oversight

Internal Control System of the National Credit Union Administration

Published by the Government Accountability Office on 1977-02-28.

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

                           DOCUIENT ABSUOs
00308 - [A0891591 (Restricted)
[Internal Control System of the lational Credit Union
Administration]. February 28, 1977. 3 pp.
Report to Harvey J. Baine ITI, Assistant Administrator for
Fiscal Affairs, lational Credit Union Administration; by David
P. Sorando, Regional Manager, Field Operations Divt: Regional
Office (Washington).
Issue Area: accounting and Financial Reporting (2800).
Contact: Field Operations Div.: Regional Office (lashington).
Budget Functiont General Governaent: Central Fiscal Operations
    (803).
         -olAoiagt   th.e -Anual -audit o    h-t   ational Cseditlnio
Adainistration's financial statements, iaproveenats were
recosmended in the internal control system.
Findings/Conclusious: Controls over payments to contractors,
casa receipts and deposits, and voucher reviews could be
strengthened. The Administration had 18 active non-Federal
Government contracts totaling sore than S346,000 as of June 2#,
1976. Involces againat such contracts vere not subject to
approval b- the recipisnt prior to payment by the Division of
Financial management (DFI), and DFP personnel did not routinely
verify that the terns of the contract were met and that charges
do not exceed contract price. Daily receipts through the mail
are logged by the cash clerk, but sail personnel occasionally
open rail when the clerk is not present. Some receipts are not
recorded immediately. T-here is inadequate control and unclear
responsibility for cash receipts. In many cases, transaction
vouchers are not signed by approving officials. The
Adainistration's liability for security services provided have
not been properly recorded in the accounting records.
Recommendations: The Director of DPH should: insure effective
management control of disbursements to contractors, open the
sail only when the cash clerk is present to record the cash
receipts, and lock up and safeguard daily deposits. Personnel in
DFH should indicate voucher review by signature or initial to
substantiate the system of internal c'tntrol. (IRS)
            i ZMnot take available to public readingS 'i
0   .         UNITED STATES GENERAL ACCOUNTING OFFICE
                     WASHINGTON REGIONAL OFFICE
                             o
                             PTH PLOOR
                             FI
                          0o WEST BROAD 9TRET
                      FALLS CHURCH, VIRGINIAu2046,         EB 2 8 1977
Mr. Harvey J. Baine III
Assistant Administrator for Fiscal Affairs
National Credit Union Administration
2025 M Street, NW.
Washington, r.C.   20456
Dear Mr. Baine:
     As you know, we have recently completed our annual audit
of the National Credit Union Administration's financial
statements. In connection with that effort, we reviewed
selected aspects of the internal control system in effect.
     Based on our review, we found controls'over payments to
contractors, cash receipts and deposits, and voucher reviews
could be strengthened and recommended improvements as dis-
cussed below. In addition, we found the Administration's
lidbility for security services provided had not been prop,
erly recorded in the accounting records. We discussed these
points with the Director, Division of Financial Management
(DFM), and in all cases were informed that corrective action
wouid be taken.
Payments to contractors
      The Administration had 18 active non-Federal Government
contracts totaling in excess of $346,000 as of June 24, 1976.
These are contracts for products and services tc various
offices throughout the Administration. Officials in the
receiving offices are aware of contractual terms and contrac-
tor performance, and effective fund control requires that
 Iuch officials play a k-y role in processing contractor bill-
ings for payment.
     We found, however, that invoices against contracts are
not subject to approval by the recipient prior to payment by
DFM. DFM personnel do not routinely verify- that the terms
of the contract were met and that the charges do not exceed
the contract price before processing an invoice for payment.
This practice could result in erroneous payments to con-
tractors or payments for inadequate contractor performance.
     We recommended action be taken to insure effective
management control of disbursements to contractors. The
Director, DFM, also recognized the weaknesses in this system.
He informed us that a new procedure would be instituted that
would require prior approval of certifying contractor per-
formance by the cognizant official receiving the service
before any payments are made and would develop a control
within DFM to insure payments do not exceed contract price
ceilings.
Cash receipts
     Daily receipts through the mail are logged by the cash
clerk for DFM. Mailroom personnel occasionally open mail
when the clerk is not present, and some receipts are not
recorded immediately. The riek of theft or loss could be
minimized by requiring the presence of the cash clerk when
mail is opened.
      We recommended to the Director, DFM, that mail be opened
only when the cash clerk is present to record the cash
receipts. He agreed and informed us that corrective action
wou'.d be taken.
Daily deposits
     An accounting technician in DrM prepares daily cash
receipts for depcsit with the Adminiscration's bank ac-ount.
The deposits are taken to the DFM Director's office and
remain without safeguard in his secretary's outgoing mail box
until picked up by a messenger and taken to the bank. The
messenger signs for deposits but does not obtain a bank
receipt for funds deposited. These practices provide inade-
quate control and unclear responsibility for cash receipts,
and could result in the loss of cash receipts.
     We discussed this matter with the Director, DFM, and he
assured us that daily deposits would be locked in a bag and
safeguarded while awaiting messenger pickup and that the
messenger would carry daily deposits to the bank in the
locked bag.
Voucher review

     The Administration's procedures require documentary
evidence that the transaction voucher review phase of the
system of internal control is being practiced. Our review
of the Administration's accounting records showed that trans-
action vouchers in many cases were not signed by approving
officials. Personnel in DFM should indicate their reviews by

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signature or initial to substantiate the system of internal
control is being followed in DeM.
     We discussed this matter with the Director, DFM, and
he informed us he would emphasize this inpernal control
point to his staff.
Liability for security services
     Security services for the Administration's headquarters
office are provided by the General Services Administration
(GSA) under contract on a fiscal year basi3. The Administra-
tion recorded no liability :or fiscal year 1976 services at
yearend pending receipt of a bill from GSA. Accounting prin-
ciples require the recognition of liabilities in.financial
statements even when precise amounts are unknown, in order to
provide a proper matching of revenue and expenses. The secu-
rity service expense could be reasonably estimated and
recorded in the accounting records based up>-e periodic bill-
ings from GSA.
     As a result of our discussions with officials in DFM,
the accounting records were adjusted in fiscal year 1977
to reflect the security service liability of $9,20C for
fiscal year 1976, and the expense will be recognized as
incurred in the future.


     We appreciate the corrective actions promised and taken
by the Director, DFM. If you have any questions concerning
the matters discussed in this letter, please contact us.
Thank you for the courtesy and cooperation provided our staff
during the review.

                                    Sincerely,




                                   David P. Sorando
                                  .Regional Manager




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