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)

Status Of Funds Unaccounted For By
Antipoverty Agencies In New York City
Office Of Economic Opportunity 8-73o575

                                   COMPTROLLER         GENERAL      OF      THE       UNITED          STATES
                                                     WASHINGTON.     D.C.         20548


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



      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,

       --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.

       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

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

the program years because of the failure   of the delegate
agencies to provide documentation  in support of all ad-

       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.


       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.

       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

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.


       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.

       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.


       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

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.


        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.

                                                                                                           APPENDIX          I

JOHN       M. MURPHY                                                                                        COMMITTEES.
       16TH NEW YORK
                                                                                              INTERSTATE    AND FOREIGN COMMERCE
                                                                                                MERCHANT     MARINE AND FISHERIES

                                               Boule of %egre$entatibe$

                                                    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

                                   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,



                     LIST OF DELEGATE AGENCIES


              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


                                     12                 U.S.   GAO.   V-h..   D-C.