Status Of Funds Unaccounted For By Antipoverty Agencies In New York City Office Of Economic Opportunity 8-73o575 BY THE COMPTROLLER GENERAL OF THE UNITED STATES COMPTROLLER GENERAL OF THE UNITED STATES WASHINGTON. D.C. 20548 B-130515 ,- Lb I, .. Dear Mr. Murphy: This is our report on the funds of $7.8 million that could not be accounted for by the New York City antipoverty agencies. Our review was made pursuant to your request of December 14, 1970. We plan no further distribution of this report’unless copies are specifically requested, and then we shall make distribution only after agreement has been obtained or public announcement has been made by you concerning the report. The Office of Econ-omit Opportunity and the City of New 23. ;I’ York have not been given an opportunity to formally examine and comment on the report. ’ ?)a, 5 .P.? . Sincerely yours, ,- 1L;?tirlE6 Comptrollir General of the United States The Honorable John M. Murphy House of Representatives 50TH ANNIVERSARY 1921- 1971 STATUS OF FUNDS UNACCOUNTED FOR BY ANTIPOVERTY AGENCIES IN NEW YORK CITY OFFICE OF ECONOMIC OPPORTUNITY On December 14, 1970, the New York Daily News reported that sources in the Office of the Comptroller of the city of New York stated that about $8 million, including $6 mil- lion of Federal funds, could not be accounted for by New York City antipoverty agencies. The article stated that the funds in question had been provided to delegate agencies under the antipoverty program during the period July 1, 1965, to September 30, 1968. Congressman John M. Murphy referred the newspaper article to us and asked that we examine into the matter. As a result of the Congressman's request and later discus- sions with him, we inquired into --the overall status of funds for the antipoverty pro- grams in the city, --the amount of funds unaccounted for during the pro- gram periods 1965 through 1968, --the causes contributing to the unaccounted-for funds, and --the actions being taken to preclude similar problems in the future. Congressman Murphy asked us also to identify specific antipoverty agencies that were unable to account for funds advanced to them during the above period. The names of these agencies with the largest unaccounted-for balances are presented in appendix II. The information in this report was obtained from (1) discussions with officials of the Office of Economic Oppor- tunity (OEO) and (2) discussions and a review of records at the offices of the City Comptroller and of the Human Re- sources Administration (HRA) of New York City. STATUS OF ANTIPOVERTY FUNDS PROVIDED BY OEO AND NEW YORK CITY Federal participation in the cost of New York City's antipoverty program is in its sixth year. Federal funds were provided to New York City primarily under OEO grant 1064. From 1965, funds of about $172 million were provided under this grant to HRA--the city's agency responsible for antipoverty programs. Also the city provided funds totaling about $138 million for its antipoverty program. The amount of the city's contribution constitutes a far greater percentage of the program costs than the minimum re- quired to be contributed from non-Federal sources by the Economic Opportunity Act. The act limited the Federal share in program costs to 90 percent prior to July'l, 1967, and to 80 percent thereafter. The act also provided that the Director of OEO might approve assistance in excess of these percentages if he determined that such action was required. Since 1965, the city's share of the program costs' has ranged from 34 to 47 percent; the following table shows the Federal and city funds provided during each program year. Program Federal funds City funds year Period provided nrovided A 6-5-65 to 6-30-66 $ 19,995,172 $ 17,500,000 B 7-l-66 to g-30-67 51,552,453 45,000,000 C lo-l-67 to g-30-68 29,465,825 19,700,000 D lo-l-68 to g-30-69 33,378,320 19,980,OOO E lo-l-69 to g-30-70 25,554,329 16,170,OOO F 10-l-70 to g-30-71 11,820,123a 19,900,000 $171.766.222 $138,250,000 aAs of June 25, 1971, Federal funds had been authorized through April 30, 1971. Since the start of the program, HRA has had problems in developing adequate procedures to account for its advances of funds to the several hundred delegate agencies that have responsibilities for carrying out activities under the anti- poverty program. OEO has not accepted HRA's final account- ing of funds provided to its delegate agencies for any of 2 the program years because of the failure of the delegate agencies to provide documentation in support of all ad- vances. On May 11, 1971, OEO advised the city that, on the ba- sis of OEO records, it was disallowing HRA expenditures of $6,612,842 for program years B and C. On December 30, 1970, OEO disallowed expenditures of $303,522 for program year A. The disallowances of $6,612,842 included: Unexplained expenditures $ 391,784 Advances to delegate agencies not adequately accounted for 6,221,058 Total $6.612.842 The disallowance represented OEO's estimate of the Federal share of the funds not accounted for during program years B and C. The amount of the funds reported in the December 1970 newspaper article as unaccounted for--$7.8 mil- lion--represented the City Comptroller's estimate of the combined Federal and city funds which could not be accounted for during program years A, B, and C. The City Comptroller in April 1971 completed an audit of HRA expenditures for program year D and reported that an opinion on HRA's financial statements for the program year was being withheld because of HRA's inability to locate a number of bank statements and canceled checks and because of the continuing balance of unaccounted-for advances to the delegate agencies for program years A, B, and C. At the time of our review--January to May 1971--0EO was in the process of reviewing the City Comptroller's report but had not reached a decision regarding any further action that might be taken. The City Comptroller, as of July 19, 1971, was in the process of making the audit of program year E. FUNDS UNACCOUNTED FOR IN PROGRAMYEARS 1965 THROUGH 1968 The City Comptroller, on December 11, 1970, advised HRA by letter that about $7.8 million of antipoverty funds provided during the period July 1, 1965, to September 30, 1968, including Federal and city funds, could not be ac- counted for. This letter became the subject of the article in the December 14, 1970, issue of the New York Daily News. 3 At the outset of the antipoverty program in New York, the City Comptroller advanced the delegate agencies funds representing a small part of their budget requirements so that they could begin operations. As the delegate agencies incurred expenditures, they submitted vouchers through HRA to the City Comptroller. The procedures, at that time, pro- vided that the City Comptroller record the amounts of the vouchers as program expenditures and as reductions of the advances and that he advance additional funds to the agen- cies as required. The City Comptroller, however, was unable to process the vouchers promptly, and, as a result, funds were not advanced to the agencies when needed. To overcome this delay, the City Comptroller estab- lished a "revolving fund" so that advances could be made independently of the vouchering process. He required, how- ever, that, for accountability purposes, the advances be justified by the submission of expenditure vouchers at a later date. Vouchers submitted by a large number of delegate agen- cies during the earlier program years did not account for all the funds that had been advanced. The City Comptrol- ler's records, as of August 3, 1970, showed that he had received and processed vouchers submitted by the delegate agencies accounting for only $27.5 million of the $35.3 mil- lion that had been advanced during the period July 1, 1965, to September 30, 1968. Of the advances of $7.8 million that had not been offset by vouchers, $5.7 million were Fed- eral funds and $2.1 million were city funds. At a series of meetings attended by officials of the City Comptroller's office, the City's Bureau of the Budget, and HRA, it was concluded that the $7.8 million could be reduced by expenditure vouchers totaling about $2.1 million, which had been submitted by the delegate agencies but which had not been processed by HRA or the City Comptroller. Re- garding the remaining funds of about $5.7 million, it was decided to employ a certified public accounting firm to au- dit those delegate agencies that had not accounted for funds of $1,000 or more and, to the extent that the audit of an agency did not result in obtaining documentation in support of the expenditure of the unaccounted-for funds, to obtain a certification from a responsible agency official, attest- ing that the funds were expended for program purposes. HRA 4 officials acknowledged that a certification, in the final analysis, would be the means used in most cases since the probability of finding satisfactory supporting documentation at that date was remote. The audits to be conducted by a certified public ac- counting firm were estimated to cost $35,000 and were sched- uled to begin on April 1, 1971. The contract for these services was not awarded until July 1, 1971. CAUSES CONTRIBUTING TO PROBLEMS OF ACCOUNTABILITY The following conditions contributed to the fiscal shortcomings that were prevalent during the period July 1, 1965, to September 30, 1968. 1. The inability of HRA and its delegate agencies, primarily because they lacked competent fiscal em- ployees, to adhere to OEO policies, procedures, and standards for financial management of funds advanced for the antipoverty programs. 2. A lenient attitude by OEO during this period regard- ing fiscal controls at HRA. OEO promulgated a number of policies, procedures, and standards relating to the management of antipoverty program funds. Since June 1965 all grantees and delegate agencies are required to have adequate accounting systems and to ar- range for accounting system surveys and periodic audits to help ensure that grant funds are being controlled and ex- pended in accordance with grant conditions and OEO policies, procedures, and standards. Grantees and delegate agencies are required also to have annual audits made by independent certified or licensed public accountants, by municipal au- ditors, or by OEO auditors. The audits of HRA through September 30, 1968, were not completed until February 1970. The audit of program year A was done by OEO. The audits for program years B and C were done by a certified public accounting firm, but they were not acceptable to OEO, because they included a dis- claimer of opinion on the financial statements and because they did not cover all delegate agencies. The disclaimer of opinion was caused by the lack of accountability for the funds expended. OEO procedures require that each OEO grantee submit an Unexpended Federal Fund Report to OEO, which shows the balance of unexpended Federal funds at the end of a program year and that the information on the report be verified as part of the required annual audit of the grantee. The pro- cedures also provide that OEO consider the program year as closed when it is satisfied that the,information in the re- port has been verified and when all questions that may have been raised during the audit have been resolved. During program years A, B, and C, there was a general weakness in the accounting procedures and internal controls of HRA and of the delegate agencies. HRA attempted during this period to implement an effective fiscal system. Its attempts, however, were unsuccessful due, in part, to a lack of competent fiscal employees; to a number of vacancies in key administrative and supervisory staff positions, such as finance and budget officers, financial analysts, and field auditors; and to non-attendance by fiscal staff at training sessions relating to fiscal procedures. Under HRA’s fiscal system in effect during the early program years, each delegate agency was required to prepare and submit vouchers having detailed supporting documentation for all expenditures of program funds. HRA and the City Comptroller’s office reviewed the vouchers and rejected any which had been prepared improperly or which seemed to re- flect unauthorized or inappropriate expenditures. Those found to be acceptable were recorded as reductions of the funds that had been advanced. This procedure resulted in a ’ constant flow of questionable vouchers among the City Comp- troller, HRA and the delegate agencies and thereby caused accountability for the vouchers to be continually changing. As early as 1967 OEO correspondence with the oity em- phasized the seriousness of the fiscal problems that ex- isted, the most significant being the lack of audits of delegate agencies and accounting differences between records maintained by HRA and those maintained by the City Comp- troller. Although numerous meetings were held and corre- spondence was exchanged frequently, the basic problems con- tinued to persist. 6 In January 1969 the OEO New York regional director stated that OEO continued to fund the program because of the commitment to continue services to the poor through the antipoverty program and in the belief that HRA had the ca- pacity to be a responsible custodian of Federal funds. In January 1971 the regional director acknowledged that there had been a lenient attitude on the part of OEO toward the fiscal shortcomings of HRA and that this condition no longer could be allowed to continue. PROPOSED CORRECTIVE ACTION As mentioned earlier, OEO, on May 11, 1971, advised HRA that it was disallowing expenditures of $6,612,842 re- ported in program years B and C. In its letter OEO out- lined the following general procedures for the satisfaction of disallowances by grantees. 1. Unless OEO grants an extension, all final disallow- ances must be satisfied within 90 days. 2. Unless OEO allows an alternative means of satisfac- tion, the final disallowances shall be satisfied through cash payments. 3. In some instances, disallowances may be satisfied through increases in the required non-Federal share in program costs as provided for in subsequent grants or contracts. To improve existing accounting procedures, a task force was formed early in 1971, consisting of employees from HRA, the City's Bureau of the Budget, and the City's Comptrol- ler's Office. The task force revised a number of procedures pertaining to budgeting, financing, audit, and control of funds for the antipoverty programs. One of the major changes was in the format of the monthly financial report required to be submitted by each delegate agency. The format of the report was revised to give HRA more complete accounting in- formation for controlling program funds advanced to the agencies, including cash position and expenditures data. The task force also recommended that (1) delegate agen- cies retain all documentation supporting expenditures and submit only the monthly financial report to HRA, (2) HRA 7 review the report and use it as a basis for making monthly advances to the agencies, and (3) an independent accountant visit each agency quarterly to review its records and docu- mentation in support of the reported expenditures and prepare a simplified voucher for submission to HRA. HRA and the City Comptroller have agreed to adopt this recommendation and to accept the voucher for purposes of accounting for advances to the agencies. CONCLUSIOK The foregoing revised and recommended changes in the fiscal procedures should provide the basis for an adequate accounting for program funds advanced to the delegate agen- ties. We have noted, however, that HRA has had a lack of adequately trained fiscal employees. Some improvements have taken place in this area. The new fiscal procedures call for HRA to give more aid to the agencies through increased training and for an increased number of field visits. Under the recommended changes in the fiscal procedures, assurance that delegate agencies properly account for pro- gram funds will be dependent, to a large degree, on the quarterly examinations of the agencies by independent ac- countants. In the past the lack of independent audits of the records of delegate agencies was a major problem. It is important, therefore, that OEO ensure that the changes are implemented fully. APPENDIXES 9 APPENDIX I JOHN M. MURPHY COMMITTEES. 16TH NEW YORK INTERSTATE AND FOREIGN COMMERCE MERCHANT MARINE AND FISHERIES Boule of %egre$entatibe$ 4-@~bfnsto~,~.6. 20515 December 14, 1970 Hon. Elmer B. Staats Comptroller General of the United States General Accounting Office Washington, B. C. Dear Mr. Staats: The enclosed clipping from the New York Daily News reveals that approximately $8 million, $6 million in Federal funds, cannot be accounted for by the New York Citv antipovertv agencies. A preliminary audit by a special seven 13x-t unit established by the City Comptroller's office rt.vealed the discrepancies in the books of nearly all of the L,(XlO delegate agencies funded under the antipoverty program from .Julv 1, 1965 to September 30, 1968. The haphazard bookkeeping methods of the City's Human Resources Administration is a total disgrace. I, therefore, urge you to immediately investigate the causes of this latest misappropriation of taxpayer's monev; to assist local auditors in attempting to justify at least parts of the $8 million outlay, and to recommend enforceable guide- lines to poverty agencies for the establishment of cent-by-cent auditing procedures. Sincerely yours, JYM:hs 11 APPENDIX II LIST OF DELEGATE AGENCIES WITH LARGEST UNACCOUNTED-FOR ADVANCES AS ADJUSTED BY HRA AS OF MARCH 31, 1971 Bedford Stuyvesant Youth in Action, Inc. $ 871,543 Brownsville Community Council 224,681 Mobilization for Youth Neighborhood Service, Inc. 167,341 New York City Housing Authority 240,589 Harlem Teens - Self Help 259,623 Haryou - Act, Inc. Neighborhood Boards 371,337 Haryou - Act, Inc. (President's Commission on Juvenile Delinquency) 104,228 Qualicap Community Corporation of Queens 154,003 South Brooklyn Community Corporation 89,947 Special Education Services 108,298 $2.591.590 12 U.S. GAO. V-h.. D-C.
Status of Funds Unaccounted for by Antipoverty Agencies in New York City, Office of Economic Opportunity
Published by the Government Accountability Office on 1971-08-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)