Serious Extent of Mismanagement Within the United States National Student Association

Published by the Government Accountability Office on 1971-06-22.

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


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

                                                                                       - >gt$

    Dear Mr.      White:                                                               1111111111111

             This report       is in reply        to your request       dated Novem-                       ,+I3
    ber 13, 1970, which transmitted                   a letter     and information        sent>!)y
    to you by Mr. Thomas R. Howell,                   Sr., president       of Howell Elec-
    tronics,       Incorporated.           In his letter       to you, Mr. Howell indi-
    cated that,         because of the serious            extent    of mismanagement
    within      the United       States National         Student    Association,        he was
    concerned        with what may be happening              to'Federa1      grant    funds
    awarded to the Association.                                 I
             We contacted        17 Federal       departments      and agencies       which,
    we believed,         might have awarded contracts               or grants      to the As-
    sociation,        to obtain       information       on the amount of Federal            funds
    involved       and to identify           those contracts       and grants      that were
    active      during     the period        July 1, 1968, through         December 31,
    1970.       Our comments relative             to the contracts       and grants       that
    were active         during    that period       follow.


            The Office     of Education,        Department     of Health,     Education,
    and Welfare;       the Department        of State;     and the Office       of Eco-
    nomic Opportunity         were the only departments             and agency of those
    contacted     that had active         contracts     or grants      with the Associa-
    tion during      the period      July 1, 1968, through           December 31, 1970.
    Officials     of these departments           and agency (hereinafter           referred
    to as agencies)        informed     us that they had not awarded any addi-
    tional    grants     or contracts      to the Association          as of June 1,
    1971.     The Department        of State also had awarded a grant                to the
    United    States     National     Student    Travel    Association,     Inc.,      a sep-
    arate organization          which,    however,    had Association       officers
    serving    on its board of directors.               The most recent       of these
    contracts     and grants      was awarded in June 1968.

           Our review    of the files   and other information         made avail-
    able to us by the three Federal         agencies     showed that the con-
    tracts    and grants   awarded totaled     $483,840.      Details   of the
    contracts    and grants    are as follows.

                                   50TI-i ANNIVERSARY                1921 - 1971

Department     of State:
      Grants :
            Number             SCC-40903    (United       States      National      Stu-
                                 dent Association)
              Period           September    1, 1967,        to August       31, 1968
              Amount           $14,578
              Purpose          To assist    the Association             in administer-
                                  ing a continuing          educational        project
                                  for  five   Algerian        students      studying
                                  in the United        States.

              Number          SCC-40985       (United      States      National         Stu-
                                dent Association-Education                     Travel,
                                 Inc. 9
              Period          March    15 to December           31, 1968
              Amount          $100,205
              Purpose         To enable      the Association             to carry         out
                                 a project      providing         for    eight      groups
                                of selected         African       youths       and stu-
                                dent    leaders       to observe         recent       develop-
                                ments      in contemporary            kknerican       activi-

 hame subsequently         changed     to   United     States     National        Student
 Travel  Association,         Inc.

        Department     of State  records      showed that      the Department
intended      to use the results      obtained       under  these   grants     to           as-
sist    it in carrying     out the U.S.       cultural     exchange    program.

Off ice of Economic
            Number             B89-4248
             Period            September      5, 1967,     to      September       5,   1968
            Amount             $63,196
             Purpose           Demonstration       program        for   selection        and
                                  training      of a pilot        group    of Volun-
                                  teers    in Service      to     America      organizers.

B-164031          (1)

         Grants      :
                  Number           CG-8138
                  Period           April    15, 1968,     to April   15, 1969 (Sus-
                                      pended     on February    13, 1969)
              Amount               $150,996
              Purpose              To seek new ways of expanding           the ef-
                                      forts    of Pennsylvania     college    students
                                      in the war on poverty.

                  Number           CG-8289
                  Period           June 15,      1968,      to   June     14,   1969
                  Amount           $67,355
                  Purpose          Technical         assistance    grant     to provide
                                      tutorial        and community      education       as-
                                      sistance        to community      action     agencies.

        Office     of Economic      Opportunity           records       showed that     the
results      obtained      under  these    grants         and contract         were to be
used,    in general,        by the Office       of       Economic       Opportunity     to
enhance       the effectiveness        of certain           antipoverty        prcgrams     for
which    it was responsible.

Office       of Education:
               Number              OEC-2-7-062955-2839
               Period              February      1, 1967,       to February     1, 1969
               Amount              $87,510
               Purpose             Provide     for     the development      of reliable
                                      methods      for     the evaluation     of under-
                                      graduate       curriculum      and instruction.

      We were informed          by Office       of Education      officials        that
the results       obtained     under    this    contract    were to be used to
demonstrate       to officials       of institutions         of higher       education
the effectiveness          and potential        value    of student       research
into   the administration          of such institutions.


           Although  the       Office   of Economic         Opportunity         had suspended
one      of the grants         it had   made to the         Association         because   the

B-164031      (1)

project       was not being          carried       out as intended,              officials           of
the three        agencies       stated      that    they were satisfied,                    in gen-
eral,     with     the performance            of both        the Association             and the
United      States     National        Student      Travel        Association,            Inc.       The
agencies,        however,       experienced         difficulty          in obtaining             re-
quired      financial       information          and in effecting              recoveries            of
funds     arising      from audit          exceptions          taken    by Federal            audi-

         The grants      and contracts          that    we reviewed     provided,      in
general,       for  reporting        by the grantees         or contractors        of
amounts      expended      and progress         made toward       the accomplishment
of grant       or contract        objectives.         In addition,       the contracts
provided       that   the Federal          Government     have access       to,   and the
right     to examine,         documents       of the contractor        or any of its
subcontractors          pertinent        to the contract.


        A Department          of State        official        told     us that     the perfor-
mance of both           the Association             and the United          States     National
Student      Travel       Association,          Inc.,      had been satisfactory              and
that    the program          work carried           out under        the grants       had been
done very        well     by both organizations.                   The official        said,
however,       that     some    financial         reporting        problemslhad        arisen
with    respect       to three        of the grants--SCC-40725,                    see-40903,
and SCC-40985.             According        to the official,             grant     SCC-40985
 (see p* 2) was the last                 grant      made by the Department               to either
of the organizations.

       An audit   covering     five    grants      to the Association                        was per-
formed   by Department       of State     auditors      during   June                    1968,     and
a report    was issued     in February        1969.     The auditors                      reported
that   a charge   of $319.50       under    grant    SCC-40903     had                   not been

1Although   this   grant     was not               active      at the time    of our            review,
 we are discussing       it herein                 because       of the Department’s                prob-
 lems in obtaining       refunds.


allowable       and that     $2,496      (representing          unexpended      funds     and
an audit      exception      to certain        expenditures)          should    have been
refunded      to the Government           under     grant     SCC-40725      which     had
been completed          at the time of the audit.                  The audit      report
stated    that,     except     for    these    items,     the Association’s            records
had been reliable          and that        compliance       with    the financial         pro-
visions     of the grants          had been satisfactory,

         Correspondence            in the grant         file      showed      that     the Depart-
ment had advised             the Association’s               comptroller         on numerous
occasions       that     the Association            was to refund             the amounts         cited
in the audit          report       and to submit           the final        financial        report
which      was due in October             1968.       In correspondence                in Septem-
ber 1969,       the Associ-ation9s              executive         vice    president        informed
the Department           that      the Association’s              comptroller          had resigned
in September          on 1 hour’s         notice      and that         the Association            had
been unaware          of the Department”s               earlier        requests.          The execu-
tive     vice   president          stated     that    the comptroller              had not kept
the Association’s              financial        accounts         up to date,          and he re-
quested       a month      to put the accounts                 in od,Ller and to assess               the
situation       referred         to by the Department.                   This request          was

         In December     1969 the Association’s                  attorneys,       in respond-
ing to a departmental            follow-up         letter,       stated      that   it had
become apparent        that    the Association              had extensive         financial
obligations,        of which     its    officials          had been unaware,            and
that     the situation      had created           a serious        financial      crisis
which      had to be handled         on a priority            basis.

      Correspondence             from    the attorneys          during      the period        Decem-
ber 1969 through           July      3970 recounted          the AssociationDs            finan-
cial  difficulties            and its      efforts     to liquidate           debts    of more
than half        a million       dollars       by paying       off    its   creditors       on a
pro rata      basis.       The attorneys           requested        that    the Association
be given       the opportunity           to make one payment              in settlement          of
the Department’s           claim      and expressed          a willingness           to discuss
the matter         in detail.

B-164031       (1)

       A meeting       was held between          officials       of the Department
and an attorney          for   the Association           in September     1970.    Addi -
tional    contacts       were made with        the attorney         in October  1970
and January        1971.     At the completion             of our work    in May 1971,
no agreement        had been reached         regarding        the settlement    of
these   grants.

          Information           in the Department’s                   files      indicated          that     it
was notified             in December           1969 that          the United           States      National
Student         Travel       Association,            Inc.,     had filed           a voluntary            bank-
ruptcy        petition        with      the District           Court        of the United             States
for     the Southern            District         of New York.               A Department            audit       re-
port      stated       that     a representative               of the Department’s                    audit
staff       had attempted            -to audit         10 grants          which      had been entered
into      with      the United          States      National          Student        Travel       Associa-
tion,       Inc.,      between        1965 and 1968;              but,      because       of the unavail-
ability         of records          and documents,             the auditor             had been unable
to complete            the audit.            The report           stated       further        that      the
United        States       National         Student        Travel        A qsociation,          Inc.,       had
filed       all     required        reports        and had refunded                the unexpended
funds       on all       of these         grants       except       SCC-40985.

        Information          in the grant          file    showed that      the Department
had decided          not to pursue        its      contingent       claim,    estimated      at
$4,172,       for    the unexpended         balance        under    grant   SCC-40985      be-
cause     its     auditors       could  not locate          records      to establish      a
claim     and because          the performance           of the United        States    Na-
tional      Travel       Qsociation,         Inc.,      had been satisfactory,


       An Office      of Economic         Opportunity        official       informed        us
that   the Association’s           performance        under      grant     CG-8138     had
been determined         to be unsatisfactory              and that       the grant       was
suspended     in February         1969 and about          $42,000      of expended          funds
were recovered.           The official        said    that     the Office        of Economic
Opportunity      also     reviewed      grant     CG-8289      to determine         whether
there    were any major         problems      with    the Association’s             perfor-
mance under      that     grant    but that       no problems         had been found.


       With respect          to our inquiry           as to the Xssociation’s           per-
formance     under     the contract            B89-4248,    an Office       of Economic
Opportunity      official        said      that    he could   not recall       the con-
tract     nor locate       anyone     still      with    the agency    who was familiar
with   the contract.            Our review         of the contract       files    revealed
no information         relating       to the Association’s            performance       un-
der the contract.

         An Office       of Economic         Opportunity            internal       audit      report
issued     in February         1969 on a limited               audit       of grants        CG-8138
and CG-8289         and a report          issued      in March 1969 on a supple-
mental     audit       of these     two grants          stated        that     the auditors          had
not considered           the Association’s              control         over     Federal      funds
to be adequate           and that       the Association               had expended          funds     ap-
plicable      to various         programs        without        regard       to the regulations
on the restrictive            use of the funds.                   The reports          questioned
expenditures           of about     $6,0dO       under     these        grants.        The Defense
Contract      Audit      Agency,      in its      report       dated       August      1, 1969,       on
the final        audit     of CG-81138,        requested          :17 the Office          of Eco-
nomic     Opportunity,         questioned         expenditures             of about       $39,000,
including        an expenditure           of about        $1,100        previously        questioned
by Office        of Economic        Opportunity           auditors.

         We were informed             by an Office          of Economic         Opportunity
internal       auditor       that,      of the total           amount    of about       $44,000
questioned        by the Defense              Contract      Audit     Agency     and Office        of
Economic       Opportunity           auditors,        all   but about        $14,000     had been
either      recovered        or otherwise           resolved.         An Office       of Economic
Opportunity         internal         audit     agency      official      informed       us also
that     his office        would      follow      up on the Office            of Economic         Op-
portunityvs         actions        to recover          the remaining         amounts      questioned.

         According      to an Office         of Economic       Opportunity         internal
auditor,        a final   audit      of grant       CG-8289   had not been requested,
but an audit          of contract        B89-4248     by the Defense         Contract         Au-
dit    Agency      had been requested.             He added that         the latest         infor-
mation      in the files        indicated       that    the Defense        Contract       Audit
Agency      had been waiting           for   the Association         to submit         the final
voucher       for payment       before     beginning       the audit.



        Office    of Education     officials       informed      us that the Asso-
ciation's      performance     under the contract            was considered      satis-
factory      and that its final        report    was accepted         by the Office
of Education        in September 1970.          Officials      informed     us also
that the Association          had not submitted           its final     voucher   for
payment and that a final           audit,     if one were made, would not
be initiated        until  the Association         submitted       the voucher.

       The three agencies    and other parties               mentioned   in this
report   have not been-given    an opportunity               to formally   examine
and comment on this report.

                                           Sincerely      yours,

                                           Comptroller   General
                                           of the United   States

The Honorable  Richard          C. White
House of Representatives