Employment and Training Administration (ETA) National Grants/Contracts Cash Management Audit

October 9, 1997

MEMORANDUM FOR:         RAYMOND J. UHALDE
                                                  Acting Assistant Secretary
                                                        for Employment and Training

FROM:                                     JOHN J. GETEK
                                                  Assistant Inspector General
                                                       for Audit

SUBJECT:                             Employment and Training Administration (ETA) National
                                                  Grants/Contracts Cash Management Audit
                                                  Final Letter Report No. 04-98-002-03-001

The Office of Inspector General has terminated audit work on ETA's management of cash for certain of its national grants and contracts. Our objective was to determine if significant amounts of excessive cash remain in the hands of grantees and contractors following termination of the agreements.

To complete our audit, it was necessary to use financial data in ETA's Grant/Contract Management Information System (GCMIS). However, financial information in GCMIS is too unreliable to be used for our purpose. Consequently, we have discontinued additional work. This report discusses problems encountered in attempting to use the information and provides recommendations for improving ETA's stewardship of the grants.

Summary of Our Findings and Recommendations

We examined data in the GCMIS for a sample of grants and contracts and found many grantees' and contractors' expenditures had not been posted to the GCMIS on a current basis. Grantees' and contractors' expenditure reports had either not been submitted to ETA or had been received but not entered into the GCMIS. In other instances, extensive delays occurred from expiration of the grants and contracts until they were formally closed out by ETA. Federal Representatives had not adequately monitored the awards and ensured the reports were promptly received and forwarded to the Accounting Department for entry.

We recommend ETA:

obtain all delinquent Financial Status Reports (FSRs) and enter the information into the GCMIS;

require that FSRs be submitted directly to the Office of the Comptroller, Division of Accounting; and

improve financial monitoring of grantees and contractors.

Objectives, Scope and Methodology

The objective of our audit was to determine if significant amounts of cash remained in expired grants and contracts that had not been recovered by ETA.

Our audit scope was limited to grants and contracts with definite periods of performance and did not include "formula" allocated funds, such as those provided through certain titles of the Job Training Partnership Act and other appropriations such as the Employment Service and Unemployment Insurance grants, which are reauthorized for extended periods of time.

We focused on open grants and contracts awarded by the national office of ETA that ended before January 1, 1996, and that, per ETA's records, had drawn down cash of at least $1,000 more than reported costs as of September 30, 1996. According to GCMIS, 423 grants and contracts met these criteria. We judgmentally selected a sample of 58 grants and contracts from among 423 "discretionary" grants and contracts that met our criteria and tested the reliability of ETA's financial information. We did not audit costs reported by grantees and contractors. Rather, we determined if financial information included in the GCMIS was current and complete.

Our audit was conducted in accordance with Government Auditing Standards, as issued by the Comptroller General of the United States. Fieldwork was conducted during the period March 1997 through April 1997.

We were unable to rely on financial information in the GCMIS. Consequently, we terminated further audit work. We found current expenditure data was often missing and significant weaknesses existed in ETA's accounting and administrative controls over the financial activities of its grantees and contractors, as discussed in the following sections of this report.

GCMIS Cost Data Is Incomplete

According to GCMIS, the grantees and contractors from which we selected our sample had drawn down cash that exceeded expenditures by approximately $357 million. From among the 423 grants and contracts, we selected a judgmental sample of 58 to test the reliability of costs and cash drawn down, as reported in the GCMIS. According to GCMIS data, the 58 grants and contracts had ended prior to
January 1, 1996, but still had a total of over $15 million in outstanding cash balances as of
September 30, 1996.

We found data on cash drawn down by grantees and contractors reported in the GCMIS was accurate, because the majority of cash disbursement data entered into the GCMIS was received through the U.S. Department of Health and Human Service's automated "Payment Management System." However, expenditure data which ETA must enter into the GCMIS from grantees' and contractors' expenditure reports were frequently missing.

Consequently, instead of being overdrawn by $15 million, cash received by the 58 grantees and contractors exceeded reported expenditures by a net amount of $1,204,439.⁽¹⁾

The $13.8 million discrepancy ($15 million less $1.2 million) resulted from accrued expenditures that were not posted to the GCMIS. (See Schedule 1.) Because GCMIS grossly overstated excess cash, we concluded that GCMIS could not be used to evaluate grantees' and contractors' cash management practices.

Financial Data Is Not Timely

We found, as did the Department's Fiscal Year (FY) 1996 Consolidated Financial Statement Audit (Report No. 12-97-005-13-001), that extensive delays occurred between the dates that grants and contracts ended and the dates they were closed by ETA.

As part of ETA's closeout procedures, grantees and contractors are required to submit final FSRs that include all accrued expenditures and all cash drawdowns. Labor regulations at 29 CFR 97. 50(b) provide:

Within 90 days after the expiration or termination of the grant, the grantee must submit all financial, performance, and other reports required as a condition of the grant.

We analyzed the amount of time that elapsed between the date the grants and contracts had ended and the dates they were closed by ETA. For those grants and contracts that had not been closed, we measured the time that had elapsed from the date they ended to the termination of our fieldwork in April 1997. For the 58 grants and contracts in our sample we found:

Forty-five (78 percent) had terminated but had not been closed, as of April 30, 1997 (the ending date of our fieldwork). Up to 46 months had elapsed from their termination dates for some of these open grants and contracts.

Seven (12 percent) had been closed and the elapsed time from the dates they terminated to the date they were closed ranged from 11 to over 20 months.

Six (10 percent) had not ended because their periods of performance had been extended. However, the GCMIS had not been updated to reflect their revised ending dates.

The average time that had elapsed for the 52 terminated contracts discussed above was over 2 years. (See Schedule 2.) Timely closeout of expired grants and contracts would have prevented most of the inaccuracies we identified in the GCMIS.

Poor Monitoring and Controls Contribute to Unreliable Financial Data

ETA's standard grant and contract provisions require grantees and contractors to send quarterly FSRs to the Federal Representatives assigned to monitor the awards. The Federal Representatives are responsible for reviewing the reports and ensuring that grantees and contractors submit FSRs within 30 days after the end of each fiscal quarter. Federal Representatives are also responsible for forwarding the FSRs to the Division of Accounting for entry into the GCMIS.

1. The net figure of $1,204,439 consists of 17 grants and contracts in which cash receipts exceeded expenditures by a total of $1,748,019 and 12 grants and contracts in which expenditures exceeded cash receipts by a total of $543,580.

Neither activity has received adequate attention of the Federal Representatives. All unrecorded costs identified in our sample were the result of the Federal Representatives either not requiring grantees and contractors to promptly submit FSRs or the Federal Representatives' failure to forward the FSRs to the Accounting Division.

Recommendations

We recommend the Assistant Secretary for Employment and Training require staff to obtain all delinquent FSRs and enter them into the GCMIS. Following entry of the data, the GCMIS should be examined and any instance in which cash receipts for an expired grant or contract does not agree with reported expenditures should be investigated and resolved. ETA should also follow up on grants and contracts in our sample for which the GCMIS indicates (1) cash of $1,748,019 was received in excess of cost and (2) expenditures exceeded cash receipts by $543,580. (See Schedule 1.) As necessary, excess cash should be recovered.

Reliable GCMIS data should be used by ETA's Federal Representatives and managers to monitor the fiscal status of grants and contracts for which they are responsible. Consequently, we also recommend ETA's grant and contract provisions are changed to require that all FSRs be submitted directly to the Office of the Comptroller, Division of Accounting. The Division of Accounting should ensure the FSRs are promptly entered into the GCMIS. Reports generated from the GCMIS should be provided to the Federal Representatives so they may monitor the grants. Further distribution of the FSRs, if desired, should be done after they have been received by the Accounting Division.

We further recommend ETA require its Federal Representatives to adequately monitor the financial activities of its grantees and contractors and ensure FSRs are submitted promptly. If FSRs are not received, "demand letters" should be sent to grantees and contractors. The GCMIS could be programmed to generate the letters and advisories for appropriate Federal Representatives' attention. Discrepancies between reported cash receipts and expenditures, particularly on expired grants, should be investigated and resolved by the Federal Representatives. If FSRs are not received within a reasonable period after demand letters are issued, ETA should notify the U.S. Treasury to suspend disbursement of additional funds until the reports are received.

ETA's Response to Draft Report

ETA's complete response to our draft report is attached to this final report. ETA stated that corrective action has been taken since our cutoff date of September 30, 1996, to better collect, organize, and record prior period reports which were delinquent or filed improperly. Cost Status Reports are being prepared monthly to identify delinquent FSRs. Cost reporting of active grants has been made a priority. ETA is relying on improvements to the closeout process to address reporting for terminated grants and contracts.

ETA expressed concern that OIG was equating delinquent cost reporting with excess cash in the hands of grantees and contractors. ETA stated that upon receipt of cost reports, excess cash balances no longer exist. According to ETA, "Very little cash will ultimately be collected through closeout."

OIG's Conclusion

We believe the improved procedures outlined in ETA's response, if implemented, will improve the GCMIS's accuracy. However, we did not observe these procedures being used as of the end of our fieldwork in April 1997, some 7 months into FY 1997. Also, the response does not indicate how future closeout procedures will differ from previous practices.

OIG does equate delinquent reporting with an increased likelihood that excessive cash remains in the hands of grantees and contractors. If costs are not promptly reported by grantees and expired grants are not closed, it is prudent to expect that grantees may be holding excess cash. Delayed reporting and closeout provides grantees and contractors with opportunities to charge expired grants and contracts with costs that occurred after the grants or contracts had ended. In these circumstances, it is understandable that ETA would recover little cash.

Action Requested of ETA

We would appreciate receiving your response to our audit findings and recommendations within 60 days.

If you have any questions regarding this audit, please contact Robert Wallace, Regional Inspector General for Audit, at (404) 562-2341.

Attachments