oversight

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)

                         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
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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

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