Review of the Gallaudet College's Administrative Procedures and Internal Controls Relating to Expenditures of Federally Appropriated Funds

Published by the Government Accountability Office on 1971-07-12.

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

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ClVlL   DlVlSlON

                                                                              1B asn
         Dear Mr. Secretary:
 /              We have reviewed Qllaudet         College's     administrative           pro-
         cedures and internal         controls relating     to expenditures           of
         federally     appropriated     funds, including     funds appropriated,
         for financing      the construction     and operation     of the Model
         Secondary School for the Deaf. Our review, which was directed
         principally      toward settlement    of the accounts of certifying_I.^ ."_._
         ~.ers,.,included          tests of selected pa@""11 and leave trans-
                Our review showed that the college's  controls   over expen-
         ditures   of federally  appropriated funds were generally   satis-
         factory.    We have noted certain matters, however, which we
         believe warrant your attention.

                Gallaudet College recorded obligations     of about $180,000
         against the fiscal     year 1969 appropriation,   which should have
         been charged against the fiscal      year 1970 appropriation,   for
         salaries    and expenses of the Model Secondary School for the
         Deaf 0 These obligations,    together with the other obligations
         incurred during fiscal     year 1970, exceed the amount appropri-
         ated by the Congress for that fiscal        year.
              In October 1966, the Congress authorized   the Secretary
         of Health, Education,  and Welfare to enter into an agreement
         with Gallaudet College to establish  and operate the Model
         Secondary School for the Deaf (80 Stat. 1027).    This agree-
         ment was signed on May 16, 1969.
               Following is a summary of the amounts appropriated   by
         the Congress through fiscal  year 1970 for salaries   and ex-
         penses of the Model Secondary School for the Deaf.

      Asropriation           act                 Amount                    Availability

Public   Law       90-132,
  approved         Nov.    8, 1967              $425,000                Until     expended
Public   Law       90-557,
  approved         Oct.    11, 1968              400,000                Fiscal      year     1969
Public   Law       91-204,
  approved         Mar.    5, 1970               415,000                Fiscal      year     1970

         During      May and June 1969,         $230,000      of the $400,000       ap-
propriated         for    fiscal   year 1969 was apportioned               to the college,
The college          obligated     the entire      amount     apportioned,       and the
balance       of   the appropriation-        -$170,000--lapsed           at June 30, 1969.

         Section        712(a)    of Title         31) United       States    Code,    provides
that     appropriations           made specifically             for    the service       of any
fiscal       year     be applied        only    to the payment            of expenses      prop-
erly     incurred        during     that     year.      The Comptroller          General       has
ruled      that,      to obligate        against       a current       fiscal    year    appro-
priation         for    payments      to be made in a succeeding                 year,     the
contract         representing         the obligation          must be made during              the
current        fiscal      year   to meet a bona fide               need of the fiscal            year
to be charged             (35 Comp. Gen. 319).

         The documents           prepared      by the college          as support      for     the
obligations          against       the fiscal     year     1969 appropriation            for
salaries        and expenses          of the Model Secondary             School    for     the
Deaf showed          that     about     $180,000    was for      fiscal     year   1970 sal-
aries)      expected        travel      expenses,    rental      of equipment,         and
contracts        for     certain      educational      projects.         Therefore       the
charges       to the fiscal           year    1969 appropriation          were not au-
thori    zed .

        An official        of the Department           of Health,    Education,      and
Welfare     (HEW) informed          us that     the college       had obligated      the
entire    amount       appropriated      for    salaries     and expenses       of the
Model Secondary           School    for  the Deaf for        fiscal   year     1970.
Thus,    when the unauthorized             obligations       against    the school’s
fiscal    year      1969 appropriation          are deobligated       and recorded
as obligations          against     the fiscal       year   1970 appropriation,
the fiscal       year     1970 appropriation           will  be overobligated.


         We discussed           this     matter     with     HEW officials,           and,    in a
letter      to us dated           May 10, 1971,          the Deputy         Assistant        Secre-
tary,      Budget,        agreed      that    the obligations          against        the fiscal
year     1969 appropriation                should     have been against             the appro-
priation         for    fiscal      year    1970.       He said     that     his office         had
been working            with    the college         and that      he believed           that    mea-
sures      had been taken            which      would    be sufficient           to prevent        a
similar        situation        from developing            in the future.             He said
also     that)       of the questioned            amount,      $50,000       was still        unex-
pended      and could          be deobligated           and that,      because        he consid-
ered the remaining                amount      to be relatively           small,       no further
action       seemed to be necessary.

        An official          of  the Office       of the Deputy          Assistant      Secre-
tary    advised      us    that    the unexpended        funds     of $50,000        were re-
lated     to contracts         for    educational      projects        awarded     in fiscal
year    1970.       She   said     that   work on these         projects        had been de-
layed     and that,       when the work started,              current       funds    could    be
used    to finance        it.


        Unliquidated        obligations        against      the fiscal         year     1969
appropriation,         which     do not represent           actual    liabilities,
should      be deobligated.           With regard        to the remaining             obliga-
tions     of about     $130,000       which    are not properly           chargeable           to
the fiscal        year   1969 appropriation,             the General         Accounting
Office      has no authority           to concur     that     no further         action      be
taken.       Therefore      HEW should       inform      the House and Senate                 Com-
mittees      on Appropriations            of these     unauthorized          obligations
and of the corrective              action    needed.


      On the basis       of our findings          at Gallaudet    College      and cer-
tain  supplementary         information     furnished      to us by officials        of
the HEW Audit       Agency,      we believe     that  the Audit    Agency      needs
to give   increased      attention       to the,adequacy       and effectiveness

B-164031 (1)

of the financial         management controls       of the five    special     in-
stitutions      for which HEW has budget and audit respsnsibil-
ities a These special          institutions     are Gallaudet     College,
Howard University,         and the Model Secondary        School for the
Deaf in Washington,         D.C.; American      Printing   House for the
Blind     in Louisville,     Kentucky;      and National   Technical      In-
stitute     for the Deaf in Rochester,          New York.

        Officials      of the HEW Audit Agency informed                us that,    al-
though the AgencyPs plans generally                 provided       for reviewing       at
4-year     intervals      the financial        management controls           over expen-
ditures      of Federal      funds by the s’pecial        institutions---the
same frequency         provided     for scheduling      reviews       at HEW instal-
lations    --such reviews        were not always made at the planned
frequency,        because the available          manpower was needed for other
audit work of greater            significance.

     According  to Audit Agency officials,        the dates of the
last Audit Agency review      and of the next scheduled     review of
each of the special  institutions      are as follows:

                                                                     Fiscal    year in
                                             Fiscal    year in          which next
                                                which last           audit planned
            Institution                          audited                  (note a)

American     Printing     House
  for the Ellind                                     1961                   1972
GalPaudet  College                                   1966                   I.973
Howard University                                    1969
Model Secondary     School
  for the Deaf                                                              1973
National  Technical    institute
  for the Deaf                                                              7.972

aThe Audit Agency has not schedul.ed                 the reviews      to be made in
 periods  beyond fiscal year 1973.

       The Audit Agency’s           report  on its 1966 revie%           at GalPaudet
College   disclosed that          the internal    controls over          timekeeping



and payroll     operations    were inadequate.     Although   the report
contained    recommendations      for improvements    in these areas,
the Audit Agency apparently          did not make a follow-up    review
to determine     whether   these recommendations      had been imple-
mented properly      by the college.

         College    officials       informed     us that,   during    fiscal    years
1968 and 1969, about 640 U.S. Treasury                    checks in amounts to-
taling     about $132,000 had been issued illegally                    in the names
of fictitious         or former employees           of the college       and that the
former chief        accountant        of the college      subsequently       had been
tried     and convicted        of arranging       for the issuance        and nego-
tiation       of certain      of these checks.         As of March 23, 1971,
the college        had recovered         about $68,400 of the $132,000           from
its bonding        agent and from the Internal             Revenue Service       for
taxes improperly           withheld      and the U.S. Secret Service           was at-
tempting        to collect      additional     funds from the financial          in-
stitutions        which had cashed improperly             endorsed     checks.

        The officials       informed    us also that the chief           accountant
had been responsible           for preparing       the payrolls,      receiving
and distributing        the payroll       checks,     and maintaining       the rec-
ords relating        to payroll      expenditures.       It appeared to us
that,     to prevent    such diversions         of funds in the future,           the
college’s      payroll    system should provide          for segregating        the
different      payroll    functions      among several      employees.

         We discussed    this matter       with Audit Agency officials           who
stated     that in 1969, after         learning     of the fund diversions,
the Audit Agency had made an unscheduled                   review    at the cal-
lege for the purpose of assisting               in the development         and in-
stallation      of a control      plan which would provide            for a proper
segregation       of payroll    functions.        They said that the Audit
Agency had developed          and submitted       informally      the control
plan to the college          but that a formal         report    on the review had
not been issued.

      College   officials  informed    us that the college                had used
the control   plan developed     by the Audit Agency for                 only a
a short time before replacing       it with one developed                 by a

.I   ’ .

           B-164031         (1)

           public       accounting       firm.      We reviewed          the operations        under    the
           new system         and found        the internal         controls     to be generally
           satisfactory.            Under      the new system          each of the functions            of
           authorizing,          processing,        distributing,            and recording       salary
           payments        is performed          by a different          employee.       Also payrolls
           are reconciled           with     independently          prepared     control     totals     and
           are approved          by supervisory           personnel        prior   to preparation
           of checks.


                    The Audit         Agencyss       plan   for   scheduling        reviews        of the
           management          controls      of the college          and other        special        institu-
           tions     at the same frequency                planned      for    scheduling         reviews      at
           HEW installations              needs some modification.                  We believe           that
           the Audit         Agency      should      give   greater      attention       to the adequacy
           and effectiveness              of the financial           management         controls         of the
           special       institutions           than to the HEW installations,                     because
           these     institutions           do not receive          continuing        departmental
           oversight         and guidance          to the same extent             as the HEW instal-

                         Audit     Agency      officials          agreed      that     there    probably       was a
               need to give            increased         audit      attention        to the special          institu-
               tions * They pointed                  out,      however,       that     the special       institu-
               tions ? expenditures                of Federal           funds     were a relatively            small
               portion         of s:he eotak         Federal        expenditures           for which     HEW has au-
               dit     responsibility.               They also          said    that     it was the established
               policy       of the Audit           Agency       to give priority              to program-type
               reviews         covering      large       expenditures           of Federal        funds    rather
               than      to administrative-type                   reviews.

                      Although       we perceive        of no objection         to the Audit            Agen-
               cy’s   system     of priorities,           we believe      that    greater       attention
               should     be given       to the financial           management      controls        of the
               five   special      institutions.            In our opinion,         the Audit         .4gency
               should    make reviews            of the expenditure         of Federal        fund.s by
               each of these         institutions         at sufficiently         frequent        intervals
               to be able      to ensure           that institution       personnel        are aware of


B-164031    (1)

all    applicable    regulations       and procedures        and that         prompt
action      is taken   to eliminate       any weaknesses        in the        internal
controls       of the institutions.

      Copies     of this   report      are being    sent     to the Senate        and
House Committees        on Appropriations        and, pursuant         to its     stand-
ing request,       to the Intergovernmental           Relations      Subcomittee
of the House Committee          on Government       Operations.           A copy is
also  being    sent   to the Assistant        Secretary,        Comptroller,        HEW.
In view    of the nature      of the contents         of this     report,      you may
wish  to furnish      a copy to the President            of Gallaudet        College.

                                           Sincerely      yours,

                                           Director,      Civil    Division

The Honorable
The Secretary       of   Health,
   Education,      and   Welfare