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 2 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 3
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)