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
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)