oversight

Weaknesses in the Department of Housing and Urban Development's Financial Management System

Published by the Government Accountability Office on 1977-12-28.

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

                              DOCOUBEN   Bsa5iA
04568 - [B3634669]
Iseknesses in t;.e Department of Housing and ;rban Developsent's
Financial ,ana*aesmnt     System.   P'liSD-77-75; B-!93363,   December 28,
19770 2 pp. + enclosure 5       pp.).
Report to Secretary, Departmont of Housing and Urban
Develo;sent;   by D. L.
                      Sc.atlebury, Director, Financial aind
General management Stud.es Div.
Issue Area: Accounting an Financial
                             1          Reporting (2800);
    Acconnting and FinaAcial Baporting: lI-:tsfnal Contruls over
    Receipts ved Disxsburs eats (2810).
Contact. Yin&ucial and General Eanageaent Studies Div.
Butget PFuction: fliscellaneous: Financial Eanagiment and
    Infor'ation Systems (1002).
luthority: Housing Act of t964, as amended, sec, 3'i2. 31 O.S.C,
    66a. 7 GAO 27.6. 7 6aO 11.1. 7 GAO 12.2. 7 9AC 25.6. 7 GAO
    24.1. 7 GAP 17. BUD Handbook (1911.1A,         pa-a.   1.3,   2.'!).   HOD
    a3ndbook (550.3).
          k questionnaire survey was conducted to evalr.ate the
adequacy of procedures And ccntrols for revenue and expenditure
t:ansations of t!,e Departmant of housing and Urban Developuent
 (BUD). The questionnaire was designed to identify potentia'.
problem areas and covered the system of internil controls over
collections, imprest funds, disbursements&, and obligations.
Findiags/Conclusions: Collections were not promptly deposited by
three regional accounting stations because these regions were
not following established HUD procedures. Three regions were
also taking excessi' e time to deposit collections received from
delinquent borrowers. It was aot uncommon for these collections
to be deposited between 1 and 2 months after the date of
resittance. In several instances, this tije period exceedea 100
days. Several regional accounting stations did act adequately
account for or physically control collections proaptly upon
receipt. Collections uere not adequately safeguarded at four
staticrs. Individual employees were given too Rauy
responsibilities in the handling of collections at three
stations; consequently, internal controls over collections waere
compromised. Imprest fund cashiers at most accounting stations
did not adequately safeguard, account for, or control imprest
funds. Travel advances at four stations were not systematically
or consistently aged. Several regional accounting stations did
not adequately support disbursements or show the basis and
computation of estimates on obli.ating documents. (Author/SI)
                                 UNITED STATES GENERAL ACCOUNTING OFFICE
                                          WASH INGTON D.C. , 20548

      VnO*N Op I"NANCAL AM4O
     W4=AL MANA4USyT      WUVI
Co
O            8B-183363

             The Honorable
0            The Secretary of Housing and
               Urban Development
             Dear Madam Secretary:
                 This report contains the results of a questionnaire
            survey to evaluate the adequacy of procedu.es and controls
            for revenue and expenditure transactions of the Departslent
            of Housring and Urban Development. This work was done
            pursuant to our responsibilities set forth in the Budget
            and Accounting Act, 1921 (31 U.S.C. 53), and the Accounting
            and Auditing Act of 1950 (31 U.S.C. F)i.
                 Designed to identify potential problem areas, the
            questionnaire covered the system of internal controls over
            collections, imprest funds, disbursements, and obligations.
            To obtain responses, we primarily interviewed and talked
            with re.ponsible officials at 10 regional accounting
            stations ;id at the Department's Office-of Finance and
            Accounting and the Federal Disaster Assistance Administra-
            tion headquarters. These responses indicated some potential
            weaknesses in the Department's financial management system.
            We tested selected transactions, and limited ox- work to
            identifying weaknesses in the internal control system.
            We did not determine the extent of the weaknesses nor the
            precise corrective action needed.
                 We discussed our survey results with responsible
            headquarters and regional accounting station officials
            and in most instances they initiated or promised corrective
            action. We are informing you of the identified weaknesses
            to help you in discharging your responsibilities under
            31 U.S.C. 66a, which requires agency heads to provide
            effective control over and accountability for all funds
            under their responsibility.
                Our observations of the identified system weaknesses
           are included in enclosure I; the locations of the weaknesses
           are in enclosure II. Generally, controls over collections,


                                                                     FGMSD-77-75
                                                                       (90607)
B-13236'

imprest funds, travel aQvances, disburecments, and obligations
need improvement. We believe most of the weaknesses could
be corrected if accounting station personnel comply with
existing policies and procedures.

     The Office of Inspector General and regional adminis-
trative reviews had previously identified similar weaknesses.
These were in the areas of accounting for and physical
control of collections (1974--Philadelphia, 1975--Atlanta,
1976--Chicago, and 19:7--Atlanta and Chicago), accounting for
and physical control of imprest funds (19/5--Atlanta and
1976--Dallas), and control over travel adva;ices (1975--
Atlanta and 1976--New York).  Corrective actions, if taken,
did not correct the weaknesses permanently

     We are not making any formal recommendations at this
time becaise headquarters officials have assured us that
corrective actions will be taken. We suggest, however, that
you follo% up to determine whether the actions were adequate.
You should also request the Office of Inspector General
to check the adequacy of corrective action during future
reviews at the regional accounting stations, Office of
Finance and Accounting, and Federal Disaster Assistance
Administration. We would appreciate being informed in
writing of the actions taken and planned to correct problems
noted in this report.

     We appreciated the courtesies and cooperation extended
to us by your staff.

     A copy of this report is also being sent to your Office
of Inspector General.

                            Sincerely yours,




                           D. L. Scantlebury
                           Director
Lnclosures - 2




                             2
 ENCLOSURE I
                                                       ENCLOSURE I
           GAO OBSERVATIONS ON QUESTIONNAIRE RESPONSES

               AT 12 DEPARTMENT OF HOUSING AND URBAN

                  DEVELOPMENT ACCOUNTING STATIONS

NEED TO IMPRO5v CONTROL
OVER COLLEC    NI(9S
     The GAO Policy and Procedures Manual for
Federal Agcncies (7 GAO 11.1 and 12.2) states Guidance of
                                              that agencies
shall place collections under appropriate accounting
physical control promptiy upon receipt and shall     and
                                                 deposit
these collections daily.

     The regional accounting stations of the Department
Housing and Urban Development (HtTD) did not have         of
internal control of their collections, nor did    good
                                                they deposit
them promptly. Prompt deposits allow the Treasury
                                                    to
the funds earlier, thereby reducing costs of borrowing;use
good internal controls over collections reduce risks      and
collections being lost.                                of

Collections not promptly deposited

     Collections were not promptly deposited by three
regional accounting stations because these regions
following established HUD procedures. One station were not
deposits on the average of about once weekly         was making
                                                Another
station held collections until the proper accounts
the collections applied were identified, rather thanto which
recording the collection in a suspense account and
the deposit immediately. Three regions were also making
                                                   taking
excessive time to deposit collections received from
quent borrowers under section 312 of the Housing      delin-
1964, as amended (rehabilitation loan program).   Act  of
not uncommon for these collections to be depositedIt  was
                                                     between
1 and 2 months after the date of reniittance. In several
irstances this time period exceeded 100 days.
     Section 312 lans provide funds for rehabilitating
property located in certain project areas.  These loans are
serviced directly by the Federal National Mortgage
tion under agreement with HUD. If any loan becomes Associa-
ENCLOSURE I                                        ENCLOSURE I
delinquent, the Association returns the loan to HUD for
direct collection. HUD procedures require that delinquent
borrowers be notified to send their payments directly to
the regional offices' accounting divisions. This was not
done.  Instead borrowers were *i. cructed to send their
payments to local aLea offices.   P     recording payments,
area offices forwarded collections to the regional offices
for deposit. This practice, by its very nature, delays
depcsit action.

     Holding collections increases the potential   for their
loss or misplacement and delays use of the funds   by the
Department of the Treasury to finance Government   operations.
BUD officials informed us that corrective action   would be
taken to expedite deposits.

Collections not logged in
or aeqguatel   sifeguarded
     Several regional accounting stations did not adequately
account for or physically control collections promptly upon
receipt. Both the GAG, Policy and Procedures Manual for
Guidance of Federal Agencies (7 GAO 11.1) and the HUD Hand-
book (1911.1A, pars. 1.3 and 2.5) require agency officials
to record collections promptly and properly upon receipt,
safeguard collections until deposited, and adequately separate
duties of personnel handling receipts.
     At three regional accounting stations, we observed that
collections received through the mail were not promptly and
properly recorded upon receipt. For example, two regional
accounting stations did not open all mail containing remit-
tances at a central control point. Personnel opening the
mail at three stations did not log in all collections as
they were received. When personnel at two of these stations
eventually logged in the receipts, they did not use sequen-
tially numbered control sheets, thereby compromising control
over collections. The third station had no systematic
administrative e::amination to verify the legality, propriety,
correctness of collection transactions, or deposit data.
If remittance control is not established at a central point
and periodic audits are not made, there is no assurance
that all collections are accounted for.
     Collections were not adequately safeguarded at four
stations. These stations stored collections in safes that
were accessible to more than one employee (that is, unlocked



                              2
ENCLOSURE I                                       ENCLOSURE I

during regular office hours).  One station stored receipts
in a desk overnight. Such easy access to the collections
increases the risk of loss and obscures responsibility.

      Individual employees were given too many responsibilities
in the handling of collections at three stations.   Conse-
quently, internal controls over collections were compro-
mised.   At one station one individual handled collections
and helped with the accounts receivable records. At another
station an individual was permitted to open, record, and
deposit collections.   One individual at the third station
had exclusive control of deposits without independent
review. Allowing one person to perform multiple duties
in an area such as collections greatly increases the risks
for fraud, unintentional errors, and misappropriation.

     Collections rarely were received over the counter or
involved cash. But, in three locations the receipts used
to record over-the-counter transactions were not numbered.
Using unnumbered receipts can result in the loss of control
over collections.

     HUD officials agreed to log collections as they are
received and to improve the control and safeguarding of
collections.

NEED TO IMPROVE CONTROL
OF IMPREST FUNDS

     The GAO Policy and Procedures Manual for Guidance of
Federal Agencies (7 GAO 27.6) requires agency officials to
insure that imprest fund cashiers can, at all times, account
for funds advanced to them.  Imprest fund cashiers at most
accounting stations did not adequately safeguard,. account
for, or control imprest funds.  Treasury Department guidance
provides that each cashier should have a separate cash box,
should not commingle imprest funds with personal or unofficial
funds, and should not make or approve purchases with imprest
funds.

     Specifically, we noted the following:

     -- Cashiers and alternate cashiers at eight stations
        did not have separate imprest fund cash boxes.
        At one of these stations the funds were not kept
        in locked boxes. Another station did not use
        receipts to transfer funds between cashiers.
        Such situations do not comply with accepted



                              3
ENCLOSURE I                                        ENCLOSURE I
       standards because only the individual who is
       responsible and accountable for a specific fund
       should have access to it.

     -- Officials at seven stations did not chprja safe
        combinations annually. Additionally, at five
        stations appropriate officials did not keep cashiers'
        duplicate keys or safe combinations in sealed and
        dated envelopes. Changing the corioination annually
        provides a minimum level of security if the safe
        combination becomes "nkn.owiilgly compromised. Further-
        more. keeping .,yas and combinations in sealed
        envelopes provides access to the funds by a third
        party in the cashiers' absence or in an emergency.

     -- Cashiers at three ¢c.tions did not promptly cancel
        documents supportin: im)'rtst fund payments. Also,
        at two stations cashiers did not start numbering
        vouchers beginning with each fiscal year. These
        two practices fall short of providing systemat.c
        control for documents supporting fund disbursements.

     -- Four cashiers either made purchases with funds or
        were authorized r.o approve payments for purchases
        from these funds. Such authority increases the
        risk of manipulation and unintentional misappro-
        priation of funds and could permit cashiers to
        use funds for their personal needs.

     -- Imprest funds at four accounting stations were
        verified semiannually or less often instead
        of quartlAy. Quarterly, iunannounced, and
        independent verifications of cashiers' funds
        aid in insuring that cashiers comply with procedures
        and do not misuse the funds.

     HUD officials generally agreed to improve controls over
imprest funds by correcting the problems discussed above.

NEED TO IMPROVE CONTROL
OVER TRAVEL ADVANCES

     According to the GAO Policy and Procedures Manual for
Guidance of Federal Agencies (7 GAO 25.6), agency officials
must periodically review and analyze travel advances.
The purpose of this procedure is to keep employee travel




                              4
 ENCLOSURE I                                       ENCLOSURE I
advances to the minimurm needed and to insure that oLtstanding
travel debts are uniformly and vigorously pursued. This
includes 'insuring that employees separating from the agency
repay outstanding travel advances, as stated in HUD's
Handbook (550.3).
     Travel advances at four station~ were not system-
atically or consistontly aged. One station had not reconciled
detail accounts to the control register for several months.
Without this information an agency cannot adequately control
or manage travel advances. Some of the c ..sequences of
inadequate review and control are shown below.
     -- Trai,el advances at three stations were out-
        starding for an excessiv3e period of time. Two
        stacions had travel advances of $8,600, which had
        not been repaid to HUD when 38 employees resigned
        between 1969 and 1975. In addition, records at
        several accounting stations indicated that travel
        advances for enployees movine from one location
        to another had been outstanding since 1973.
     -- At two stations outstanding travel advances
        were recently written off as bad debts for four.
        former employees for a total of $599.11. Another
        station wrote off over $2,800. If officials
        at these stations followed HUD procedures, these
        these advances could have been collected.
     ·.-
       Travel vouchers at one location were not
       promptly submitted to liquidate advances. As
       many as 127 days elapsed between the end of travel
       and the submission of vouchers.
     HUD officials agreed to tighteni controls over travel
advances to keep outstanding advances to a minimum.
NEED TO IMPROVE CONTROLS OF
DISBURSEMENTS AND CBLIGATIONS

     The GAO Policy and Procedures Manual for Guidance of
Federal Agencies requires agencies to insure that:
    -- Disbursements are legal, proper, correct,
       and accurately and properly recorded (7 GAO 24.1).
ENCLOSURE I                                       ENCLOSURE I

     -- Obligations are properly documented, recorded,
        and periodically reviewed (7 GAO 17).

     Several regional accounting stations and the Office of
Finance and Accounting, however, did not adequately support
disbursements or show the basis and computation of estimates
on obligating documents.

Disbursements not
adequately supported

     Officials at or.e accounting station did not properly
certify payments of long-distance telephone calls or tort
claims. Thus, there was no assurance that the payments were
made for only official Government business expense or that
goods and services had been received.

     At six stations explanations for lost discounts were
not provided or. documents support ng disbursements. Without
this data it is difficult for management to identify and
eliminate the problems that prevent caking discounts.

     HUD officials agreed to adequately support disburse-
ments and to provide reasons for not -taking discounts on
documents supporting disbursements.

Basis and computation of estimates
not shown on obI i ga i Eng documents

     Officials at five locations did not show the basis fo'
or computations of estimates mide at the beginning of the
month on the obligating documents. Recording such informa-
tion insures consistent application of established methods.
It also provides management a baJis for evaluating whether
current methods are satisfactory.

     HBUD officials agreed to show the basis for and computa-
tion of estimates on obligating documents.




                                6
    ENCLOSURE II                                                                                                                                                EDCLOSURE                  II




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