oversight

Review of the Working Capital Fund, HUD

Published by the Government Accountability Office on 1971-10-19.

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

                       UNITED STATES GENERAL ACCOUNTING OFFICE
                                 WASHINGTON. D.C.   20548


CIVIL DIVISION                                                    i




         Dear Mr. Condon:

              We have reviewed the accounting records of the Working Capital
         Fund (WCF) which was established by the Department of Housing and
         Urban Development (HUD) to provide administrative services such as
         printing, communications, supply, and automatic data processing (ADP),
         on a reimbursable basis, to the HUD central office organizational units.
         On June 30, 1971, the WCF had assets of about $8.4 million.

              The objectives of our review were to determine whether (1) the
         operating procedures of the WCF accounting system complied with the
         accounting principles and standards prescribed by the Comptroller
         General, (2) the WCF accounting system was functioning in the manner
         contemplated in the Design of Accounting System Requirements for HUD
         (Design) approved by the Comptroller General in April 1970, and (3)
         the accounting records were maintained accurately.

              We have concluded that (1) the operating procedures for the WCF
         accounting system complied with the accounting principles and standards
         prescribed by the Comptroller General, (2) the system functioned in
         the manner contemplated in the Design, and (3) the WCF accounting
         records, except for the two items discussed below, were maintained in
         a generally satisfactory manner. The WCF accounting records pertaining
         to the ADP supply inventory--which amounted to about $128,000 at July 31,
         1971, or 57 percent of the total WCF inventory--were not maintained
         accurately and therefore were unreliable and purchase discounts were not
         handled correctly.

              Our review covered transactions. recorded in the accounting records
         during the period from January 1, 1970 through November 30, 1970. How-
         ever, the part of our review concerned with the records pertaining to
         the ADP supply inventory was extended to include entries made in the
         general ledger account and the subsidiary perpetual inventory records
         through July 31, 1971--the date on which WCF employees counted the
         inventory.

         ADP SUPPLY INVENTORY

              The dollar value of the ADP supply inventory determined by physical
         count amounted to $128,287, compared with $107,185 recorded in the
         inventory account in the general ledger. Also, comparison of the quan-
         tities determined by the physical count and the quantities shown in the
         perpetual inventory records--the records in which a continuous balance




           . 2-         5-50TH      ANNIVERSARY 1921-1971 L     i 1
of quantities that should be on hand for the 20 kinds of supply items
in the inventory is maintained--disclosed 17 differences in quantities.
In nine instances the quantities shown on the perpetual inventory cards
were understated; in eight instances the quantities were overstated.
The understatements amounted to 568 cases of material with a dollar value
of $4,910, and the overstatements amounted to 126 cases of material with
a dollar value of $1,763.

      The above differences were reconciled and in the process a number
of adjustments were made to the accounting records for (1) acquisitions
that had not been recorded in the general ledger control account but in
the subsidiary perpetual inventory records,(2) incorrect information that
had been recorded in the perpetual inventory records as a result of using
purchase orders as source documents for entries whereas vendors' invoices
were used as source documents for entering purchases in the general ledger
account, and (3) supplies that had been issued but issuances were not
recorded in the perpetual inventory records. Some of the adjustments
corrected inaccuracies of long standing, indicating that the ADP supply
inventory records could not have been relied upon to provide correct infor-
mation on status of the inventory for at least a year prior to July 31,
1971.

     We were present at the July 31, 1971, physical inventory count and
we observed that the area used to store the ADP supply inventory was not.
safeguarded so as to prevent unauthorized removal of inventory items. We
had discussed this matter with HUD management personnel on July 6, 1971,
and subsequent to the July 31, -1971, physical inventory count the storage
area was enclosed.

PURCHASE DISCOUNTS

     We noted.that most of the vendors' invoices had been recorded at
billed prices and not net of discounts as prescribed by the General
Accounting Office Policy and Procedures Manual for Guidance of Federal
Agencies--2 GAO 37. Failure to reduce the vendors' billings prices by
the purchase discounts resulted in higher prices to HUD users because the
WCF bases its charges on recorded costs. We discussed this matter with a
WCF official and action was instituted to treat purchase discounts as pre-
scribed by 2 GAO 37.
CONCLUSION AND RECOMMENDATION

     In our opinion, the conditions relevant to accounting for the ADP
supply inventory as well as the purchase discounts, indicate that these
phases of the WCF operation may not have received sufficient management
attention. Accordingly, we recommend that the supervisory procedures
exercised in the foregoing areas be reviewed and revised, if necessary,
to ensure efficient overall WCF operations.



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     We appreciate the cooperation given to our representatives during
this review, and we shall be pleased to discuss with you or members of
your staff, the matters discussed in this report.

     We would appreciate your views and comments on action taken or
planned with respect to the above matters.

                                  Sincerely yours,

                                   Bo Z6 Birkle

                                  B. E. Birkle
                                  Assistant Director

The Honorable Lester P. Condon
Assistant Secretary for
  Administration
Department of Housing and Urban
  Development




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