btlled           for SIX       Interest
           payments      during    the period            May 29, 1969 to
           August     30, 1970,       in accordance            wrth the requlre-
           ments of HUD Regional                Circular       Number 882 but
           patd HUD for only one blllrng.                       As of
           September      30, 1970, outstanding                  interest        on thrs
           prOJeLt     amounted      to $63,948.54.                During      the

             period    when interest        was outstandlng,            the borrower       sub-
             mltted    a requlsttlon         for constructton           funds,    however,
             when providing         them,    HUD did not make           an offset    for the
             outstand1   ng I nterest.          We believe     that       most of the out-
             standing     Interest      charges    should     have      been obtalned        In
             th 1s manner*

              In discussing      this  matter       wrth us, the Chief            of the
             Elderly     Hous I ng Programs       Branch agreed        that     I nterest
             should    be collected      on a     timely   basis.        Further      9 he
             said he IS lnvestrgatang             the feaslbtllty         of deducting
             the Interest       charge   from     proJect    requksttlons           rather
             than bill     Ing the borrower.

      We wish to acknowledge     the cooperatton      extended                 to our repre-
sentat Ives durl ng ther r review.     We would appreciate                     recervlng  your
comments   as to acttons   taken   or planned    with   respect                to the matters
descr t bed above.

         In accordance       wI th t ltle     8, chapter      3, of the General     Accountrng
Office      Policy   and Procedures         Manual   for Guidance        of Federal  Agenctes,
the records        of financial      transactions        through    June 30, 1969, may be
transferred        to the Federal         Records   Center      for storage.

         A copy of this  report    is being   furnished            to   the Secretary         of
Houslng     and Urban Development,      to the AssIstant             Secretary      for      Admlnis-
tratlon,      and to the Director    of the Office      of         Audit.

                                                          S 1 ncere ly yours,