The General Accounting Office has made a review of the practices of the Department of Labor relating to the control of Federal funds used for various Federal-State programs, including the operation of State employment security offices and training activities under the Area Redevelopment Act (42 U.S.C. 2513, 2514) and the Manpower Development and Training Act of 1962, as amended (42 U.S.C. 2571). Our review was made pursuant to the Budget and Accounting Act, 1921 (31 U.S.C.- 53), and the Accounting and Auditing Act of 1950 (31 U.S.C. 67). Our review was made in Washington, D.C., and included (1) a review of the Area Redevelopment Act, (2) a review of the procedures and practices of the Department of Labor for advancing funds to the State employment security agencies, (3) a review of selected financial reports prepared by the State agencies on operations in fiscal years 1962 and 1963, and (4) a review of the procedures followed by the Department of Labor in the handling of cash receipts.

Our review of the administrative practices of the Department of Labor in funding various Federal-State programs for the training of the unemployed and underemployed disclosed that controls exercised by the Department were ineffective and that, as a result, $1.1 million of Federal funds advanced in fiscal years 1962 and 1963 to State employment security agencies were permitted to accumulate in the hands of such agencies although the funds were no longer available for use in the training programs. We estimate that, because of the delay in recovering the surplus training funds, the Government incurred unnecessary interest costs of as much as $58,000. We found also that $2.1 million of funds recovered from the State agencies were not promptly deposited after receipt by the Department's Washington office. We proposed that, in order to avoid the accumulation of surpluses and to help prevent unnecessary interest charges to the Federal Government, the Secretary of Labor (1) issue instructions requiring the continuous monitoring of funds advanced and the prompt return of all funds not currently needed or no longer available for use by the State agencies for project expenses and (2) consider the use of letters of credit for funding the operations of the State agencies through Federal Reserve banks, which procedure would permit State agencies to draw funds as needed for program operations and avoid premature withdrawals from the United States Treasury. We also proposed that the Secretary of Labor issue instructions requiring adequate control and prompt depositing of cash receipts. We have been informed by the Assistant Secretary for Administration that the Department has taken action to recover the surplus funds from the States, that it will apply the letter-of-credit procedure to payments to States for all major programs, and that it will prepare comprehensive written procedures for the handling of cash receipts. The actions which the Department has taken and proposes to take appear to be adequate to correct certain deficiencies noted in our review, and we plan to evaluate the adequacy of the Department's corrective actions when they have been completed. However, since the Department later informed us that it was deferring application of the letter-of-credit procedure to the area redevelopment program because legislative authority for this program expires on June 30, 1965, we are recommending that the Secretary of Labor offset surplus funds now in the hands of the States against any advances for training activities which may be made prior to the expiration of the area redevelopment program and recover on a timely basis any surplus funds which cannot be offset.

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