Property and Fiscal Management Problems at the Maryland Job Corps Center

Published by the Government Accountability Office on 1977-05-13.

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


   Property And Fiscal Management
   Problems At The Maryland
   Job Corps Center
   Department        of Labor

   As early as January 1973, the Department of
   Labor was aware of deficiencies    in the man-
   agement of Government     property and funds
   at the Maryland Job Corps Center. However,
   the deficiencies were not corrected before the
   Center contractor   was changed on March 1,
   1976. This review concerns operations under
   the management of the first contractor.

   HRD-77-36                                         MAY 13, 1977
                           COMPTROLLER       GENERAL       OF      THE   UNITED   STATES
                                           WASHINGTON.      D.C.     20548


      The Honorable   Goodloe            3. Byron
01 -I+House of  Rocresentatives
 ‘P   Dear Mr. Byron:
            Your    letter    of March 3, 1976, requested        us to review
     property      and fiscal     management at the Maryland         $Job Corks
   1 Center in      Woodstock,     Maryland,   and to inquire      into how the
     Center's      operating    responsibility    was transferred.
           Officials    of the Department     of Labor and the Youth
    Opportunity      Foundation,  Inc.,   have been given an opportunity
    to review and comment on this         report.    Their views have been
    incorporated,      where appropriate.
          We are providing  copies of the report     to interested
    Committees,   Members of Congress,  the Secretary       of Labor,                      and
    the Chairman,   Youth Opportunity  Foundation,     Inc.

                                                         Comptroller  General
                                                         of the United States

I                                  CORPS CENTER                 .
                               p,Department   of Labor

                The program at the Maryland              Job Corps Center
                originally         was designed     to provide     comprehen-
                sive residential          training    to 275 young men,
                14 to 22 years old.              The Center was opened in
                February         1972 and operated      under Labor con-         t.Ie71
                tracts      by the Youth Opportunity           Foundation,
           3    Inc.,      until    March 1976, when its management
                was transferred          under contract      to the RCA       c .kYQ
                Service       Company.      This review does not cover
                operations         under RCA. (See p. 1.)
                Labor records         showing types and quantities         of
                Government property           at the Center were in-
                accurate:        erroneously      they included   property
                previously       disposed     of, transferred,    or re-
                ported     stolen     and listed    'some items more than
                once.      Moreover,     the records      did not include
                all accountable         Government     property  at the
                Center.        (See p. 5.)
                For example,       slide     projectors,          other photo-
                graphic     equipment,       and cassette          tape players
                reported     stolen     in 1972 were still              included
                in Labor records          in February          1976.      Also,
                property     costing      about $165,000,            including
                typewiters,       calculators,          furniture,        and many
                other    items,    was located         at the Center           in
                February     1976 but was not included                  on Labor's
                February     1976 inventory          listing.          (See pp. 7
                and 8.)
                Many apparent      discrepancies         were also found
                in the financial        records     maintained       at the
                Center.     For example,        the Center's       financial
                records    for one contract         period     showed a cash
                balance    of $8,005;      however,      the Center's        bank
                statement     showed no cash balance.              At the
                completion     of GAO's fieldwork,            many discrep-
                ancies remained        concerning      the Youth Oppor-
                tunity    Foundation's      financial       records     for
                the Center.       (See pp. 8 and 9.)
I   ur    Sheet. Upon removal,   the report
    cover date should be noted   hereon.
                                                 i                              HRD-77-36
Labor   management       and audit       reports      repeatedly
cited   deficiencies        in the Center’s           fiscal
records    and controls,        operating        procedures,
and property        management.        While     Labor     offi-
cials   were aware of these            problems       as early
as January       1973,   timely    corrective         action     was
not taken.         (See p. 9.)

Causes          of     the fiscal  and property                management
problems             at the Center    include:

--Labor’s       failure              to implement    adequately       its
   Contractor-held                   Property   Management      System.

--Poor          fiscal      and      property     management            by    the
   Youth          Opportunity           Foundation,     Inc.

--Inadequate              monitoring          by   the     Department          of

--Ineffective             use of         management   and           audit
    reports           by Labor.          (See p. 12.)

Labor     used standard      Government         procurement
procedures       to transfer     responsibility           for
operating      the Center     between     contractors.
(See p. 15.)

GAO recommends                that     the    Secretary        of    Labor:

--Adequately       put into      practice      Labor’s
   Contractor-held         Property       Management                   System
   to properly      account      for Government                      property
   held by its      contractors.

--Effectively                apply     procedures           to promptly
    resolve           property        management          and fiscal          defi-
   ciencies             identified        in Job         Corps  Center         con-
   tractor            operations.

--Require       a complete      and accurate                    accounting
   of all     funds   furnished      to the                  Youth Opportun-
   ity    Foundation,      Inc.     (See p.                  12.)
Labor     concurred       with     GAO’s recommendations       and
stated      that    a final      accounting       had been made
for virtually         all     funds     used by the Youth Op-
portunity        Foundation,        Inc.     GAO has serious
reservations,         however,        that   contract    funds have
been properly         accounted         for.    (See p. 13.)

                  Comments furnished           by the Youth Opportunity
                  Foundation,         Inc.,  were considered          and, where
                  relevant,       were included       and evaluated         in the
                  report.        GAO believes,      however,      that the
                  comments are generally            nonresponsive         to the
                  matters      discussed     in the report        and represent
                  an attempt        to mitigate     the seriousness           of the
                  Youth Opportunity          Foundation,       Inc.'s     failure
                  to properly        manage the program by placing                most
                  of the blame on Labor.              In GAO's opinion,           the
                  management of the Youth Opportunity                   Founda-
                  tion,     Inc. was seriously         deficient.          (See
                  p. 13.)



    Tear Sheet.

DIGEST                                                                             i
       1   INTRODUCTION                                                            1
               Maryland Job Corps                  Center                          1
               Scope of review                                                     2
             ABILITY FOR GOVERNMENT ASSETS                                         3
               Contractor-held       Property       Management
                  System not adequately           implemented                      3
                    Inaccurate     inventory        records                        5
               Need for complete        accounting        of
                  Government    funds                                              8
               Need to improve use of reviews                                      9
                    January    1973 management review                             10
                    January    1973 audit       report                            10
                    November 1974 audit           report                          11
                    May 1976 audit       report                                   11
               Conclusions                                                        12
               Recommendations                                                    12
               Agency comments and our evaluation                                 13
       3   CONTRACTOR CHANGE AT THE MARYLAND CENTER                               15
               Conclusion                                                         16
       I   Letter    from the Assistant   Secretary                   of Labor
              for Administration     and Management                   dated
              January    31, 1977                                                 17
  II       Letter    from the Chairman of the Youth Oppor-
              tunity    Foundation, Inc., dated January 20,
              1977                                                                20
CPA        certified        public      accountant
ETA        Employment and Training                  Administration,
             Department of Labor
GAO        General       Accounting       Office
YOFI       Youth       Opportunity       Foundation,         Inc.
                                        CHAPTER 1
        Title    I, Part A, of the Economic Opportunity                 Act of
1964, as amended (42 U.S.C. 2701 et seq.),                    established       the
Job Corps.         This program for low-income           youths aged 14 to 22
provides      residential     and nonresidential         training      centers.
Title     IV of the Comprehensive        Employment and Training              Act of
1973, as amended (29 U.S.C. 911 (supp. V 1975)),                       continued
the program.          Job Corps enrollees      participate        in education,
vocational       training,    work experience,        counseling,       and other
instruction.          As of June 30, 1976, 21,018 individuals                 were
enrolled      at 60 centers      in 31 States     and Puerto Rico.            Fund-
ing for fiscal          year 1976 was about $175 million.
       The program was administered        by the Office  of Economic
Opportunity      until July 1969 when it was transferred       to the
Department     of Labor.    The Director    of the Job Corps, within
Labor's     Employment and Training      Administration  (ETA), is
responsible      for
       --providing      program        leadership,
       --providing       overall    direction   and guidance            for   the
          administration         of the program,
       --establishing         program         size,
       --approving     all      recruiting,           placement,   and training
          goals,   and
       --maintaining         overall     program        review.
        Each of ETA's 10 regional     administrators is responsible
for administering     the Job Corps program in that region      and
assisting    its centers  in resolving     problems.
       The Maryland     Job Corps Center,         located  on a 64-acre     site
in Woodstock,      Maryland,      opened in February      1972.   The State
of Maryland     designated      the Youth Opportunity       Foundation,     Inc.
 (YOFI) r a nonprofit      corporation,       as its agent for operating
the Center.       YOFI operated       the Center under cost reimbursable
contracts    with Labor until         March 1, 1976, when Labor awarded
the contract      for operating       the Center to the RCA Service         Com-
pany f   a subsidiary     of  the   RCA   Corporation.     (See  ch.    3.)   The
periods    covered and amounts of YOFI's contracts              were:

         ---                          Period                      Amount
      JCC-2165-99           July 1, 1971, through               $3,370,934
                               May 31, 1974
       3-JC409-24           June 1, 1974, through                2,769,165
                               February 29, 1976
The time between the effective       date of the first     contract
and the Center's  opening was needed for site         rehabilitation,
development  of educational    plans,    staff hiring    and training,
        The Center's       program was originally         designed    to provide
residential       training     to 275 young men to prepare          them for em-
ployment      and the responsibilities          of citizenship.         The con-
tractor     furnished      a full-time     Center director,       as well as all
management and operating             personnel,   services,      and materials.
         We interviewed        Department    of Labor officials          at the
headquarters        office     in Washington,      D.C.,    and the Philadelphia,
Pennsylvania,         regional     office   which has administrative           respon-
sibility      for the Maryland          Job Corps Center.        We also inter-
viewed officials           of YOFI, a certified        public    accountant      (CPA)
firm retained         by YOFI, and a CPA firm retained              by Labor.      We
examined documents,            procedures,     and practices      relating     to
selected      aspects      of the Center's      property      and fiscal    manage-
ment covering         the time that YOFI operated             the Center.      In
addition,       we examined the manner in which responsibility                    for
operating       the Center was transferred            between contractors.
The review did not cover the operations                   of the Center by
the new contractor--           the RCA Service      Company.      We completed
our fieldwork         in August 1976.

                                             CHAPTER 2
                               NEED TO IMPROVE CONTROL
                               ------               -- OVER
                --  ACCOUNTABILITY
                              ---              FOR GOVERNMENT ASSETS
       Department      of Labor records         of the types and quantities
of Government       property   at the Maryland         Job Corps Center were
inaccurate:       they erroneously         included    property     previously
disposed    of, transferred,         or reported      stolen;    and they listed
some items more than once.             Conversely,       some accountable       Gov-
ernment property        at the Center was not included.                Labor did
not adequately       implement     its Contractor-held          Property     Manage-
ment System which was designed               to account     for nonexpendable
property    furnished      to contractors.
        Management reviews      and audit    reports    repeatedly       cited
deficiencies       in the Center's    fiscal    records    and controls,
operating      procedures,   and property      management.        Although
Labor officials        were aware of these problems          as early      as
January      1973, they failed     to take timely      corrective       action.
In August 1976, when we completed            our fieldwork,        many discrep-
ancies     remained    in YOFI's records     for the Center.
        Section   113(a)(3)      of the Budget and Accounting            Proce-
dures Act of 1950 (31 U.S.C. 66a) requires                    that each execu-
tive agency establish           and maintain      systems to effectively
control     and account      for all funds,      property,       and other assets
for which the agency is responsible.                  Labor established         its
Contractor-held        Property     Management System to account            for
nonexpendable       property     furnished     to its contractors.          This
system was not adequately             implemented.      Labor and its con-
tractors      are responsible       for properly      acquiring,     using,
maintaining,      protecting,       and accounting      for property.
       Accounting      for property   encompasses Labor's   responsi-
bility    to provide      assistance  to contractors,   as well as its
responsibility       to keep accurate     records.
     Labor's      property         handbook     for   contractors   defines   non-
expendable       property         as
       --furniture,             regardless     of cost,
       --tool         "kits"     and sets,

       --tools      and equipment         carrying      a manufacturer's
           serial    number, and
       --other      property     having      a unit     cost     of $50 or more.
Each ETA Regional      Contract    Property    Officer    is responsible
for administering      the acquisition,       control,    and disposition
of all contractor-held        Government    property     within  the region.
Records for the Contractor-held           Property     Management System
are computerized      at headquarters.
        Section     112 of the Budget and Accounting             Procedures      Act
of 1950 requires        the Comptroller       General    to cooperate       with
executive      agencies    in developing      systems to control          and ac-
count for Government          assets and to periodically            review these
systems.       These systems are approved           by the Comptroller         Gen-
eral when considered          to be adequate      and in conformity         with
principles      and standards      prescribed     by the Comptroller         Gen-
eral.      The Comptroller      General     approved   the design of Labor's
Contractor-held        Property    Management System inOctober              1972.
The system based on this design provides                 controls      for cor-
rectly     processing     all transactions.
      After  reviewing     implementation   of the system,   we reported
to Labor's   Comptroller     on March 3, 1976 (B-115349),     that sev-
eral control    procedures     in the system design approved     by the
Comptroller    General had not been implemented.        These included:
       --An automated    suspense file                for systematically          record-
          ing all property    acquired               by contractors.
       --Use of control   totals  to insure  that                   all    additions,
          deletions,  and changes are processed.
       --Adequate   controls          for correcting rejected               transactions
          and resubmitting          them to the system.
       --Verification          of physical        inventories.
We concluded  in the March report    that,  because these controls
were not implemented,    Labor could not properly   account     for
nonexpendable   Government property    held by its contractors.
       In an April     27, 1976, response     to the March report,            Labor
stated   that these control       procedures    were generally        being
implemented.      Although   Labor apparently       initiated      corrective
action   before    the March report     was issued,       our review of the
February    1976 inventory     records    for the Maryland       Center showed
problems    which the control      procedures    were designed        to over-

       We believe      Labor's   failure  to adequately   implement   its
Contractor-held        Property    Management System contributed    to the
problems     described     below in accounting    for property   at the
Maryland     Center.
Inaccurate ---- inventory   records
        As part of our test of the accuracy            of the inventory
records,    we compared the number of clothes              washers and dryers
shown on Labor's      February      1976 inventory     listing     with the re-
 sults   of a February    1976 physical       count made jointly        by YOFI
and RCA. In April        1976, by examining        Center records       and tak-
 ing a physical    inventory,       we determined    the number of clothes
washers and dryers       which were at the Center in February                1976.
Our comparison     showed that both the February               1976 inventory
listing    and the joint      physical    count were inaccurate.
                                                            Washers      Dryers
Labor's    February   1976 inventory     listing                13          11
Joint    February   1976 physical    count
   (YOFI and RCA)                                               20          18
February     1976 quantity   at the Center
   as determined     by GAO                                     27          22
       The difference    between the quantity       of washers and
dryers   on the inventory      listing  and those we determined        to be
at the Center resulted       from Labor's   failure    to have all prop-
erty acquired      by the Center recorded     in Labor's    inventory.
         The difference       between the number of washers and dryers
identified       during    the February     physical    count and the number
determined       to be at the Center resulted            from poor physical
inventory     procedures.         For example,     Center personnel       located
seven washers after           the physical    count--two       under wall lockers
in the Center's         scrap yard and five        in a room which had not
been inventoried.            YOFI could not provide          any documentation
to show that the two washers had previously                    been declared
excess or scrap property.             In any event,        they were still
carried     on Labor's       February   1976 inventory.         The photographs
on the following         page show part of the scrap yard.
       In its comments (see app. II),           YOFI stated      that a number
of clothes     washers and dryers       that were on hand        but not in-
cluded on the inventory       listing      had been donated        to the Cen-
ter by local     citizens.    Although      these machines       would have no
cost basis to the Center,          they should have been         included  on
the listing     because they were physically         at the      Center and
accountability       for them should have been recorded.
         In the joint    February   1976 physical       count,   RCA identi-
fied and tagged Center property            that it wanted.         The remaining
property      was to be inventoried      and declared       excess or scrap
by YOFI.        However, some equipment       at the Center was neither
tagged by RCA nor declared          excess or scrap by YOFI.            A YOFI
official      told us that he thought        RCA wanted the equipment          but
had neglected       to tag it.    At the completion         of our fieldwork
in August 1976, YOFI was still           identifying      property    for dis-
position      that had been included       on Labor's      February   inventory
listing     but had not been counted during           the physical      count.
Several     of these items are listed         on the following       page.

              Item                   Quantity                 Unit
                                                              --     cost
          Wood jointer                     1             $      252
          Bench jigsaw                     1                    244
          Bending machine                  2                     50
          welding   machine                4                    100 to 300
          Copying machine                  1                 1,056
          Engine analyzer                  1                 1,500
        We also found deficiencies           in the removal        of stolen
property      from Labor's   inventory       listing.        For example,     in
1972 the Center reported         to Labor headquarters             that two slide
projectors,       other photographic        equipment,       and two cassette
tape players       had been stolen.         On three separate         occasions    in
1973, the Center requested           relief      of accountability        for these
items,     which was approved      by the Labor headquarters              Property
Officer     in June 1973.      However, the property            was still     in-
cluded on the February         1976 inventory         listing.
      Property    that had previously     been transferred       or disposed
of by the Center continued       to appear on the inventory         list-
ing.   For example,    two six-passenger     carry-all     vehicles      cost-
 ing more than $2,400 each were delivered          to the General        Serv-
ices Administration      motor pool in Baltimore,       Maryland,      in
August 1972; yet we identified        these items on Labor's        Febru-
ary 1976 inventory     listing   as being at the Center although
we could not locate      them.
       In addition,       the Center discarded       as junk a vehicle       that
had been used for automotive             training.    The vehicle     still
appeared on the February             1976 inventory   listing   although     Cen-
ter correspondence          indicated    that it had been discarded         early
in the program.         We also found that the February           1976 inven-
tory listing      included       some items such as dictating        machines
and electric      typewriters        more than once.
       On April   22, 1976, the Job Corps Director              testified
before   the Subcommittee       on Employment,      Poverty,      and Migra-
tory Labor,     Senate Committee      on Labor and Public           Welfare,
that the Maryland      Center's    property    loss--by      theft,      fire,
and that classified      as "unaccounted       for-"--was     expected         to
total   about $46,000,     as follows:

 Labor's      February      1976 inventory
   listing                                                                     $295,652
 Less property        accounted         for:
        Transferred       to RCA                                $102,033
        Previously      transferred          or disposed
           of but still       listed       on February
           1976 inventory         listing                          14,884
 Duplications        on Labor's         February
   1976 listing                                                    15,883
 Property      declared      excess or scrap
   by YOFI                                                        116,398
             Property      not   accounted        for                          $-46,454
          We question     the accuracy         of this       reconciliation         because
 the February        1976 inventory       listing       omitted        some Government
 property.       For example,        $54,410 of the $116,398                 shown as
 property     declared      excess or scrap by YOFI represented                      prop-
 erty which was not on the inventory                    listing.          In total,     we
 identified      property      costing    about $165,000,              including     type-
 writers,     furniture,       and many other         items,      which was not on
 the listing.         Therefore,       the listing        was incomplete          and could
 not be used for an accurate               inventory         reconciliation.
        We did not determine       the total      value of property   which
 the Center had not accounted           for because the time and cost to
 reconstruct     all inventory     transactions       since 1971 would have
 been prohibitive.        Furthermore,       because of the poor condition
 of the inventory      records,    we are not certain       that all transac-
 tions    could ever be accounted         for.
        We noted many apparent     discrepancies      in the financial
 records    maintained    at the Center.     We discussed     them with a
-YOFI official      who in May 1976 requested      its CPA firm to re-
 solve them.       Examples of the discrepancies        noted are described
       The Center's    financial       records   for the YOFI contract
which terminated      May 31, 1974, indicated            a cash balance     of
$8,005,    while the Center's        bank statement       showed no cash
balance.      A YOFI official      told us that there was no cash on
hand and that the Center's           financial     records    must have been
inaccurate     because YOFI had spent all the money received.
Also,    YOFI's claimed     expenses at contract          termination   in-
cluded such obligations          as employees'       earned vacation    pay.
YOFI billed     Labor and received         $15,980 for accrued vacation

pay up to May 31, 1974.     However, a vacation    account  of only
$8,944 was established    under the next contract.      A YOFI offi-
cial  told us that the balance was used for obligations       other
than vacation   pay under the first  contract.
        We reviewed     YOFI's CPA report     which was sent to Labor
in December 1976.          The report   did not explain       the $8,005
cash balance      discrepancy     or the $15,980 accrued         vacation
pay matter.       Instead,    the report    dealt   with certain       costs
which had been questioned          under an earlier      audit    performed
for Labor by another         CPA firm.     The auditor    expressed       no
opinion    on the results       of his examination.
       A May 5, 1976, financial       audit    report    prepared    for Labor
by a CPA firm covering      the contract       terminated      February    29,
1976, projected     a cash shortage     of $3,371.        This was disclosed
when an auditor     compared YOFI's unpaid bills            with the remain-
ing contract    funds.    The auditor     stated      in his report     that he
was not engaged to review general           and administrative         costs
claimed   under the contract,     which amounted to more than
       A YOFI response      to the May 5 report  discussed            later    in
this   chapter did not      address the cash shortage.
       In comments to us dated January             20, 1977, YOFI stated
that the projected        cash shortage was        based on a preliminary
estimate     of the cost of commitments.            The May 5, 1976, audi-
tor's    report,   however,   projected the        shortage    on the basis
of obligations      already   incurred, not        an estimate    of proposed
       Although       Labor management reviews         and financial      audits
of the Center cited           deficiencies     in property    management and
fiscal     controls     and procedures       as early    as January    1973,
timely     corrective      action     was not taken.      The conditions      we
found at the Center            (see pp. 5 to 9) could possibly           have
been avoided        if Labor had effectively          used the results       of
its reviews.
       According   to Labor's     Philadelphia        Regional    Administrator
for Audit,     his office    requests    replies      to all audit      reports
from the appropriate       regional     administrator        for the program
reviewed     who is required     to reply.       However,      no replies     were
received,     and because of a lack of staff,             his office      did not
follow    up.
      The following    examples    illustrate      that Labor was aware
of deficiencies     in the Center's       property    and fiscal controls
and procedures.
--e-1__    1973 management              review
        A Labor management review                     in January  1973 estimated    that
only 60 percent      of the Center's                    property was recorded    in
Labor's    inventory   records.
         YOFI was instructed        to count the property       and supply    the
correct     information       to Labor.     Although     a YOFI official   ad-
vised us that the property            was counted,       there was no evidence
that discrepancies          were corrected.          As noted on page 8, we
identified       property     at the Center which was not recorded          in
Labor's     February      1976 inventory      listing.
January    --1973 audit        report
      A January      15, 1973, Labor financial    audit  report  for
July 1, 1971, through June 30, 1972, cited          the Center for
inadequate    fiscal    controls,    procedures, and property   manage-
ment.    These included       inadequate
       --budgeting        and financial               control   systems,
       --time      and attendance           procedures,
       --travel       procedures,
       --control       over     long-distance             telephone   calls,
       --purchasing           procedures,         and
       --inventory        procedures.
       The report    also listed   24 items costing  $1,769.03    as
missing   or stolen.      However,  as of February  1976, Labor had
not removed 14 of these items from the records          or determined
what happened to them.
        Although      Labor officials       discussed     the audit deficiencies
with YOFI's Center Director,              who pledged       corrective     action,
the audit       report     was not furnished       to YOFI until       May 1975.
Labor officials         were unable to explain           why it was not more
timely.       YOFI replied        to the audit     report    in June 1975; how-
ever, Labor's         Philadelphia      Regional    Administrator       for Audit
told    us in July 1976 that he had not received                    the ETA regional
administrator's          reply    and was surprised       to learn that the
YOFI reply        even existed.

------      1974 audit        --report
       A November 1974 financial          audit    report   prepared    for
Labor by a CPA firm covering           the period      July 1, 1972, through
May 31, 1974, cited       most of the same weaknesses             as the 1973
audit   report.      For example,    the 1974 report        stated   that not
all invoices      and supporting     data for expenditures          were avail-
able for inspection       and that many had not been canceled.
Labor's    Philadelphia    Regional      Administrator      for Audit     stated
that these weaknesses        presented     a picture      of serious    deficien-
cies in Center administration.
        In addition,  the report      questioned     $10,836 claimed       by
YOFI as a general     and administrative         expense,     because the
money was not spent.        On May 19, 1976, Labor's           Contracting
Officer    said he was not aware of the $10,836             item.     He
promised    to verify   its disposition,        but as of December 10,
1976, it had not been resolved.
       The report      also disclosed       that a tractor     purchased     in
1972 for $4,928 was not on Labor's               June 1974 inventory       list-
ing for the Center.            A YOFI official      said the Center sub-
mitted   information         to enter the tractor       into the inventory
system,    but the tractor         was not included       on Labor's   February
1976 inventory       listing     although     it was at the Center.
       According     to an official,     YOFI was not aware of the
1974 audit     results    until   it received    this  report   in May 1975.
Again,    Labor officials       were unable to explain       why the audit
report   was not furnished        to YOFI earlier     so that corrective
action   could be initiated.
May 1976 audit
-----                report
      A May 5, 1976, financial     audit   report    prepared      for Labor
by a CPA firm for June 1, 1974, through          February     29, 1976,
cited    the following weaknesses   in the Center's        operating     pro-
cedures,    accounting records,   and internal     controls.         The Cen-
ter did not:
       --Maintain     an accounts    payable   or voucher   register     or
          maintain    adequate   records    to support  accounts     payable
       --Have a system of canceling           paid vendor invoices       or
          vouchers   to prevent     their    resubmission    for payment.
          The audit    report  stated     that several     small value in-
          voices   had been submitted        for duplicate     payments.

      --Segregate     duties   of staff    members as an internal
         control.     For example,      the bookkeeper     was also cus-
         todian   of the petty    cash fund,     resulting    in weak in-
         ternal   control    over petty    cash.
      --Maintain    a system of approving,            issuing,   and accounting
         for travel   and expense advances            and reimbursements.
      --Ascertain  that all           procedures     for the purchase    and is-
         suance of materials            and supplies     were being followed.
      The auditors      told us they did not test the accuracy                   of
the inventory     records    because of the inventory taken for                  the
change in Center management.
       YOFI received      the audit    report  on June 8, 1976, and
prepared   a two-part       response dated August 21 and 30, 1976.
The response,       however,    dealt  only with costs questioned      by
the auditors      and did not respond directly          to the points  deal-
ing with weak operating          procedures,   accounting     records, and
internal    controls.
       Labor's   failure    to implement      adequately      its    Contractor-
held Property     Management System allowed            inaccurate       accounting
for property     at the Maryland       Job Corps Center.            Also contrib-
uting    to the Center's      problems    were poor fiscal          and property
management by YOFI and inadequate             monitoring      by    Labor.     The
property     management system should be implemented,                  and a com-
plete    and accurate    accounting      should be made of          all funds
provided     to YOFI.
      Effective  implementation       of established          procedures is
needed to insure   timely    corrective     actions        are taken on
management and audit     reports.
      We recommend       that   the    Secretary   of Labor:
       --Adequately    put into        practice  Labor's  Contractor-held
          Property   Management        System to properly    account     for
          Government   property        held by its contractors.
      --Effectively  apply procedures    to promptly                 resolve    prop-
         erty management and fiscal   deficiencies                 identified      in
         Job Corps Center contractor   operations.
       --Require   a complete   and accurate          accounting       of all
          funds furnished    to YOFI.

       Labor,     in a letter    dated January        31, 1977 (see app. I),
concurred      with our first      recommendation          and indicated    that
procedures      had been in place which would insure                 proper
accountability       of contractor-held          property.       Labor further
stated    that an accurate       listing     of property        at the Maryland
Center had been obtained           and property       unaccounted       for under
YOFI's contract        was under final       determination         by the Contract-
ing Officer.        We would like        to stress    that our primary        concern
is not with the system that was established                     but with the in-
adequate      implementation     of the existing           system.
       Labor also said a pilot           system of monthly     property                trans-
action   reporting     by Job Corps Centers          is being established                  by
the Philadelphia       regional     office     and that each contractor's
monthly    payment voucher must be accompanied              by copies of                 prop-
erty receipts       and acquisition        costs.    These procedures,                 if
properly    carried    out, should improve         the accountability                  for
property    acquired     and disposed       of by Center contractors.
        Labor agreed with our second recommendation                           to promptly
resolve      property       and fiscal       problems.       Labor's      letter      stated
that future         Job Corps Center reviews             will     stress      increased
coverage      in both areas.             A series    of corrective          actions       was
listed    including         (1) the regional         property      officer       annually
testing      property       accounts      for accuracy,        (2) fiscal        officers
conducting        fiscal      reviews     to determine       cash positions           of a
Center and that proper accounting                    standards       are being followed,
 (3) audit      reports       being handled        on a priority        basis and timely
responses       required,        and (4) contracts        being modified             or termi-
nated if corrections               are not made.        We believe        these proce-
dures,     if effectively           carried     out, should aid in identifying
and promptly          resolving       property     management and fiscal              problems.
       Labor also agreed with our third             recommendation,         stating
that a final    accounting       for virtually      all funds used by YOFI
had taken place and that a complete               audit   for the contract
period   June 1, 1974, to February             29, 1976, had been reviewed
by the Contracting       Officer      and findings      and determinations           is-
sued resolving     all fiscal       issues raised       by that audit.           Labor
also pointed    out that YOFI had submitted              a full    reconciliation
of accounts    and that only a minor discrepancy                remained       regard-
ing all contract      funds paid to YOFI.
         We briefly      reviewed    documentation       concerning      the actions
cited      in Labor's      letter   and have serious        reservations     regard-
ing the effectiveness             of the actions.        First,    the "full    recon-
ciliation"        cited    in Labor's    letter      was made by YOFI's CPA firm
but contains          the following     qualifications:

       iu    "We have performed          a limited       review    of certain
             books and records          * * *."

       (2)   "The period     covered by our review was pre-
             viously   examined * * * and it was not con-
             templated    that our review would constitute
             a reexamination      of that period."

       (3)   "Our review in no way constitutes          an exami-
             nation    under generally     accepted   auditing
             standards    and, therefore,       we are unable to
             express    an opinion    on the accompanying
             schedules    of contract     costs."
Second, a number of the Contracting                 Officer's        findings      and
determinations        regarding      costs under the second contract
were nonresponsive          to items questioned          by the auditors.
For example,       the auditors       had questioned         specific      petty
cash expenditures:          however,     the Contracting         Officer's
findings      and determinations         discussed     the general         allow-
ability     of the type of expense paid from the fund rather
than specific        costs questioned.          Also,    the Contracting
Officer     did not address the $3,371 cash shortage                      projected
by the auditors.          Third,     we found no evidence            that the dis-
crepancies      regarding       the cash balance       and accrued vacation
pay matters,       discussed       on p. 8, were resolved.              Accordingly,
we do not believe         that a complete        and accurate          accounting      of
all funds furnished           to YOFI has been made.
       We believe      YOFI's comments on the draft     report    in its
letter    of January 20, 1977 {see app. II),        are generally      non-
responsive     and represent    an attempt  to mitigate     the serious-
ness of the deficiencies        identified.   The comments exemplify
an attempt     to place blame for the deficiencies         mostly on
Labor when, in our opinion,         the management of YOFI was
seriously    deficient.

                                      CHAPTER 3

                 -CONTRACToR CHANGE
                                 -- AT THE MARYLAND CENTER
       In November 1975, YOFI and Labor mutually                  agreed to an
early    termination      of the contract        for operation     of the Mary-
land Job Corps Center.            This decision         was made, according        to
testimony      by Labor officials        before      the Subcommittee     on Em-
ployment,      Poverty,    and Migratory       Labor,      Senate Committee      on
Labor and Public         Welfare,    because of the Center's          inability
to improve key performance            indicators        such as absentee       and
termination       rates.     On March 1, 1976, management responsibil-
ity for the Center was transferred                 from YOFI to the RCA Serv-
 ice Company.
        Federal    Procurement     Regulations     generally     require     that
proposed     procurements      be published     in the "Department         of Com-
merce Synopsis"        and provide     at least    30 calendar      days between
the bid invitation         and the date set for opening            of bids.       In
accordance      with Labor regulations,         bidders'     proposals     for op-
erating    the Center were evaluated           using the following         factors:
       --The degree to which the proposal               demonstrated   an
          understanding of the objectives              of the program.
       --The quality      of proposed     recruitment    and placement
          support,    educational      and vocational    training,  residen-
          tial    and other corpsmember       support   services,  adminis-
          trative    support    services,    and staff.
       --Demonstrated    effectiveness          in operating           a Job Corps
          Center or similar      activity.
       --The   relative     cost   to the     Government.
       --The ability   and intention  to adhere to Labor regula-
          tions and the Comprehensive   Employment and Training
          Act of 1973, as amended.
       The chronology   of key events           in the      transfer      of   the   Center
from   YOFI to RCA follows.

                    --                                      --Date
   Advertisement      for proposals  in
      "Department     of Commerce Synopsis"          Dec.     15, 1975
   Pre-bidders     conference                        Dec.     22, 1975
   Tour of Maryland       Job Corps Center
      for prospective       bidders                  Dec.     30,     1975
   Bidders'    proposals     opened                  Jan.     30,     1976
   Contract    signed with RCA                       Feb.     12,     1976
   RCA assumed management of the
      Maryland    Center                             Mar.     1,     1976
      Forty-five       calendar  days elapsed  between the bid invita-
tion date and the day bids were opened.            As of December 10,
1976, no formal        protest  had been filed  by any of the four un-
successful      bidders.
      We found that Labor used standard        Government   procurement
procedures   to transfer responsibility       for operating    the Center
from YOFI to RCA.

APPENDIX I                                                                      APPENDIX I

                        U.S. DEPARTMENT             OF LABOR
                          OFFICE OF THB ASSISTANT   SBCILBTARY

 Mr. Gregory J. Ahart
 Human Resources   Division
 U.S. General Accounting    Office
 Washington,  D.C.    20548
 Dear Mr.      Ahart:
 This is in response     to your letter     of December 22, 1976,
 to the Secretary,    transmitting    a proposed   report  entitled,
 Property  and Fiscal    Management Problems     at the Maryland
 Job Corps Center.      The comments are keyed to the
 specific  issues  raised    in the report.
 1. We recommend that the Secretary        of Labor adequately
 implement  the Department's  Contractor-held      Property
 Management System to enable it to properly        account  for
 government   property held by its contractors.
 Comment:       Concur.       Regional        Contract      Property        Officers,
 after     approving      Property      Requirements          Lists      (PRL's)      for
 contractors,        are required         to periodically            follow      up on
 the status       of property        procurement         by the contractors.
 The same system requires               that the Regional              Contract
 Property      Officers      conduct,       every 3 years a random
 sampling      of property       lists      to determine         the accuracy           of
 the contractor's          annual certification               of property         on
 hand.      As a matter       of practice,          this    random sampling             is
 conducted       annually     by the Property            Officer       during     Job
 Corps center        annual reviews.             In the case of Maryland,
 the June 1975 annual review highlighted                          the property
 problems,       and the Property           Officer      gave detailed
 instructions        for correction           by the contractor.

 APPENDIX    I                                                     APPENDIX    I

Many months of intensive     work by Youth Opportunity    Foundation,
Inc. (YOFI), RCA and Labor, through December 1976,haveresulted
in an accurate listing    of property in place at the center under
RCAe Unaccounted for property under YOFI is currently         under a
final determination    by the contracting  officer   which should be
completed by the end of March 1977.

In addition     to the annual property surveys, Region III is
establishing      a pilot system which requires a monthly reporting
by centers on the status of all approved PpL*s as to procure-
ment, receipt of items, excess items received,               and number of
property transactions        during a particular       month. Following
receipt    of that monthly report,         the Regional Contract Property
Officer will be able to track on a timely basis when to expect
data for computer list changes.              By this system, delay in
computer list adjustments         should be prevented.        In addition     to
the field testing        of the pilot reporting       system, Region III
will require copies of property receipts              and acquisition     costs
to be submitted with the contractor's              monthly payment voucher.
With that submission,         the Regional Contract Property Officer
will be able to pinpoint         acquisitions      and be on the alert to
see that these acquisitions          are reflected     in the next quarterly
computer list.

2. We recommend that the Secretary of Labor effectively
implement procedures to ensure that property management and
fiscal   deficiencies     identified in Job Corps center contractor
operations     are resolved in a timely fashion.

Comment: Concur.          Job Corps center reviews in the future will
stress increased coverage of both areas.             As previously    stated,
the Regional Contract Property Officer will continue to conduct
annual random sampling of property accounts.             In the future,
a fiscal   officer     will conduct fiscal    reviews to determine cash
positions   of a center and accounting        systems to determine that
proper accounting       standards are being met. Audit reports will
be handled on a priority        basis,    and timely responses required.
When findings      from program or management reviews, or audits,
indicate   improper operations       at the center, corrective       actions
to be taken will be specified,         and technical    assistance    will
be given by the Department of Labor to facilitate              implementation

 APPENDIX I                                                       APPENDIX I

of the corrective      actions.     If the corrections  are not achieved,
a contracting    officer's      cure letter will be issued directing
immediate actions.and,        as a last step, the contract will be
modified or terminated        if compliance is not secured.

3. We recommend that        the Secretary of Labor require a
complete and accurate       accounting of all funds furnished
to YOFI.
Comment: Concur.          Final accounting      for all funds used by
YOFI has taken place.           A complete audit for the contract
period, June 1, 1974,to February 29, 1976, has been reviewed
by the contracting        officer   and a findings     and determination
issued resolving       all fiscal    issues raised by that audit.          AS
to the remaining unresolved fiscal            issue on the original       con-
tract,    YOFI has just submitted a full reconciliation            of their
accounts involving        a discrepancy     between costs and voucher
amounts.     Out of a total 4-year funding of $6,140,099,              an
account difference        of $59 was remaining.        When the contract
closeout package is submitted in the near future to the
contracting    officer,      any unutilized     funds will be rebated to
the Department of Labor.

We appreciate   the opportunity   to comment on this report.               If
my office   can be of any further   assistance to you, feel             free
to contact me.


Assistant    Secretary for
Administration     and Management

APPENDlX 11                                              APPENDIX II
                           1100 N. Eutaw Street
                         Baltimore  Maryland    21201
                                   (301) 383-5528
Richard A. Batterton
                          January      20, 1977
Mar, Gregory J, Ahart, Director
United States General Accounting          Office
Waehington, D,C. 20548
Dear Hr. Ahart:
      We appreciate the opportunity   to review the draft report
of inquiry on the conditions   found at the Maryland Job Corps
Center, which was transmitted    with your letter  of December 22,
        A.   Ovemriew
             The problems raised in your draft report are basically
those which have been previously       identified   and dealt with by
the Foundation and the U.S. Department of Labor.           It has never
been suggested, nor do we now assert, that the corrective           action
initiated   by the Foundation or the federal government was suc-
ceseful in truly eliminating       the deficiencies   observed at the
Maryland Job Corps Center.       In fact, when it became apparent to
the board of the Foundation that its actions were not wholly
effective    and that the center could not be operated by the
Foundation at the desired level of effectiveness         and without
an inordinate      expenditure of time and other resources,     the
Foundation and the Department of Labor mutually agreed to trans-
fer responsibility      for the center to another training     contractor.
             The reasoning    behind our decision to withdraw from the
contract was indicated      in my testimony before the Subcommittee
on Employment, Poverty and Migratory Labor of the Senate com-
mittee on Labor and Public Welfare (Enclosure 1). It would be
unfortunate,     however, if your report merely reiterated      the
problems which led to our decision in the first          place.   To do
     we feel    would create the erroneous impression that, in
$     face of'documented    problems    the Department of Labor and
the Foundation failed to initiaie         corrective action.
        B.   Corrective   Action
            The newly appointed Foundation board of directors
decided in early 1975 that a change in center administration
was needed and initiated    a nationwide search, conducted in
cooperation   with DOL, for a new center director  with a proven
 APPENDIX   II                                               APPENDIX   II

track record in administering    a Job Corps center, and more im-
portantly,  one who had experience in effecting    a turn-around
at a center which was experiencing    the problems we were having
at the M     and center.
             The candidate appointed as center director    by the
Foundation and approved by the US. Department of Labor had
considerable    experience in Job Corps and had 'srescuedt' two
other Job Corps centers which had problems similar      to those
found at the Maryland center.
              The Foundation board of directors         instructed   the
new center director      to launch a program of corrective         action
designed to eliminate       the discrepancies      noted earlier   in ad-
ministration,     management and educational        areas, and granted
him full authority     to initiate      additional    emphasis on im-
provement of environmental         conditions    at the center.
            The center organization         was revamped, restructured
and streamlined   to provide better         and more effective     utili-
zation of personnel resources.           In addition,     personnel changes
in key and line staff were made          as rapidly    as possible to help
upgrade center operations      in the      shortest   period of time.
Personnel who were deemed by the          center director      as being un-
able to function    in a satisfactory        manner were separated.
              The basic and vocational        educational  programs were
revised to conform with the most recent Job Corps policies
and directives.        The results    of these actions were reflected
in statistical      reports submitted to the Labor Department,
These reports indicated         a significant    improvement in class
attendance,     retention    rates, and higher turn-out       of graduates
in categories      I and II,
             Further,   the Foundation board of directors      directed
action be taken immediately        to reorganize and reactivate      the
Community Relations       Council with noteworthy results.      Linkages
were enhanced considerably        with the community and community
organizations     through greater and better cooperation       by center
staff and corpsmen.        The net result was a better understanding
of the mission of Job Corps by the community and better re-
lations    between the center and the Woodstock community.
           The Foundation also took action to develop and
implement the fiscal    measures needed to correct the defic-
iencies indicated    by previous audit personnel.    The budget
was revised and spending was brought under control,       The
Applied Cost Budget was submitted to the Department of Labor
for review and approval,      The Department of Labor approved
the revised budget as sound and desirable.

 APPENDIX   II                                             APPENDIX   II

            The en%ire logistics      system was in the process of
complt3%e reorg    'zation at the time management responsibility
was traneferred   to the RCA Service Company. Procurement pol-
iciea had bsen      vsloped and implemented to ensure a steady
                      and supplies to support all center activ-
                     sciplined   inventory  was initiated  to assure
                     d furniture    at the center would be properly
accounted for,
           !he vehicle maintenance      program was restructured    to
provide a systematic maintenance schedule to ensure the
velaicles were in maximum operating      efficiency     in order to
support cen%er activities.      Additional     vehicles were added
%o the fleet to improve operational        effectiveness.
           The buildings   and grounds maintenance program was
revised wi%h emphasis on upgrading environmental     conditions
a% the cen%er, !Phis action resulted     in marked improvement
in corpsman living    areas and in general overall  appearance
of the center,
          The corpsman disciplinary  program was revised and a
program designed to curb AWOL, promote social awareness, and
improve corpsman behavior and appearance in general was im-
plemented with excellent  results.
             In order for the Foundation board of directors         to
directly    provide direction     and management in operation    of the
center, an Agent for Corporate Affairs        was designated,    and a
corporate    office was established.      This arrangement was de-
signed to provide the Foundation oversight         and operational
flexibility     needed to manage the center.      This arrangement
also provided Foundation the medium needed to have daily con-
tact with the operational        elements at the center and to re-
ceive feedback on center operations        on a timely bEiSiS.     This
procedure was further       designed to ensure that contractual
obligations     were met and problems addressed in a timely manner.
           Other corrective       measures recommended by the Founda-
tion to center management included dual signatures              on all
Foundation financial      instruments,    verification      of accounts
payable by corporate personnel to ensure expenditures              were
valid and paid only once, a requirement            that the center
director  or his designated representative            approve postings to
financial  records,   the establishment        of policy and control on
handling petty cash expenditures,         corpsman pay, staff travel
and other financial     transactions.      Finally,     closer coordina-
tion was effected    with Department of Labor on such matters to
ensure contract    compliance.

  APPENDIX    II                                               APPENDIX   II
               The only set of issues raised in the draft report
which were not dealt with by the Foundation were those trans-
mitted to the Foundation in the audit report received well
after the cessation of center operation            by the Foundation.
The Foundation board of directors           concerned themselves with
reconciliation      of problems encountered when the Foundation
was the training       contractor.     It is our opinion that correc-
tive actions dealing with improvement of fiscal            procedures for
the continued operation         of the center (e,go, those cited in
the report of audit through February 29, 1976;) should be
considered by the RCA Service Company, the successor train-
ing contractor.
      c.      Detail of Specific      References
              In addition      to these general comments, certain
specific     references     contained in the draft report merit       response.
              1,     Inventors    Practices/Inaccurate Records
                 We have verified   that items on the quarterly
print-out  were on hand and have transmitted     the required forms
to have changes made on the print-out.       This has been standard
procedure,  employed throughout   the life of the contract.     We
can give no explanation    why some of the items appear on the
property print-out   while others do not, even though some of
the items appeared on the same Form 3-28,
                   It must be emphasized that the Foundation had
no corporate    property management system which might conflict
with procedures outlined      in Job Corps directives.  Foundation
personnel,   therefore,   implemented the Job Corps property
management program.
            2.    Physical Inventory   of Property
                   Foundation and RCA personnel conducted a joint
inventory    of property    at the center as was previously          planned.
RCA Service Company selected the serviceable           items and tagged
them for retention,       The remaining items were to be inventor-
ied and declared excess to the needs of the center.                 There
was, however, an apparent mix-up on some of the items.                  In
some instances,     Foundation personnel assumed RCA picked up the
items and listed     them on the joint inventory.          Further,     RCA
picked up certain items under different        classification         codes
and different    serial numbers, which indicated         that these items
listed    on the Foundation's     inventory were missing,
                 Upon discovery     of these discrepancies,      all dis-
covered after responsibility      for center operations       had been
transferred   to RCA, the corporate      agent for the Foundation
expended substantial    effort  to rectify    this situation.       With
the cooperation   of RCA and Department of Labor, these dis-
crepancies have now been eliminated.

 APPENDIX II                                                 APPENDIX II

            3.    Stolen   Propertg
                   The slide projectors,       cassette tapeplayers,
photographic    equipment and other property         cited in the draft
report were reportsd       stolen, as required,      and the police re-
ports and requests for relief         of accountability      were for-
warded to the Department of Labor in accordance with Job
Corps regulations,      When relief      of accountability     was granted
the appropriate     Form 3-28 was initiated       to have these items
deleted from the Foundation's         inventory.     In some instances
the items were deleted,        while in others they were not.          We
cannot give an explanation         for this situation      except to in-
dicate that procedures were followed.            The same situation
applies to the equipment found at the center but not listed
on the property inventory.          Foundation personnel responsible
for these transactions        again indicated    procedures were fol-
lowed to have these items reported when acquired.                The same
explanation   applies to the vehicles transferred            to another
agency and to the vehicle that was destroyed in training.
            4,    Washers and Dryers - Inaccurate         Inventory   Records
                 Y!he alleged discrepancy  between inventory    records
and the number of washers and dryers on hand reflect       donated
items which were not picked up on the inventory.       Foundation
records reflect   that 20 washers and 20 dryers had been purchased,
two washing machines were transferred     in from another center but
never repaired because of the excessive costs which would have been
entailed.    The remaining machines were donated by local citizens.
                 The corporate agent showed your examiners letters
accepting donations,   yet no explanation of these donations
appear in the draft report.                                                     \
            5.     DOL Property    Management System
                  Whether or not all the items were reported and
failed  to get into the system is conjecture       at this point be-
cause it is difficult    to reconstruct    the system employed at
the time.    However, here are excellent      examples of the diffi-
culties   encountered in the overall    property system.
                  The Foundation turned over property          at the
center to the RCA Service Company during the last week of
February 1976, and RCA submitted the necessary paperwork to
pick up the items,      Yet some of the items picked up by RCA
still  appeared on our print-out.       The procedure had to be
repeated and probably resulted     in duplicate      listing    when
both transactions     were finally processed.     Although the Foun-
dation took action to alleviate      this situation,        the duplicate
items still    appeared on subsequent property print-outs.

 APPENDIX II                                                        APPENDIX II

                  In June, July, September and October 1976,
the Foundation followed established      procedures and requested
that certain other items be deleted from the property print-
out,    In several instances,   the items still    appeared on later
property print-outs.     Again, the procedure had to be repeated.
                 In October 1976 we reminded the Department of
Labor by mailgrams    that property no longer in our possession
appeared on our Ssptember property print-out.      Again we re-
quested expeditious     action to have the matter resolved.   We
have yet to receive a reply on action taken by Department of
Labor on several    of our queries.
            6.       Photographs     of Scrap      Yard
                  We fail to see the relevance of the photographs
of the center scrap yard which are included in the draft     re-
port.    The draft report does not suggest that items have been
inappropriately    placed in the scrap yard.   Nor does the draft
report indicate    that the center scrap yard is any more or
less neat than those maintained by other centers or federal
agencies including     the General Accounting Office.  Unless there
is a relevant point to be made by the photographs,     their in-
clusion in the draft report is gratuitous     at best.
            7.       Cash Balance/Accounting           for   Government Funds
                   The unresolved cash balance of 88,005 of a
previous contract was not called to the attention      of the Founda-
tion.     Further,   the Foundation did not receive the customary
brieftout     at which time this item as well as others could have
been resolved.
                However, the Foundation did take action when
the question was raised by your examiners in 1976. At that
time, the Foundation took immediate action and requested that
its CPA firm examine this apparent discrepancy.     A copy of
their report was transmitted  to the Department of Labor on
December 12, 1976. It is our opinion that the matter has been
adequately resolved.   A minor misimpression  created by the re-
port was that a CPA firm was retained by the Foundation for
the sole purpose of conducting this examination.
            0.       l'Unresolved"    Discreoar&,es
                me draft report states that many unresolved
discrepancies  concerning the ?@undatioa's financial records
remained at the completion of their field work,
                     Although your ezraminers began their field work
during   the first      week of April 1976, the Foundation  never
                                              .I   .

 APPENDIX II                                                            APPENDIX II

                      reports on the "unre8olved  discrepanciee" until
                      art wa8 transmitted  to the Foundation in December
                      mately nine months after the Foundation had ter-
                      tion of the center.
                 It ie our opinion that the discrepancies
cited  in the      it report as unresolved are the subject of
other  a                 888 to those audit8       are all pending with
the Dep                        It is our   belief,    therefore,  that
the draft report's     re%mendation     for "full     accounting"   would
unneceeearily  duplicate    other publicly     funded audit8 of the
rubject      expendituree,
                    The youndatioa's       contracts    have been audited
by autitin      personnel    retained    by the Department of Labor.
Contract J 8 C 216599 ha8 been audited on two occasions and
the Foundation      responded     to the reports of audit.       As men-
tioned    above, the CPA report        adequately    clarifies  the cash
balance      question,
                Contract 3-JC-40+24   has also been audited on
two occadons by Department of Labor auditor8 and the Founda-
tion ha8 responded to those reports of audit.    We can aee no
useful purpose to a further   audit of accounts already audited.
               9.        "Interviews"      with    Foundation   Officials
                         The draft
                            report refers to contacts     with
Foundation               With the exception of the informal
briefing   conducted by your personnel in July 1976, there were
no contacts with the Foundation's     board of directors.
               10.       Projected      Cash Shortage
                    The Foundation did not comment on the probable
projected    cash shortage indicated        by the auditor because it
was based on a preliminary        estimate of the cost of commit-
ments made through February 29, 1976. There was insufficient
time to make the needed adjustments            to bring spending in line
with the availability       of funds.     It should be noted that the
Foundation's     action   on cancellation      of order8 and a closer
evaluation     of commitments resulted       in an underrun of the con-
tract   budget,   a further   indication     that fiscal  measures
adopted by the Foundation were sound and effective.
                11,      G&A EXPen8e8
                  The draft report questions the $10,836 claimed
 by the Foundation under a previous contract    and which had not
been expended at the time of the audit.      The G&A costs under
the old contract    were a fixed monthly amount not subject to

  APPENDIX II                                                          APPENDIX II

audit     by the Department     of
                                . Labor.             As stated    in Contract    JCC-
2165-99     :
              "It is     mutually agreed that . ..expenditures  of
              funds    from this G&A account will not be subject
              to the     auditing  procedures of the Department of
              Labor    as outlined    elsewhere herein,"
       This matter was addressed in our response to the report
of audit conducted during the period July 1, 1972 through
PIas 31, 1974-    We have not received any response to our ex-
planation   on this subject from the Labor Department to date
   d presume that the matter has been resolved.
        D*    Summary
              The Foundation is a non-profit       corporation     which
was designated,       bgr its lease with the State of Maryland and
contracts     with the US. Department of Labor, as the agent to
operate the Job Corps center from July 1, 1971 to February
29, 1976.      It is our opinion that the Foundation,          in the
absence of comment to the contrary         from the Labor Department
has fulfilled      all of its obligations     under the terms of its
contracts     with the Department of Labor.        We have responded to
the questioned costs in the report of audit to the first                 con-
tract.     We requested and received a total audit of the second
contract    through the period February 29, 1976. We have re-
sponded to the questioned costs in the report of audit to
that contract,       and the contracting   officer   has accepted our
report.     Finally,    full and complete documentation        of inventory
transactions      has been provided to responsible       officials     in
the Department of Labor.
        We trust that we have provided you with sufficient     clar-
ification     to enable you to revise the draft report.    Should
you desire further     assistance  in this regard, please feel
free to contact me,
                                                          Sincerely   yours,

                                                          Richard A, Batterton

 GAO note:
      Enclosure        has been deleted        for     brevity.

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