oversight

Neighborhood Youth Corps Program in New York City

Published by the Government Accountability Office on 1971-07-26.

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

z

                  ~~ELEASEI)COMPTROILERGENERALOF
                                                   WASHINGTON.   0.




       B-130515

       Dear Mr.       Chairman:

             In response to the Committee's                 request       of December 18,
      1970, we reviewed         the current       status of corrective            actions
      taken on certain        prior      years'   fiscal      irregularities        found
    ! in the Department        of Labor's       Neighborhood
                                                -_I_--- _             Youth Corps pro-        .‘,
      gram in New York City.              These matters were discussed                in our
      report   of October 14, 1969 (B-130515).                     As in our earlier
      work, we confined        our efforts        primarily        to obtaining       and eval-
      uating   information        furnished     to us by officials             of the vari-
      ous agencies      involved       in the administration              of the program.

               The Neighborhood   Youth Corps program in New York City
       consists    of the in-school,     the out-of-school,       and the summer
       component programs.       Federal funds totaling        $94 million   were
       authorized    from the inception      of the program in February 1965
       through June 30, 1969.        From July 1, 1969, through June 28,
       1971, an additional      $56.3 million     was authorized,     of which
       $19 million     was for the 1971 summer program.

             The funds currently     are being expended under contracts
    \ between the Department      of Labor and the Youth Services       Agency,
      a constituent      agency of the Human Resources Administration,                              : .'
      and the city of New York.         The Youth Services    Agency in turn
      operates    through agreements with delegate       agencies;   35 dele-
      gate agencies participated        in the 1970 summer program.

       CONTINUING PROBLEMS IN ACCOUNTING
       AND INTERNAL CONTROLS
                  &__,-s~: ._,1. -.<>l
             Our October 1969 report            stated that information            fur-
       nished to us indicated           that substantial         amounts of Neighbor-
       hood Youth Corps funds, principally                 the summer program payroll
       funds, had been misappropriated               by employees of the sponsors
       and of the delegate          agencies.      Investigators       concluded      that
       it was not practicable           to determine       the total    amount of funds
       misappropriated,        but they estimated          that losses of about
       $1.5 million     were sustained        under the 1967 and 1968 programs.
       These losses were due largely             to payments involving           nonexis-
       tent payees and nonexistent            jobsites.        Our report     pointed



                                             50 TH ANNIVERSARY        1921-   1971
.


    B-130515



    out that audit work underway       on the 1965 and 1966 programs   re-
    sulted  in the questioning    of an estimated   $2.3 million   of 1965
    program expenditures     for payrolls.

            Our report      pointed     out also that the sponsors’             accounting
    and related      internal       controls     had been deficient.           As of May
    1969 actions       taken by the Department              of Labor and the Human
    Resources      Administration         to correct      these weaknesses       included
     (1) partial     implementation          by the Human Resources          Administra-
    tion of specific         financial       safeguards      prescribed    by the De-
    partment      and the Office        of Economic Opportunity,            (2) transfer
    of the sponsorship           of the 1969 summer program from the Man-
    power and Career Development                Agency to the Youth Services
    Agency Y and (3) transfer             of the responsibility         for preparing,
    distributing,        and postauditing         enrollee      payroll   checks for
    the 1969 summer program to the Division                     of Employment      of the
    New York State Department               of Labor.

            Our current     inquiries      have revealed          that,    although     var-
    ious improvements         in program administration                have been made,
    there are continuing           problems    in accounting            and internal     con-
    trols,    which relate       to the payroll        activities         of the sponsor
    and the delegate        agencies.       In an October           1970 report       on a
    review    of enrollee       wage payments under the 1970 summer pro-
    gram by the Internal           Audit   Section,      Division        of Employment,
    New York State Department             of Labor,      the auditors          restated    the
    recommendations       for corrective         actions       which they had in-
    cluded    in a prior      report     on a review       of the 1969 summer pro-
    gram but which had not been implemented                     by the sponsor.          These
    matters     concerned

           --the    confused     state    of records    in all delegate         agencies
               immediately     prior    to and after      the start      of the pro-
              gram*    which   indicated      a  need for    substantial      lead time
               for developing       procedures     and training       sponsor and
              delegate     agency staff       in the proper handling          of time
              cards and payroll         records;

           --a need for devising    a method for preparing    current                    and
              accurate lists  of enrollees   categorized   by worksite;

                                                2
.


    ,


        B-130515



               --a need for the sponsor to install     an appropriate pay-
                  roll  and time recordkeeping  system which would elimi-
                  nate the types of weaknesses found by the auditors
                  and to require   the posting by delegate  agencies of
                  absences and reasons for such absences on time cards;
                  and

                -the posting        by delegate     agencies of hours of work for
                  a full     week without      adequate time card support and us-
                  ing the supplementary          payroll     to pick up additional
                  compensatory       hours of work without         valid time card
                  backing,      which therefore      indicated     a need for the spon-
                  sor and the Division          of Employment to develop and in-
                  stall    tighter    controls    over this phase of the payment
                  process.

                Also the New York State Department        of Audit and Control
        in a report      dated February     3, 1971, on its audit of the 1970
        summer program revealed         a need for strengthened    attendance
        control     procedures    at delegate   agencies.    The auditors   had
        noted similar       basic weaknesses under the 1969 summer program.

                The Department's        Regional    Manpower Administrator           in New
        York advised us in April            1971 that the Department          was con-
        tracting    with a public        accounting    firm to provide         technical
        assistance     to delegate       agencies.     Also the Director          of the
        Special    Review Staff in the Department's                Manpower Administra-
        tion reported        in April    1971 that the Department's           New York
        Regional    Office      (1) had intensified        the monitoring        of the Hu-
        man Resources Administration             and was providing       technical        as-
        sistance    on a continuing        basis and (2) planned to place a Fed-
        eral fiscal      officer      and a contract      specialist    onsite     to assist
        the sponsor and to provide            onsite monitoring        capability       for
        the Department.

        STATUS OF INVESTIGATIONS AND
        CONVICTION OF ARRESTED EMPLOYEES

              The results    of investigations       by the New York          City De-
        partment  of Investigation       into fiscal    irregularities           under

                                                 3
B-130515



the 1967 and 1968 programs         were reported       to the Committee           in
our report      of October   1969.   The irregularities       involved
cashing    fraudulent    enrollee   payroll   checks and embezzling
from an employee emergency fund.

        A deputy commissioner         of the Department         of Investigation
advised      us in March 1971 that his department               had not per-
formed any significant         investigative       work in the program sub-
sequent      to October 1969.       He told us that the work performed
subsequent      to October    1969 related     primarily        to the follow-up
on cases of 10 delegate          agency employees         and a Human Resources
Administration       employee who had been arrested               in connection
with misappropriations         of enrollee     payroll       checks under the
1967 and 1968 programs.           According    to the Department             of fn-
vestigation,      these cases,      involving    thefts      ranging      from $151
to $4,588,      were referred     to cognizant      district        attorneys    and
were disposed       of, as follows:

                                                                       Number of
                                                                         cases

Employee pleaded        guilty   and received    suspended
   prison  sentence      of l-1/2    to 3 years                               1
Employees pleaded        guilty   and placed    on probation
    (note a)
Indictment    returned       but case not yet tried
Cases dismissed
No indictment      returned

     Total

%In one case a fine        of   $695 was levied.

        Our October      1969 report     also pointed      out, in regard      to
the investigation         of the 1968 program by the Department               of In-
vestigation,      that--relating       to the fraudulent         enrollee    payroll
checks --the     supervisor      of the Neighborhood         Youth Corps fiscal
unit of the Human Resources            Administration,        his assistant,       and
a former     employee had been indicted            on charges of conspiracy,
grand larceny,       forgery,     and criminal       possession     of stolen

                                         4
B-130515



property.      An assistant    district     attorney  of New York County
advised   us in February      1971 that the three individuals         had
pleaded   guilty.     He stated      that the supervisor     had been sen-
tenced to serve a prison         term of from 2 years and 4 months
to 7 years and that his assistant            had been sentenced     to a term
of from 15 months to 4 years.             The former   employee had not yet
been sentenced.

       We also had reported            the arrest      and indictment        of the Hu-
man Resources       Administration         director      of fiscal    affairs     on
charges   of embezzling         funds from an employee             emergency    fund.
The assistant       district      attorney      informed    us that the director
of fiscal    affairs       had pleaded       guilty    and had been sentenced
to serve a prison          term not to exceed 4 years.

       The assistant     district attorney     also          told us that the
guilty   parties     had not made any restitution               of the misappropri-
ated funds.

        In a report     furnished      to us on April          9, 1971, by the De-
partment     of Labor’s      Assistant     Secretary       for Manpower,         the Di-
rector    of the Special        Review Staff      reported       that the Neighbor-
hood Youth Corps program in New York City had been operating
without    the presence       of fraudulent       activities        and other prob-
lems after     the New York State Division                of Employment        assumed
the responsibility         for enrollee      payrolls        for the 1969 summer
program.      The   Department’s       Regional     Manpower       Administrator       in
New York similarly         reported      on March 19, 1971, that the op-
eration    of the enrollee         payroll   for the summer program by the
New York State Division            of Employment       generally      had been suc-
cessful    and that the incidence           of fraud had been low.

        The reported        elimination         of major enrollee     payroll      frauds
was affirmed         by the deputy director              of the Human Resources
Administration’s           Office      of Review which performs        investigative
work relating         to the programs           administered    by that agency.          He
told us that the improved                situation      was due to better      fiscal
controls      resulting        primarily      from the assignment      of the en-
rollee    payroll       function       to the New York State Division            of Em-
ployment.

                                            5
B-130515



RESULTS OF DEPARTMENT OF LABOR AUDITS

        The Department         of Labor has completed             audits      of all ex-
pired Neighborhood            Youth Corps program contracts                  covering     the
period     from February         1, 1965, to July 7, 1969, during                   which
time estimated          losses    of $1.5 million          occurred      through      misap-
propriations        by sponsor and delegate              agency employees.             On
the basis of its findings,               the Department,          with the concur-
rence of the Human Resources                 Administration,          disallowed
$10.5 million         of the costs of $86.1 million                 claimed      by New
York City.        Because Federal          funds of only $79.5 million                 had
been advanced to the city,               a refund      of only $3.9 million              was
required      ($79.5 million         less $75.6 million           allowed).         A de-
partmental      official       indicated      on July 6, 1971, that arrange-
ments for refund           of the $3.9 million           had not been finalized.

        The disallowed     program costs of $10.5 million      consisted
primarily     of charges for enrollee       costs totaling   about
$9.8 million.        The remaining  disallowed      costs of $700,000 re-
lated     to charges   for various  staff,     operational,  and delegate
agency costs.

     Of the disallowed        enrollee  costs of $9.8 million,      charges
of $8.8 million     for enrollees?     wages and related    costs were
not allowed    under two contracts      because,  among other    things,
the expenditures      exceeded    the amounts authorized    in the proj-
ect budgets.

       Other disallowed         charges     for enrollee      costs not involved
in budget overruns         included     about $323,000 because of dupli-
cate charges       for the same enrollee          payrolls,      $180,000 because
gross payroll        amounts were not reduced           to reflect     voided pay-
roll   checks,     $151,000 because of unauthorized               and otherwise
questionable       payments     to enrollees      by a delegate       agency,
$264,000     for social      security     costs relating       to disallowed       en-
rollee    wages and erroneous          computations,        and $66,000 because
a reduction      in premiums for workmen’s            compensation       insurance
had not been applied          appropriately       to enrollee      payrolls.



                                             6
B-130515



CONCLUSIONS

       The New York City Neighborhood             Youth Corps program appar-
ently   has not experienced        any recurrence       of the large-scale
misappropriations       of funds reported         for the 1967 and 1968
programs.       In view of the continued          weaknesses    in the mainte-
nance of enrollee       payroll    records     by the delegate       agencies,
as reported       by New York State auditors,          however,    we believe
that there is need for continuing              close surveillance         of the
program in New York City by the Department                 of Labor until       ade-
quate payroll       and recordkeeping       procedures     are established
and adhered to by delegate           agencies     and others    involved.



       We plan to make no further         distribution    of this report
unless    copies   are specifically     requested,     and then we shall
make distribution      only after    your agreement      has been obtained
or public     announcement     has been made by you concerning       the
contents    of the report.

                                         Sincerely    yours,




                                         Comptroller   General
                                         of the United   States

The Honorable   Carl D. Perkins,   Chairman
Committee   on Education and Labor       ! ,,
House of Representatives




                                         7