Summary

GAO reviewed the effectiveness of Community Services Administration (CSA) Region III efforts to correct management and financial problems at the Nicholas County Community Action Association. A CSA investigation had reported that the Association: (1) was maintaining and using an unaudited, income-producing account without the complete knowledge, approval, or control of its board of directors; (2) employed an Executive Director and another staff member who were receiving salaries from multiple sources; (3) used questionable bidding and procurement practices for large capital expenditures; (4) was making loans of funds and property that were contrary to CSA regulations; (5) had a board of directors that was not viable and served only as a rubber stamp for the executive director's will; and (6) had its Department of Labor employment program terminated because of a lack of fiscal controls, falsified documents, and the use of ineligible enrollees.

GAO found that the actions the CSA regional office directed the Association to take were untimely and did not substantially change the grantee's operations. Decisive action, effective monitoring, and internal communication can lead to swifter correction of grantee problems, such as those of the Association. There was poor communication between the Association and the CSA regional office. The regional office closed its audit of the income-producing account and, in effect, wrote off questionable expenditures. It demanded that the Association account for the questionable expenditures and notified the Association that it was subtracting the amount from the Association's 1981 funding. The State also intends to initiate action to recover questionable funds from the Association. GAO found no evidence of new abuses. However, financial weaknesses related to the problems uncovered by the investigation still exist. The present decentralized accounting system makes a precise determination of all funding sources and expenditures extremely difficult. The CSA regional office made the Association's board accountable for resolving issues raised by the investigation, without subsequently seeing that corrective action was taken. Continuing problems were not reported to the regional office. CSA officials often are inexperienced in public accounting and find CSA regulations confusing. CSA is reluctant to invoke punitive actions because of the effect on the program recipients. As the agencies are funded by many grant funds, the decentralized accounting system makes precise accounting difficult.