Internal Control Weaknesses Contributed to the Mismanagement and Misuse of Federal Funds at Selected Community Action Agencies

In 1979 the Federal Government provided an estimated $1.5 billion to 897 community action agencies to develop and conduct programs aimed at eliminating poverty and aiding the poor.

At 12 community action agencies, GAO found that over $11 million of grant funds were being mismanaged or misused. The problems identified were indicative of weaknesses in the internal controls used to safeguard Federal grant funds provided to these agencies. Excess Federal cash had been used to earn interest income, had been diverted into unrecorded bank accounts, had been loaned to other grant programs, and had been used to subsidize non-Government activities. In addition, some excess funds were embezzled. Some of the community action agencies have used hundreds of thousands of dollars to buy services and rent property from closely related organizations called service corporations. These transactions result in the loss of control over Federal funds and the circumvention of restrictions on the use of grantee funds. Some agencies have charged expenses to more than one Federal grant. Some have not established property control systems to account for assets and have not safeguarded these assets. Assets have been lost, stolen, and improperly disposed of. Weaknesses in internal controls enabled the community action agencies that GAO reviewed to mismanage and misuse Federal grant funds. Agencies did not properly monitor cash balances. No policy instructions had been issued which specifically addressed the relationship of the agencies and their service corporations. Federal agencies responsible for administering similar programs have not coordinated their efforts, received reliable data on Federal reimbursements, nor enforced requirements for property and control systems.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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