B-152073, SEP. 3, 1963

B-152073, SEP. 3, 1963

TO THE HEADS OF DEPARTMENTS AND OTHER FEDERAL AGENCIES:

AS A PART OF HIS BASIC MANAGEMENT RESPONSIBILITIES, THE HEAD OF EACH FEDERAL AGENCY IS RESPONSIBLE FOR ESTABLISHING AND MAINTAINING SYSTEMS OF ACCOUNTING AND INTERNAL CONTROL INCLUDING APPROPRIATE INTERNAL AUDITING AS A MEANS OF PROVIDING, AMONG OTHER THINGS, EFFECTIVE CONTROL OVER FUNDS, PROPERTY, AND OTHER ASSETS FOR WHICH THE AGENCY IS RESPONSIBLE.

THE GENERAL ACCOUNTING OFFICE, IN CARRYING OUT ITS AUDITING RESPONSIBILITIES, IS REQUIRED BY LAW TO GIVE DUE REGARD TO GENERALLY ACCEPTED PRINCIPLES OF AUDITING, INCLUDING CONSIDERATION OF THE EFFECTIVENESS OF ACCOUNTING ORGANIZATIONS AND SYSTEMS, INTERNAL AUDIT AND CONTROL, AND RELATED ADMINISTRATIVE PRACTICES OF THE AGENCIES.

OUR REVIEWS OF THE PAYROLL OPERATIONS OF GOVERNMENT DEPARTMENTS AND AGENCIES HAVE DISCLOSED THAT, WITH RELATIVELY FEW EXCEPTIONS, ADEQUATE INTERNAL AUDITS OF SUCH OPERATIONS ARE NOT BEING MADE, APPARENTLY IN THE BELIEF THAT SUCH AUDITS MAY BE CURTAILED BECAUSE OF THE AUDITING PERFORMED BY THE GENERAL ACCOUNTING OFFICE. AS A GENERAL RULE, OUR AUDITORS ARE UNABLE TO PLACE AN ACCEPTABLE DEGREE OF RELIANCE ON AGENCY INTERNAL AUDITING IN CONNECTION WITH PAYROLL OPERATIONS. FOR EXAMPLE, OUT OF A TOTAL OF 249 ARMY, NAVY, AND AIR FORCE INSTALLATIONS AT WHICH WE PERFORMED CIVILIAN PAY AUDITS, ONLY THREE INSTALLATIONS HAD RECEIVED SUFFICIENT INTERNAL AUDIT COVERAGE TO MERIT AN ACCEPTABLE DEGREE OF RELIANCE FOR PURPOSE OF OUR EXAMINATION.

OUR AUDITS HAVE DISCLOSED A LARGE NUMBER AND VARIETY OF OVERPAYMENTS DUE TO ERRONEOUS PERSONNEL ACTIONS, INADEQUATE LEAVE ADMINISTRATION, AND OTHER DEFICIENCIES. IN ACCORDANCE WITH OUR CUSTOMARY PRACTICE, THESE MATTERS ARE BROUGHT TO THE ATTENTION OF RESPONSIBLE AGENCY OFFICIALS AND CORRECTIVE ACTION GENERALLY IS TAKEN. NEVERTHELESS, SUBSEQUENT AUDITS FREQUENTLY DISCLOSE SIMILAR ERRORS. CORRECTION OF SUCH ERRORS IS NOT ONLY COSTLY BUT MAY RESULT IN HARDSHIPS TO THE EMPLOYEES INVOLVED, PARTICULARLY WHERE OVERPAYMENTS EXTEND OVER A PERIOD OF SEVERAL YEARS. SUCH CASES OFTEN LEAD TO THE INTRODUCTION OF PRIVATE RELIEF BILLS WHICH REQUIRE SUBSTANTIAL TIME AND EFFORT BY AGENCY OFFICIALS AND MEMBERS OF CONGRESS. APPROPRIATE INTERNAL CONTROLS, INCLUDING EFFECTIVE INTERNAL AUDITING, WOULD SERVE TO MINIMIZE SUCH ERRORS.

FURTHER, WE HAVE FOUND THAT, AS A GENERAL RULE, AGENCY INTERNAL AUDIT GROUPS DO NOT HAVE ALL OF THE NECESSARY KNOWLEDGE AND UNDERSTANDING OF LEGAL REQUIREMENTS AND REGULATIONS PERTAINING TO CIVILIAN PAY MATTERS TO ENABLE THEM TO EFFECTIVELY AUDIT SUCH TRANSACTIONS. AS A RESULT, THEY ARE DEVOTING INADEQUATE ATTENTION TO SUCH MATTERS AS INDIVIDUAL ENTITLEMENT TO PAY AND ALLOWANCES. ONE OF THE REASONS FOR THIS LACK SEEMS TO BE ERRONEOUS ASSUMPTION THAT PAYROLL AUDITING IS A FUNCTION TO BE PERFORMED PRIMARILY BY THE GENERAL ACCOUNTING OFFICE.

THE CIVILIAN PAYROLL COST OF THE FEDERAL GOVERNMENT AMOUNTS TO ABOUT $15 BILLION ANNUALLY OR ABOUT 15 PERCENT OF THE FEDERAL BUDGET. IN VIEW OF THIS MAGNITUDE OF EXPENDITURES AND IN RECOGNITION OF THE RESPONSIBILITY OF THE HEAD OF EACH AGENCY FOR PROVIDING EFFECTIVE CONTROL OVER THE UTILIZATION OF FUNDS AND PROPERTY, WE BELIEVE IT IS ESSENTIAL THAT EACH AGENCY HEAD PROVIDE, AS A PART OF HIS MANAGEMENT CONTROL SYSTEM, ADEQUATE INTERNAL AUDITING WHICH WILL HELP PROVIDE ASSURANCE THAT, AS TO CIVILIAN PAY MATTERS, ALL PAYMENTS ARE MADE IN COMPLIANCE WITH APPLICABLE LAWS AND THAT RELATED FUNCTIONS SUCH AS LEAVE ARE PROPERLY ADMINISTERED. ACCORDINGLY, IT IS REQUESTED THAT INTERNAL AUDIT PROCEDURES IN YOUR AGENCY WITH RESPECT TO CIVILIAN PAY MATTERS BE REVIEWED AND STRENGTHENED WHEREEVER NECESSARY TO MEET THESE OBJECTIVES.

THE GENERAL ACCOUNTING OFFICE WILL CONTINUE TO MAKE INDEPENDENT EXAMINATIONS OF AGENCY FINANCIAL TRANSACTIONS ON A SELECTIVE BASIS. HOWEVER, THESE EXAMINATIONS SHOULD NOT IN ANY WAY BE CONSIDERED AS A SUBSTITUTE FOR EFFECTIVE INTERNAL AUDITING FOR WHICH THE HEAD OF EACH AGENCY IS RESPONSIBLE.

WE SHALL BE GLAD TO HAVE REPRESENTATIVES OF OUR OFFICE CONSULT WITH YOU CONCERNING THE ACCOMPLISHMENT OF THE ABOVE PURPOSES IF YOU SO DESIRE.