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Financial Management: Results of Audits at Selected Community Action Agencies

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Report Type Reports and Testimonies
Report Date Oct. 19, 1979
Report No. 110626
Subject
Summary:

To determine if the fraud and abuse existing in the various programs operated by the Council for Economic Opportunities in Greater Cleveland also existed in other similarly funded or constituted grantee organizations in other locations, GAO performed detailed audit work at six Community Action Agencies. Limited field work was performed at five other Community Action Agencies to determine the extent of corrective actions taken at these agencies. Many of the agencies reviewed maintained cash balances in excess of their immediate needs. This situation could result in embezzlement and other fund diversions. Several agencies have established corporations which acquire and lease back real and personal property to the Community Action Agency, and this procedure has resulted in Federal grants paying interest on loans used to acquire the property. Many federally assisted programs are so similar in nature and controls over reimbursements so lax that it is relatively easy for a grantee to claim the same expense twice. Safeguarding fixed assets purchased with grant funds has also been a problem, and has resulted in many assets being stolen, lost or inappropriately disposed of. An analysis of CPA reports indicates that 12 agencies need to strengthen controls over fixed assets. Federal funds are being expended for purposes other than those intended in grant agreements through the practice of loaning funds from one project to another. Numerous other instances of program abuses and errors include underpayment for employee Federal income withholding and FICA taxes, payroll abuses, charging personal long-distance phone calls, assets not recorded in the agency's accounting records, misuse of Head Start funds, and possible conflicts of interest. The executive director of the Cleveland Council has instituted the following corrective actions: (1) refunded about $152,000 of inactive and excess funds, (2) corrected payroll abuses of employees not working the required hours, and (3) reduced the excess funds. Two Council staff members involved in apparent irregularities have resigned, and four Federal agencies have initiated the first single audit at the Council. The Department of Health, Education, and Welfare is currently investigating the criminal aspects of fraud and abuse disclosed in the GAO investigation.

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