DOCUMENT ESURB 01969 - [A1252236] (Centralized Subsystem for Paying Cfficers in the Commissioned Corps of the Public Health Service]. FGNSD-77-23; B-164031. ay 3, 1977. 14 pp. Report to Joseph Califano, Secretary, Department of Health, Education, and elfare; by D. L. Scantlebury, Director, Financial and General anagement Studies Div. Issue Area: Personnel anagement ad Compensaticn (300). Contact, Financial and General Management Studies Div. Budget Functicn: General Government: Central Personnel Management (805). organization Concerned: Public Health Service. Authority: (P.L. 9°0-207; 37 U.S.C. 31'). (P.. 93-274; 37 U.S.C. 313(e)). 6 GAO 7. 6 GAO 15. 6 GAO 9. 6 GAO 4. The subsystem of the centraliz- payroll system for paying cfficers of the PHS Commissioned Crps as reviewed, and the adequacy of system controls that 'l-ck whether paychecks are issued correctly and promptly to Corps officers were evaluated. The actions taken on reccmsendations in audit reports issued since 196T on +he centralized payroll operation were noted. Fir.dings/Concl sions: REV needs to improve its payroll system .or the Corps to coFmply with standards established in the GAO Policy and Procedures Manual for Guidance of Federal Aencies. The internal controls over the Corps' payroll operations were inadequate because the operating procedures in the payroll manual weLe neither current nor complete; payroll data wert prccessed without adequate controls to insure accuracy and completeness; and duties were not properly separated to reduce opportunities for fraudulent or irregular acts. Recommendations: The Secretary of BEV should provide adequate internal conticls over operations; fully implement controls to prevent unauthorized payments under automatic check processing procedures; pay housing and other living allowances on the basis of current rates; collect debts due from Corps officers promptly; and evaluate the eligibility of officers to receive special retention bonuses on a case-by-case basis until appropriate elig'bility crAteria are establisbed- (SC) IiNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON. D.C. w VISEON O MIANWAL MAY 3 1977 6WHOOL MA"FAAGT 67 umm MAY 3 177 B-164031 Thne Honoraole The Secretary of Healtn Education, and welfare Dear r. Secretary: Tnis report is the third of a series on our review of tne Department of health, Education, and welfare's (Hb's) centralized payroll system. It presents our review of the subsystem for paying officers in tne Commissioned Corps of the Public health ervice, one of the uniformed services of the United States. Ine review was node at htW's Division of Central Payroll in ashington, D.C., nd the PuoDic healtn Service's Claims Office and its Commissioned erson- nel Operations Division, otn in ockville, Marylana. Tne Corps' payroll amounted to aout $1l1million in calendar year 1976 for approximately 7,800 active and in- active military officers. The Corps is organized along military lines, witn is officers nolding military ranK and receiving pay similar to their counterparts in te epart- ment of Defenre. Many Corps officers are pysicians ano dentists who are assigned t puolic health facilities in the Unitea States and U.S. health facilities in foreign countries. Section 112(o) of tne udget and Accounting Procedures Act of 1l50 provides for executive agencies' accounting systems to oe approved Dy the Comptroller General. hEn's statement ot principles and standards for its accounting systems was approved in April 1970, H plans to submit the centralized payroll system design for approval in June 1979. AS a part of our review, we evaluatea tne adequacy of system controls to make sure that paychecks were Deing issued correctly and promptly to Corps officers. e also examined actions y eEn on recommendations in audit reports issued since 1969 on the centralizeu payroll operation. The recommendations were made in reports by us, h's Audit Agency, and a special interagency payroll review panel con- vened y EW, FGJD-77-23 B-164031 As discussed in detail in the following sections of tnis report, HE needs to improve its payroll system for the Corps to comply with standards established in our Policy and Proce- dures Manual for Guidance of Federal Agencies. We recommend that you: --Provide adequate internal controls over payroll opera- tions to help insure nat only authorized and accurate paymernts are made. -- Fully implement controls to prevent unauthorized pay- ments under automatic check processing procedures. -- Pay housing and other living allowar'ns on the basis of current rates. -- Collect debts due from Corps officers promptly. -- Evaluate eligibility of officers to receive special retention bonuses on a case-by-case basis until ap- propriate eligibility criteria is established. we are also recommending that you have the Assistant Secretary for Management and Budget and the Assistant Secre- tary for ealth monitor the implementation of our recommenda- tions. NtED T IMPROVE INTErNAL CONTROLS OVER PAYROLL OPERATIONS HEw's internal controls over the Corps' payroll opera- tion were inadequate because: -- The operating procedures in the payroll manual were neither current nor complete, -- Payroll data was processed without adequate control'- to insure its accuracy and completeness. -- Duties were not properly separated to reduce opportu- nities for fraudulent or irregular acts. Operating procedures need to be formalized Our Policy and Procedures Manual for Guidance of Federal Agencies (6 GAO 7) states: 2 B-164031 "The publication of agency policies and pri- cedures in manual form and the proper mainte- nance thereof are necessary to guide the individuals responsible for carrying out the day-to-day activities in a uniform and syste- matic manner. A properly prepared and cur- rently maintained policy and procedures manual serves as a guide to which the actual op,-r- tions may be compared to detect epartures from prescribed requirements." Central payroll needed to update its procedures manual for the Corps' payroll to comply with our standards. Speci- fically: -- The manual was dated ugust 1969 and numerous changes occurring since then have not been incorporated. For example, a form for 18 types of payroll actions was discontinued in 1974 but the manual did not show this change. --Procedures for processing pay error notices were not included. We estimate that the Corps' payroll re- ceives over 1,200 such notices annually. -- Guidance was not included for the circumstances under which paychecks could be processed outside the auto- mated payroll system. We noted that, during a 2-month period, about 60 paychecks amounting to about $1.4 million were processed outside the system. We did not establish the extent to which the above con- ditions contributed to payroll errors. Generally, however, the absence of written procedures and guidance for payroll operations creates an environment where errors can occur and remain undetected for extended periods. Moreover, the condition complicates, and sometimes even precludes, iden- tifying the causes of errors, because the correct way to process transactions is not documented. Furthermore, it negates the usefulness of the manual as an effective on- the-job Lraining aid. Gre:~ter control needed over do, _ents affecting emloyees pay Our Policy and Procedures Manual for Guidance of Fed- eral Agencies (6 GAO 15) requires applying systematic pro- cedures to control documents containing information entered 3 B-164031 into a computerized system t calculate employees' ray. Such control procedures are necessary to reduce the potential for -- loss or addition of documents during processing and -- undetecteA errors or irregularities in data entered into the automated payroll system. we noted that the Corps' payroll did not irnclude record count controls (i.e., a comparison of the unumber of documents submitted for processing with the number actually processed). For example, Corps payroll used a private contractor to key- punch information from documents into machine-readable form and, although the documents were counted before being sent to the contractor, they were not counced when returned. As a result, there are no assurances that documents affecting employees' pay nave not een lost or added during processing. The Corps' payroll operatio- also did not ue predeter- mined control totals, which normally supplement tne control provided by record counts. In using this control, arithmetic totals are taken for selectee data on input docuIents, such as hours worked and pay rates, before processing is started. During computer processing, corresponding totals are indepen- dently accumulated by the computer for comparison with the predetermined totals. If the totals are not equal, payroll officials (1) are immediately alerted that data was either not processed or processed incorrectly and (2) can take cor- rective action before erroneous payments are made. Since 1957 we nave instructed agencies to use predeter- mined control totals in automated payroll systems to control the accuracy ot input for hours worked and rates of pay. Such controls would be particularly useful t detect in- stances where quantitative pay data is improperly recorded. For example, predetermined control totals could have readily detecced instances in fiscal year 1976 where leave balances for commissioned officers were improperly recorded. ith- out the controls, this problem was not detected until em- ployees complained about their recorded leave Lalances. Predetermined control totals would be extremely useful for monitoring the accuracy of the services of the keypunch contractors. For example, contractors keypunch data to correct prior errors in pay records. ayroll clerks often use a special color to designate negative amounts on docu- ments. According to central payroll officials, the con- tractor often does not record such amounts correctly and, 4 B-164031 as a result, the original error is compounded. The use of predetermined control totals woald detect such errors in time for central payroll to take corrective action to pre- vent resultant erroneous pments. The effectiveness of a payroll system is dependent on using complete and accurate data. Because record counts and predetermined totals are sound methods of controlling data inputs, we believe HEW should include these controls in the Corps' payroll operation. Need for separation ofpayrollduties Our Policy ar.d Procedures Manual for Guidance of Federal Agencies (6 GAO 9) states: "The separation of duties relating to pay, leave, and allowances should assure that no one person performs all phases of a transaction from beginning to end without the intervention of some other person or persons who affcrd a cross-check. Such separation of duties pro- vides a check on the accuracy of the work and substantially reduces the opportunity to com- mit fraudulent or other irregular acts." The Corps' organization of its payroll operation did not provide adequate separation of duties. Payroll clerks pro- cessed changes to employees pay based on data in personnel orders received from the Corps personnel office. Each clerk handled all orders for an assigned group of officers without verification or review by others. For example, when orders were received, the assigned payroll clerk: --Determined pay, allowance, and withholding information needed for pay computaLion. --Prepared source documents for keypunching the data into machine-readable form. -- Reviewed error messages from computer processing and prepared source documents to correct errors. -- Maintained records indicating whether the data on source documents, including those correcting errors, was processed correctly. Allowing a payroll clerk to do all of the above steps would permit a payroll clerk to (1) add a fictitious employee 5 B-164031 to the payroll, (2) process a lump sum leave payment differ- ing from the entitled amount, or (3) pay employees allowances to which they are not entitled. Conclusions and recommendations A large automated payroll system primarily relies on its internal control features to insure that entitled em- ployees are paid accurately and promptly. Central payroll's system of control, however, cannot be relied upon because it lacKs adequate controls over payroll documents and proper separation of duties. As a result, the potential exists that unauthorized or inaccurate payments could be made and not - detected. Furthermore, because the system has not been adequately documented, it is difficult to determine the correct procedures and methods for performing payroll opeL- tions. Therefore, we recommend that you instruct the Director, Division of Central Payroll, to: -- Develop clear and comprehensive procedures to cover all payroll activities and incorporate such proce- dures into the payroll manual. -- Use record counts and predetermined control totals to help insure -hat documents are processed com- pletely and accurately. -- Reassign payroll duties so that one employee is not responsible for both (1) initiating payroll deta input and (2) reviewing and handling the records related to such transactions. A4 ency comments Central payroll officials agreed with our findings and indicated that they would implement our recommendations, except the one related to predetermined control totals. The Director, Division of Central Payroll, said that additional internal review might serve his division's control require- ments better. We recognize the advantages of internal reviews, but believe that predetermined control totals are a more econom- ical method of disclosing errors in quantitative data. Fur- ther, the predetermined control totals would alert officials to errors soon after they occur, while internal reviews 6 B-164031 would not alert management as quickly. Therefore, we believe that additional internal reviews are not an adequate substi- tute for using predetermined control totals that we are pro- posing. NEED TO FULLY IMPLEMENT CONTROLS OVER AUTOMATIC PAYCHECK PROCESSING At the beginning of our review, the Corps was using an exception-type system to pay its fficers. Paychecks were automatically issued to each active officer for a full month's pay, and special actions were required to keep such checks from being ssued to officers not entitled to pay. The Corps had devised controls to alert payroll personnel when the special action was required. The controls, however, were not fully implemented at the completion of our review and, as a result, paychecks could have been issued to offi- cers not entitled to pay. In our prior report on HEW's payroll system (-164031, Jan. 17, 1969), we discussed the disadvantages of using n exception-type payroll system. The report discussed the system's potential to issue checks to employees not entitled to pay. Examples of overpayments attributable to the sys- tem were discussed, including cases where five inactive Corps officers received paychecks for periods when they were not entitled to pay. The paychecks, amounting to $7,411, were cashed by the officers. We suggested that EW abandon the exception-tvPe system and adopt a system requiring positive input as basis for issuing paychecks. In responding to our report, HEW agreed and said that the system would be changed to reauire a time and attendance report as the basis for issuing paychecks. This requirement for issuing paychecks was also incorporated into chapter 29 of the Corps' personnel manual. In our latest review, however, we noted that monthly checks were still being issued automatically to Corps of- ficers. HEW officials said the payroll system was changed to require positive inputs from time and attendance reports before paychecks could be issued, but that the Corps, like other military services, did not always have timekeepers at duty stations, especially those in remote locations. Time and attendance reports were said to be frequently late, which would have resulted in late deliveries of pay- checks to officers. According to HEW officials, they de- cided to bypass the control requiring positive inputs 7 d-164031 trom time and attendance reports and to issue checks auto- matically. There are circumstances, particularly in the military services, where difficulty in obtaining positive time and attendance reports dictates use of exception-type pay sys- tems. When this happens, we encourage the military services to adopt controls alerting officials to instances where pay- checks were processed for personnel not entitled to pay. During our review, HEW officials said such controls were being implemented in the Corps' payroll operations. As ex- plained by them, a principal feature of the controls was to match listings of officers to receive checks against list- ings of active-duty officers maintained by the Corps. HEW officials said the new controls identified officers not en- titled to paychecks and stopped delivery of checks when ap- propriate. We did not examine the new controls because their im- plementation began after our fieldworK was completed. We noted, however, that HEW had not -documented the new control procedures in the Corps' payroll manual, -- designated te individuals responsiole for control procedures, or -- established procedures for communicating nonentitle- ment intormation between payroll and personnel. Conclusions and recommendations HEW should formalize the controls it developed to estab- lish whether commissioned officers are entitled to the pay- checks prepared for them each pay period, providing the con- trols are adequate for the intended purpose. This would document that portion of tne payroll system and would insure that personnel were familiar with the various control proce- dures they are responsible for. Therefore, we recommend that you instruct the Director, Division of Central Payroll, in coordination with the Di- rector, Commissioned Personnel Operations Division, to: -- Make sure procedures are adequate to prevent Corps officers from receiving paychecks to which they are not entitled, and if so, incorporate these procedures into the manual. B-164031 -- Assign responsibility for the control procedures to appropriate personnel and monitor performance as necessary to insure that payments are made only to entitled commissioned officers. Agency comments Central payr 11 officials generally agreed with our findings. NEED TO USE CURRENT RATES FOR HOUSING AND OTHER LIVING ALLOWANCES The Corps paid its officers housing and cost-of-living allowances totaling about $900,000 in calendar year 1976. Our Policy and Procedures Manual for Guidance of Federal Agencies (6 GAO 4) states that payroll systems should promptly pay allowances to all entitled employees, but HEW did not have procedures to promptly pay revised amounts for housing and cost-of-living. As a result, some officers entitled to the allowances have complained about receiving incorrect payments. HEA pays the allowances to about 235 officers stationed in certain foreiqn countries, Alaska and Hawaii, and U.S. possessions where living expenses and housing costs are greater than those in the continental United State_. The allowances are based on rates set by the Per Diem Travel and Transportation Allowance Committee, composed of officials of the military services, including the Corps. Separate rates are set for each location where allowances are paid, and such rates are revised periodically to consider changes in living expenses and housing costs. The committee notifies personnel offices of the military services whenever it adjusts allowance rates. HEW's central payroll receives copies of the notifications which specify the date Federal agencies should start to pay the new rates. The revised rates are eventually published by the committee in the Joint Travel Regulations, but these regulations are often not changed to include the revised rates until over a month after effective dates f revisions. Central Fayroll did no je the revised rates for pay purposes until after recei\. , the Jcint Travel Regulations that contained the revised rates. Sometimes central payroll did not receive the revised regulations until 2 months after they were published, resulting in officers being underpaid 9 B-164031 for allowances for periods ranging up to 3 months after rates were officially changed. Further, in the event of reductions in the allowance rates, overpayments to employees would have re- sulted. Such a long delay in paying revised allowances has been an inconvenience to officers entitled to them and has required additional effort to retroactively adjust pay over long periods. Central payroll's manual did not have instructions for allowances to be paid on the basis of rates in the committee's initial notifications. Central payroll officials explained that, since they had not been instructed as to the purpose of the committee's notifications, they simply disregarded them. Conclusion and rcommendations The Per Diem Travel and Transportation Committee's ini- tial notifications provide HEW's central payroll with cur- rent information on rates authorized for aying housing and cost-of-living allowances. Because of this, we believe the rates in the notification, should be used to pay such allow- ances and recommend that you instruct the Director, Division of Central Payroll, to: -- Make allowance payments based on the initial notifi- cation of a rate change. -- Revise the ayroll manual to provide specific guidance on use of rates in initial notifications for pay pur- poses. Agency comments Central payroll officials agreed with our findings. NEED TO BILL OFFICERS CORRECTLY FOR AMOUNTS OWED HEW Physicians and dentists in the Corps may receive Government-subsidized training and bonus pay / primarily as a recruiting and etentioi: incentive. As a condition for such benefits, they must sign agreements to remain on 1/The bonuses are paid under the variable incentive and con- tinuation pay programs. For a more detailed discussion of these programs, see pages 12 and 13. 10 B-164031 active duty for specified periods and to repay a portion of the training subsidy or bonus pay if they leave active duty before the time agreed upon. etween June 1975 and October 1976, the amount owed by inactive commissioned officers for repayment of subsidies and bonus pay increased from about 464,000 to about $357,00. e believe central payroll's failure to follrw established HEW procedures for handling debts of inactive officers contributed considerably to this increase. The U.S. Public Health Service Claims Office is re- sponsible for collecting inactive officers' indebtedness. dEW procedures provide for their debts to be offset by any pay due the officers at the time they leave active duty, including amounts for accrued salaries, allowances, and leave. Under these procedures, central payroll should notify the claims office of the amounts to be offset. How- ever, central payroll did not provide the claims office with such information on inactive officers who were in- deDted to HEW. we analyzed claims and pay records for 18 inactive officers indebted to HEW. Our analysis disclosed that: -- 14 of the inactive officers were billed erroneously. The officers were asked to pay a total of $17,670 which primarily represented the amount of recruiting and retention bonus they were required to repay. These officers, however, had accrued annual leave worth $7,066 for which they had not been paid, and tnerefore, they should have been illed for only $10,604. -- 6 officers paid the amounts erroneously billed, re- sulting in overpayments of $2,869 to HEW. The over- payments had not been -efunded 1 year later. --6 officers made no payments on the amounts erroneously oilled and were later sent corrected bills. -- 2 officers failed to respond to the erroneous bill- ings, and 1 year later they had not been sent cor- rected bills. we believe the billing errors were caused because pay- roll clerks had not been instructed to include accrued an- nual leave in the amounts reported to the claims office. Also, the payroll clerks' supervisor had not reviewed 11 B-164031 information furnished to the claims ffice and central pay- roll's procedures manual did not have instructions for re- porting tne indebtedness information. Conclusions and recommendations The procedures HEW established to compute amounts owed by inactive officers are basically sound. These procedures provide for offsetting accrued pay, allowances, and leave against debts of inactive officers. If followed, we believe they would result in accurate billings and, thus, insure more timely collections. Therefore, we recommend that you instruct the Director, Division of Central Payroll, to: -- Insure that payroll clerks are adequately supervised and instructed on proper procedures for reporting indebtedness information to the claims office and in- clude these procedures in central payroll's manual. -- Review indebtedness information already reported to the claims office and make revisions as necessary. Agency comments HEW officials generally agreed with our recommendations and said that existing differences between reported and actual amounts owed by commissioned officers would bte re- solved. NEED TO EVALUATE BASIS FOR PROVIDING CERTAIN DOCTORS AND DENTISTS WITH BONUS PAY Physicians and dentists can be paid bonuses for rain- ing in the Corps, provided they are in a critically short speciality that hs been so designated by tne Secretary of HEW. A critical shortage is defined as a category in which the supply of qualified personnel is, or is projected to be, inadequate. we reported in ugust 1976 that tne Secretary had not designated such specialities and we recommended that action be taken to do so. Although action had not been com- pleted on our recommendations, HEW started paying bonuses to over 150 additional physicians and dentists between August 1976 and January 1977, without any apparent deter- mination that they were serving in a critical speciality. In calendar year 1976 HEw paid approximately $23 mil- lion in bonuses to about 2,000 Corps physicians and dentists, including the 150 additional doctors and dentists. The 12 B-164031 bonuses are authorized under two programs intended to enhance recruitment and retention of physicians and dentists--the continuation pay program authorized by Public Law 90-207 (37 U.S.C. 311) and the variable incentive program authorized by Public Law 93-274 (37 U.S.C. 313 (e)). The latter program was authorized as a replacement for the continuation program; thus, the medical officers are not entitled to receive pay under both programs simultaneously. The need for the Secretary of HEW to designate the critically short specialities was discussed in our report dated August 30, 1976, "Recruiting and Retaining Federal Physicians and Dentists: Problems, Progress, and Actions Needed for the Future (RD-76-162)." We pointed out that authorizing legislation and HEW's regulations required the Secretary to designate specialities wich are critically short in the Commissioned Corps. In the 1976 report, we also pointed out a bonus becomes an income supplement under HEW's practice of paying it to all physicians and dentists, rather than as ircentiv? pay to recruit and retain those in critically short specialities. As HEW's practice appeared contrary to congressional intent, we recommended that the Secretary of HEW identify and ade- quately document the critical specialities of physicians and dentists to receive bonuses under the two income- increasing programs. We also recommended that legislative authority be sought for payments of bonuses to physicians and dentists in noncritical specialities if the Secretary decides that such pyments would be needed and desirable. As of January 1977, HETI had not completed action on these recommendations but was continuing to pay the bonus to physicians and dentists that met other eligibility re- quiremerts under the programs, such as being in a specified grade and having completed a specified amount of service. As a result, over 150 additional physicians and dentists started receiving continuation and variable incentive pay between August 1976 and January 1977 without regard to the requirement that they serve in a critical speciality. Conclusions and recommendations We recognize tt, before action can be completed on our previous recommenJation to identify and document specialities critical to the Corps' operations, decisions will be required on granting bonus pay to additional phy- sicians and dentists to retain them. We believe that new bonus payments should be minimized and done only on a 13 B-164031 case-by-case basis, applying criteria for critical speciality categories that are fully consistent 'tth the bonus programs' authorizing legislation. This apparently was not done in the cases where cortinr:ation and variable incentive pay was awarded from August 197C to January 1977. we believe that HEW should minimize the awarding of Donus pay until it has fully met the legal requirements for designating the dental and medical specialities that are critical to the Corps' operations. Therefore, we recommend that you: -- Insure that or prior recommendation for identifying and documenting critical specialities is completed as soon as possible. -- ntil action on our prior reco,.andation is completed, award additional bonus pay only where, absolutely necessary to retain medical and dental personnel, and document on a case-by-case basis the reasons for con- sidering an individual to nave a critical speciality. As you know, section 236 of the Legislative Reeraaniza- cion Act cf 1970 requires the head of a ederal agency to submit a written statement on actions taken on our recommen- dations to the House Committee on Government Operations and the Senate Committee on Governmental Affairs not later than 60 days after the date of the report and to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of the report. we are sending copies of this report to the above Com- mittees; tne Director, Division of Central Payroll; and the Assistant Inspector General for Audit. e are also sending a copy to Congressman Mario Biaggi by agreement, because of his interest in hEw's payroll system. we wish to express our appreciation for the courtesies and cooperation extended to our representatives. We would appreciate your comments ana advice on any actions taken or planned on the matters discussed in this report. Sincerel.yours, D. L. Scantlebury Director 14
Centralized Subsystem for Paying Officers in the Commissioned Corps of the Public Health Service
Published by the Government Accountability Office on 1977-05-03.
Below is a raw (and likely hideous) rendition of the original report. (PDF)