DCCUMENT RESUME

03460 - [A26S3867J

Need to Apply Adegsate Control over the Centralized PayrollSystem. FGSrt-77-.1; E-164031. September 22, 1977. 2 pp. +appendix (17 FF-)-

Report to Secretaiy, Department of ealth, Education, andWelfare; by r. T.. Scaz .lebury, Director, Financial and GeneralManagement Studies Div.

Issue Area: Accounting ani Financial eporting (2800).Contact: Financial and General Management Studies Div.Budget Function: Miscellaneous: Fiaaecial anagement and

Irnformation Systems (1002).Congressional Relevance: House Committee on Edurcation and Labor;

Senate Ccmmittee on Labor and Public Welfare.

In 1976 +he Department of Health, Education, andWelfare (HEW) paid over $2.2 billion to about 150,000 employeesthrough a centralized, automated payroll system. Weakncose inthe system that might prevent timely and accurate payments toemployees include inaccuracies in time and attendance reporting,uncontrolled payments to experts nd consultants, and illegibleor missing ayrcll records. Findings/Conclusions: Previous GAOreports have recommended that a series of actions be taken to:(1) correct a high rate of errors in time and attendancereports; (2) improve supplemental pay processing to preventerroneous payments, pay and leave records, and withholdingstatements from being generated; 3) provide controls over payadjnstments to keep previous pay errors from being compoundedduaing the adjustment process and to reduce the potential forfraudulent or unanthorize, payments through the adjustmentprocess; (4) eliminate practices that allow excessive andfraudulent payments to experts and consultants; (5) controltemporary pay records to prevent overpayments and inaccuratewithhciding statements; and (6) provide better microfilm copiesof pay records that are being retained for payroll resa.rcn andaudit. Reccumendations: The Secretary of Health, Education, andlelfare should have the Assistart Secretary fc-- PersnnelAdministration take the necessary actions to in-e tt he GAOreccmmendaticns previously made are fully implemented.(Author/SC)

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UNITED STA TESGENERAL ACCOUNTING OFFICE

Need To Apply AdequateControl Over TheCentralized Payroll SystemDepartment of Health,Education, and Welfare

In 1976 HEW paid over 2.2 billion to about150,C00 employees through a cent-alized,automated payroll system

This report discusses me y weaknesses in thesystem that may prevent timely and accuratepayments to employees. Included are

-. inaccuracies in time nd attendancereporting,

--uncontrolled payrnents to experts andconsultants, and

--illegible or missng payroll rcoids.

GAO is recommending a series of actions tocorrect these weaknesses.

Several of the weaknesses ihave been pre-viously reported by GAO, HEW's AuditAgency, and others. HEW has not taken ade-quate corrective action, however. GAO istherefore recommending that the AssistantSecr3tary for Personnel Administrationmonitor the implementation of the recom-mendations cor,-.ined in this report.

FGMSD-77-51 SEPTEMBER 22, 1977

UNITED STArES GENERAL ACCOUNTING CGFICEWASHINGTON, D.C. 20548

DIVIIION FINANCIAL ANDOUNl"AL MANAGIMINT SrUDIX

B-164031

The HonorableThe Secretary of Health,

Education, and Welfare

Dear Mr. Scretarv:

Thic report is the fourth in a series on the centralizedpayroll system of the Department of Health, Education, andWelfare (HEW). It discusses system improvements needed to in-sure that wages and salaries are paid accurately and promptlyto about 150,000 employees. About $2.2 billion was paid tothese employees in calendar year 1976.

Our review was made at your Department's Division of Cen-tral Payroll in Washington, D.C., and was undertaken pursuantto the Budget and Accounting Pr.cedures Act of 1950. Section112(b) of the act provides for approval of executive agency ac--ounting systems by the omptrtller General. HEW s statementof principles; and standards for its accounting systems was ap-proved in April 1970, and it plans to submit the centralizedpayroll system design for approval in June 1979.

We evaluated HEW's actions on recommendations in auditreports issued since 1969 on the centralized payroll opera-tion. The recommendations were made in reports by HEW'sAudit Agency, a special interagency payroll review panel con-vened by HEW, and us.

The appendix to this report contains details of our find-ings, conclusions, and recommendations, Briefly, it recom-mends a series of actions that hould be taken to:

-- Correct a high rate of errors in time and attend-ance reports.

-- Improve supplemental pay processing to preventerroneous payments, pay and leave records, andwithholding statements from being generated.

-- Prolvide controls over ,, adj'ustments to keepprevious pay errors fr, .g compounded dur-ing the adjustment proc' . I to reduce the

B-164031

potential for fraudulent or unauthorized pay-ments through the adjustment process.

-- Eliminate practices that allow excessive andfraudulent payments to experts and consultants.

--Cuo;trol temporary pay records to prevent over-piyments and inaccurate withholding statements.

--Frovide better microfilm copies of pay records thatare being retained for payroll research and audit.

Some of our recommendations relate to system deficiencies

that have previously been reported by HEW's internal auditorsor by us, but have not been corrected. Because of this, we rec-ommend that you have the Assistant Secretary for Personnel Ad-ministration take the necessary actions to insure that ourrecommendations are fully implemented.

We discussed our findings and recommendations with payrollofficials, including the Director of the Division of CentralPayroll. The officials generally agreed with our findings andrecommendations.

As you know, section 236 of the Legislative Reorganiza-tion Act of 1970 requires the head of a Federal aency to sub-mit a written statement on actions taken on our recommendationsto the House Committee on Government Operations and the SenateCommittee on Governmental Affairs not later than 60 days afterthe date of the report and to the House and Senate Committeeson Appropriations with the agency's first request for appro-priations made more than 60 days after the date of this re-port.

We are sending copies of this report to the Director ofthe Division of Central Payroll and the Assistant InspectorGeneral for Audit. We are also sending a copy to CongressmanMario Biaggi, by agreement, because of his interest in HEW'spayroll system.

We appreciate the courtesy and cooperation extended toour representatives dur.ng our audit. We would appreciateyour comments and advice on any actions taken or planned onmatters discussed in this report.

Sincerely yours,

D. L. ScantleburyDirector

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APPENDIX I APPENDIX I

SUMMARY OF FINDINGS AND RCOMMENDATIONS TO

IMPROVE SYSTEM CONTROLS OVER PAYROLL OPERATIONS

The centralized automated payroll system of the Depart-ment of Health, Education, and Welfare (HEW) paid approxi-mately S2.2 billion to about 150,000 employees in calendaryear 1976. We evaluated the procedures and -records control-ling these payments and identified many opportunities for im-proving the payroll system. These improvements would help in-sure that only accurate and prompt payments are made to em-ployees.

POSITIVE ACTION NEEDED TO IMPROVE CONTROLSOVER TIME AND ATTENDANCE REPORTS

Previous reports by HEW's internal auditors and us dis-cussed a high error rate in time and attendance reports usedas a basis for issuing biweekly paychecks to HEW employees andsaid that this condition could lead to errors in employees' payand accrued leave. At the time of our review the potential forpay errors still existed because management had not correctedcontinuing weaknesses in timekeeping practices.

We first reported on errors in time and attendance re-ports used by HEW's payroll system in January 1969. In thatreport, / we:

-- Discussed many clerical type errors (such asmistakes in arithmetic and carrying totalsforward) in recording annual and sick leavebalances and estimated that leave balanceswere overstated and understated by about $3million as a result of the errors.

-- Commented that the errors went undetectedbecause many time and attendance reportsforwarded to central payroll were not re-vLewed by the timekeepers' supervisors.

Responding to our findings in 1969, HEW said that a newsystem was being designed using computers to maintain leavebalances. HEW also said the new system should eliminate anyerrors in leave balances and that action would be taken toinsure more effective supervision in time and attendancereporting.

i/"Need for Improvements in the Automated Central PayrollSystem of the Department of Health, Education, and Wel-fare" (B-164031), Jan. 17, 1969.

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In December 1970 HEW's internal auditors reported thattimekeepers and their supervisors were still not adequatelyreviewing time and attendance reports. The internal auditorsestimated a Department-wide error rate of over 10 percent, in-cluding missing certifications by timekeepers and supervisors,and attributed this error rate primarily to nadequate reviewby timekeepers and supervisors. The internal auditors alsotold HEW's management of the importance of adequate reviews,noting other control features, such as reviews by payrollclerks and employee complaints, were not detecting errors.

In responding to that reFort, central payroll officialsagain acknowledged the need for action to improve the qualityof time and attendance reports. A 1971 internal audit report,however, note3 that the time and attendance reports still con-tained errors necessitating the issuance of supplemental pay-checks.

We considered whether HEW's procedures for time and at-tendance reporting now conform to standards specified in ourPolicies and Procedures Manual for Guidance of Federal Agencies(6 GAO 7). These standards emphasize the need for adequatesupervision and reviews over time and attendance reporting toprevent unauthorized, fraudulent, or otherwise irregular acts.

Under HEW's procedures, a report is to be submittre foreach employee listing the nature and length of absences. Thetimekeepers are responsible for correctly filling out time re-ports, and their supervisors are required to certify the va-lidity of the reported information. Employees should certifyaccuracy of time reported for them as leave taken, if any.

We selected a sample of 900 time and attendance reportsand found that 79, or about 8.8 percent, were not preparedin accordance with HEW's procedures. Of these 79,

--39 reports (about 4.4 percent) were notcertified by the employees' supervisors;

-- 19 reports (about 2.1 percent) did notcontain required certifications by theemployees for whom they were submitted; and

-- 21 reports (about 2.3 percent) eitherwere prepared in apparent disregard ofpayroll regulations or contained clericalerrors, lack of specifics on authorizationsfor reported overtime hours, or insufficientinformation to accurately compute pay.

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The reports we reviewed had already passed through con-tr3ls programed into the computer to help insure that onlyaccurate, reliable, and comrFe data was used in computingemployee pay. The 8.8 percent error rate showed that littleprogress had been made to i prove the accuracy of time andattendance reports since 1l70 when the error rate was about10 percent.

Centi:al p roll officils acknowledged that the errorrate was too high and attributed it primarily to a high turn-over rate for timekeepers. They id timekeeping was not adesirable job--75 percent of HEW s approximately 6,000 time-keepers wre replaced every 6 months.. They also said the jobwas normally assigned to the newest clerical member of an of-fice who generally attended no formal training programs. Thus,the timekeepers' knowledge of HEW's procedures was generallylimited to information passed on to them by other timekeepers.These officials believed that formal training courses werefutile becave of the high turnover rate of timekeepers.

Central payroll officials acknowledged that the lackof training resulted in a significant amount of erroneousand unnecessary paperwork. For example, they said theirreview of 470 corrected time and attendance reports sub-mitted by timekeepers showed that many of the reports hadto be corrected because they had not been prepared accordingto established HEW procedures.

Conclusions and recommendations

Our Policy and Procedures Manual for Guidance ofFederal Agencies (6 GAO 7) provides that the preparationof time and attendance reports must be properly supervisedand reviewed to prevent unauthorized, fraudulent, or other-wise irregular acts. HEW's procedures require that the re-ports be prepared under adequate supervision and review.The procedures also require certifications indicating thatthe supervisory and review tasks have been adequately per-formed. These procedures, however, are not being followed.

Because the high error rate in time and attendance re-ports has been a longstanding problem at HEW, positive actionis long overdue to correct the condition. We therefore recom-mend that the HEW Secretary requirfe the Director of the Divi-sion of Central Payroll to:

-- Issue instructions to HEW's timekeepers andtheir supervisors emphasizing that prescribed

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procedures must be followed in preparingtime and attendance reports.

--Develop a mandatory training program fortimekeepers that explains procedures inFederal regulations and in HEW's manualfor accurate recording and :eporting ofemployees' hours of work and leave.

-- Issue directives requiring that only pro-perly trained employees are assigned astimekeepers.

--Develop a monitoring program to insure thatthe procedure: are followed and to identifytimekeepers and supervisors who habituallydeviate from the procedures.

IMPROVEMENTS NEEDED INSTPPrEMENTAL PAYROLL ROCESSING

Central payroll manually processes a substantial numberof supplemental paychecks for HEW employees. We estimatethat HEW issued about 5,000 supplemental paychecks in calen-dar year 1976, valued at about $2.9 million.

Because central payroll's procedures do not insure thatemployees are accurately and promptly paid and leave balancesand earnings are properly recorded, many supplemental checksmust be issued. Because the preparation and processing ofsupplemental checks were not adequately controlled, unde-tected clerical errors

-- provided the opportunity for erroneous pay-ments,

-- resulted in erroneous amounts of leave beingrecorded,

-- allowed payments near yearend to be recordedinaccurately in pay records, and

-- permitted incorrect employee withholdingstatements to be issued for use in filing taxreturns.

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APPENDIX I APPENDIX .

Opportunity for erroneouspayments to employees

Central payroll issues supplemental paychecks to em-ployees who cann)t be paid under tne regular automated proc-ess, usually because time and attendance reports and per-sonnel documents are inaccurate, late, or missing. Payrollsupervisors are required to validate data used for partialor full payment. Because supervisor reviews are not thor-ough, many clerical errors are not being detected, result-ing in erroneous payments to employees.

HEW's payroll procedures require payroll liaison officialsor timekeepers to notify central payroll when employees dc notreceive their pay. ayroll clerks are responsible for re-searching (1) employee pay records, (2) time and attendancecards, (3) earning statements, and (4) documents in employeepersonnel records. This research establishes whether supple-mental paychecks should be issued. Clerks are also respon-sible for recording the data necessary for computing supple-mental payment amounts on input documents used in processingsupplemental paychecks. The payroll clerks' supervisors areinstructed to review and approve the documents used in prepar-ing lists of checks to be issued by the U.S. Treasury. Theserevie:s are to be made before the lists are prepared.

We noted, however, that supervisor reviews of the inputdocuments were primarily limited to checks of mathematicalaccuracy and of proper placement of data. They did not makeany reviews to determine whether employees were entitled tothe supplemental payments and, if so, to establish whbtherthe data used for pay computation was accurately recordedfrom source documents.

In reviewing supplemental payments authorized by super-visors, we found erroneous amounts were withheld for taxes on17, or 34 percent, of 50 supplemental payments we reviewed.The erroneous withholdings occurred because noncurrent taxLates were used and beca;ise arithmetical errors were made,resulting in paychecks with incorrect net pay being issuedto the 17 employees.

Tn further reviewing 24 of the 50 supplemental payments,inaccurate leave balances had been recorded for 5, or 20 per-cent, of them. No sick r annual leave balances were recordedfor three employees ever though they had balances that shouldhave been recorded. Two employees were given 8 hours of sickand annuai leave, although they were classified as temporaryemployees not entitled to earn leave.

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APPENDIX I APPENDIX I

Leave erroneously recordedfor employees

HEW has about ,500 part-time employees who my accumu-late sick and annual leave based on hours worked. Incorrectleave balances have been recorded for some of these part-timeemployees because of weaknesses in HEW's practices for accumu-lating leave when they are paid trough the supplemental pro-cess.

Part-time employees earn leave based upon the length oftheir Federal service and the number of hours worked in a payperiod. Employees with less than 3 years of service earn 1hour of leave for each 20 hours worked; those with 3 but lessthan 15 years earn 1 hour for each 13 hours; and those withover 15 years receive 1 hour for every 10 hours. To illus-trate, 1 hour of earned annual leave should be recorded for part-time employee with less than 3 years of service who works24 hours in a pay period. The remaining 4 hours of workshould be carried forward to determine the amount of leaveearned at the end of the next pay period.

We noted that the document used to process supplementalpayments did not have space to ecord hours worked, whichshould be carried to the next pay period. Payroll officialssaid the hours to be carried could be entered on leave rec-ords by using another form. They acknowledged, however, thatpayroll clerks often neglected to use the other form. As aresult, part-time employees were not always credited with thefull amount of annual leave earned.

In addition to problems with the documents, we also notedthat central payroll was not promptly recording leave balancesit computed when making supplemental payments. Often over amonth elapsed between the processing of a supplemental checkand the recording of the leave earned in the period involved.Employees frequently complained about their incorrect balancesduring this delay.

Employee complaints were generally received by the leaveunit in central payroll. When complaints were received, theleave unit adjusted employee leave records without regard tosupplemental leave entries already in process and eventuallyrecorded in the leave records. Some employees were thus giventwice as much leave as they actually earned.

Payroll officials acknowledged that duplicate amountsof leave had been given to some employees. The officialssaid that responsibility for correcting leave errors had re-cently been reassigned to the payroll processing units.

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APPENDIX I APPENDIX .

According to them, this change will reduce the potential forduplicate leave entries. Because the reassignment occurredafter our review, we did not determine the effect of thischange on the accuracy of leave records.

Improper recording of yearend payments

Centrl payroll clerks often recorded supplemental pay-ments made t employees near the end of the calendar year inthe following year's pay records. For example, we reviewed67 supplemental payments to employees and found that 31, or46 percent, had been recorded in employees' records for thefollowing year. We also noted that it generally took about5 weeks for supplemental payments to be recorded in employeepay records.

In our opinion, agency procedures must insure that pay-ments are recorded in employee pay records for the year inwhich the payments are made. Otherwise, the pay records areunderstated or overstated and cannot be used to resolve ques-tions relating to employee pay nor to determine amounts to bereported for such deductions as retirement contributions andtax withholdings.

Incorrect earning statementsissued to emloyees

When supplemental payments were improperly recorded inemployee pay records, HEW issued incorrect earning statements(W-2 forms) for the employees to use in filing city, State,and Federal income tax returns. HEW attempted to issue cor-rected earning statements to the employees, but it was notalways successful in doing so. For example, in reviewing 30erroneous pay records, we found that HEW had not issued cor-rected statements for seven, or about 25 percent, of the em-ployees involved. In four of he seven cases, corrected earn-ing statements had been issued for only 1 of the 2 years in-volved.

Central payroll officials could not specifically explainwhy the corrections were not made, particularly since InternalRevenue Service regulations require that corrected statementsbe issued when originals are found to be incorrect. It ap-peared that some pay clerks did not realize that supplementalpayments incorrectly recorded in 1 year actually misstatedpay records for 2 years. Therefore, the clerks only cor-rected the statements for the first year. At other times,the clerks apparently assumed that amended statements issuedto correct other errors also included the adjustments for sup-plemental pay. We believe this confusion stems from the lack

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APPENDIX I APPEND'X I

of writter HEW procedures describing when revised statementsmust be issued.

Conclusions and recommendations

Better controls are needed over the supplemental payprocesses to insure that employees are paid correctly andthat leave records: earning records, and earning statementsare accurate. We therefore recommend that the HEW Secretaryinstruct the Director of the Division of Central Payroll to:

-- Require payroll supervisors tc thoroughlyreview data accumulated by payroll clerksbefore approving it. This data should re-late to the propriety and accuracy of sup-plemental payments.

-- Monitor the entry of leave credited to em-ployees paid through the supplemental proc-ess to insure that duplicate entries areno longer being made.

-- Insure that payroll clerks urstand andfollow the procedures established to creditleave records of part-time employees receiv-ing supplemental payments.

-- Revise central payroll's procedures so thatsupplemental pay is recorded in employee payrecords for the year in which payments aremade and develop procedures describing thecircumstances in which employee earning state-ments must be rvised.

NEED TO ELIMINATE POTENTIAL FOREXCESSIVE PAY TO EXPERTS AND CONSULTANTS

In fiscal year 1976 HEW paid about $4.7 million to ap-proximately 2,000 experts and consultants it employed. Someo: these employees might have been paid excessively because:

-- Multiple pay records were maintained forsome experts and consultants, and controlswere inadequate to detect multiple paymentsfor the same services.

-- Many time reports for experts and consul-tants were submitted long after serviceswere rendered. Sometimes no means existedto establish the validity of the reports.

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APPENDIX I APPENDIX I

-- Payroll clerks sometimes changed time andattendance reports to show that work wasperformed on an authorized assignment, whenin fact experts and consultants had submittedreports showing they bd spent time on un-authorized assignments.

Multiple pay records

HEW's procedures allow six different pay records to bemaintained for each expert and consultant employed by HEW.In 1973 the HEW Audit Agency pointed out that inadequate con-trols over the multiple pay records had permitted improperand fraudulent payments to consultants. Although are couldnot establish whether fraudulent payments were continuing,we noted they questionable payments had been made. Missingor illegible records, however, often prevented us from es-tablishing the propriety of payments.

HEW appoints experts and consultants on either a tempo-rary or intermittent basis, and these appointments pecifycompensation at either hourly or daily rates. By law, em-ployment on an intermittent basis cannot exceed 130 days ina year, and employment on a temporary basis (over 130 daysin a year) cannot exceed 1 year. Since experts nd consul-tants are allowed to hold several appointments at the sametime, central payroll's records are designed to handle upto six pay records for each expert and consultant. An iden-tification number is assigned to each appointment for pay andcther purposes, and all current appointments are shown on amaster list of consultant appointments. A separate pay-check is issued for work performed under each appointment.

Central payroll's automated system has edits or checksprogramed in computers to prevent experts and consultants&paid under each pay record from exceeding the equivalent o14 days work, or a maximum of 80 hours, per pay period. Noautomated edits or manual controls, however, exist to preventexperts and consultants from being paid for 14 days or 80hours work under each of the six separate pay records orto prevent duplicate payments for a lesser amount of time.As a result, experts and consultants could receive up to 12weeks or 480 hours of pay during a 2-week period or receivemultiple payments for the same services or ho,rs of work.

In 1973 HEW's Audit Agency reported that overpaymentstotaling $3,397 were made to three consultants with dualappointments. The Audit Agency attributed the overpaymentsto inadequate timekeeping practices and inadequate internalcontrols to insure that consultants are not compensated morethan once for the same work.

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APPENDIX I APPENDIX

HEW officials said it was desirable for accounting pur-poses to maintain separate pay records for each appointmentheld by an expert or consultant. They also said that ccbDin-ing separate appointment data under one pay record would notbe compatible with the automated payroll system's design.They acknowledged, hwever, that controls could and should beimplemented to prevent duplicate payments and payments inexcess of 14 days or 0 hours during a pay period under themultiple pay records.

Late time report s

Without specific HEW procedures requiring experts andconsultants to submit time reports at the end of pay periods,reports for such employees are often submitted many monthsafter the work was said to be performed. As a result, theclprke must spend a considerable aaount of time tying to es-tablish the validity of the reports, an effort that is notalways successful.

Time and attendance reports for experts and consultantsshould be prepared b HEW's designated timekeeper for the of-fice receiving the services. The timekeeper should certifythat the entries in the report are correct, and a supervisorshould albo verify :he accuracy of data and authorize centralpayroll to make payments for the time reported. HEW, however,has not established specific procedures requiring that experts'and consultants' reports be submitted at the end of the payperiods for which the reports are prepared.

Payroll clerks said that each month they processed manylate reports for experts and consultants. For example, onepay clerk said that she processed about 20 late reports eachpay period. In reviewing 20 of the late reports, we foundthat the reports were received by clerks from 6 to 32 weeksafter the pay period in which the work was said to have beenperformed. Clerks also said they spent a considerable amountof time attempting to verify data submitted in the late re-ports. We could not establish whether their efforts werealways successful because many of the records needed to verifyentitlement to pay were illegible.

We see no justifiable reason for the delays in submittingtime and attendance reports if the repv ts were prepared whenwork was performed and were certified at the end of the payperiod. If reports are not prepared until shortly before theyare submitted, however, the accuracy of the work hours reportedand certified becomes questionable. Only the timekeeper's mem-ory or unofficial records and notes could be used to prepare thereports. These are not acceptable sources for obtaining accurateand reliable information for hours worked, especially when a

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APPENDIX I APPENDIX I

considerable amount of time has elapsed between the date ofthe wo-k and the submission of the reports.

The time and attendance reports for experts and consul-tants must be submitted at the end of each pay period to com-ply with standards in our Policies and Procedures Manual forGuidance of Federal Agencies (6 GAO 15). As specified in themanual, no more than 12 days may elapse between the date a payperiod closes and the date employees, including experts andconsultants, are paid for work performed in the perio'.

Unauthorized changes to time reports

HEW's procedures require that time an! attendance reportsfor experts and consultants contain the appointment identi-ficaticn number under which the reported work was performed.The procedures also require that the number be matcI .d againstthose in a master file to insure that the pay is ma under avalid appointment number. When the payroll clerks found an in-valid number on a report, however, they simply changed it to oneshown on the master record without the change being verified orapproved by appropriate officials.

In our examination of 139 biweekly reports, we found thatpay cerks had changed the appointment numbers in 12 instances.Again, missing or illegible ecords prevented us from fully in-vesti-ating all of these cases. We were able to establish, how-ever, that in one of the ases a consultant was paid $466.90even though the consultant did not have a current appointmentauthorizing employment with HEW. Other improper avments toexperts and consultants may result from these unauthorizedchanges. And, payroll cannot assure that the proper appropria-tions are being charged for salary payments since multiple ap-pointments for experts or consultants may be authorized underdifferent appropriations.

Conclusions and recommendations

HoW's system for paying its experts and consultants con-tains serious weaknesses related to time and attendance re-port.ng. Because of illegible and missing records, we did notattempt to establish the full extent of improper paymentsresulting from the weaknesses. We are therefore recommendingthat the Hew Secretary instruct the Director of the Divisionof Central Payroll to:

--Determine, in conjunction with the InspectorGeneral's office, the propriety of past paymentsto experts and consultants and initiate actionto recover any payment: found to be improper.

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APPENDIX I AP 'ENDIX I

-- Include controls in the automated paytullsystem to insure that duplicate payments orpayments for over 14 days, or 80 hours, of workin a biweekly pay period are not made to ex-perts and consultants.

--Develop regulations requiring time and attend-ance reports for experts and consultants to besubmitted at the end of each pay period in whichthey work.

-- Instruct pay clerks to return to timekeepersany time and attendance reports with erro-neous data and require timekeepers to justifyor explain any corrections or alterations.

-- Tell experts and consultants of the need fortime reports to be submitted properly and ac-curately and emphasize that erroneous reportswill delay payments of their salaries and wages.

NEED FOR EFFECTIVE CONTROLSOVER PAY ADJUSTMENTS

HEW's procedures provide for payroll clerks to prepareinput documents, callee adjustment edit worksheets, to (1)correct previous errors in employees' pay and (2) pay amounts,including special bonuses, thCt cannot be handled by the reg-ular or the supplemental process. Information in the inputdocuments bypasses certain essential computer edits, and thepayroll clerks frequentl]y initiate pay adjustments withoutother individuals verify.ng the propriety and accuracy of thedocuments. As previously pointed out by HEW's internal audi-tors and us, the processing of pay adjustments without ae-quate supervisory checks can compound the number of pay er-rors and provide the opportunity for making fraudulent orotherwise unauthorized payments.

Our Policy and Procedures Manual for Guidance of FederalAgencies (6 GAO 7) cautions agencies to include in their pjy-roll system adequate cont rols to insure that all adjustmentsto pay, leave, and allowances are properly authorized. In our1969 report on HEW's payroll system, we reported inaccuraciesin pay adjustments that were made to correct previous errorsin pay. We aiso discussed the need for great care in makingsuch adjustments so that pay errors will not be compounded andextended over long periods.

In January 1971 HEW's internal auditors reported ancrror rate of about 8.6 percent in adjustments o correct

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previous pay errors, The internal auditors believed thatadequate review by others could have prevented the errors.They did not ake recommendations, however, because centralpayroll officials said the problems with accuracy of pay ad-justments would be corrected by revisions to the payroll sys-tem implemented in June 1972.

We considered the adequacy of control procedures in therevised system to see if pay adjustments were appropriatelyand properly authorized. Payroll clerks must prepare te ad-justment edit worksheet for a proposed pay adjustment. indoing so, they should manually research and calculate the ad-justment to an employee's pay. The worksheets can be used tochange most factors affecting employee pay including

-- rates for base, premium, and other types of pay;

-- hours of work or leave taken;

-- amounts withheld for Federal and State taxesand other purposes; and

-- amounts for special awards and bonuses.

The worksheets become the means for putting data into thecomputers to adjust employee pay. In HEW's automated payrollsystem, the data processed from the worksheets bypasses essen-tial computer edits designed tc check on the accuracy and ap-propriateness of payments. Moreover, central payroll haE nowritten procedures requiring reviews to establish the propri-ety and accuracy of adjustments before payroll clerks submitthe edit sheets for computer processing. The potential there-fore exists for unintentional or intentional errors by payrollclerks to go undetected for a long time.

We also noted that the adjustment edit worksheets hadbeen used to pay regular or premium wages that were rejectedby computer edits because the wages could potentially exceedthe maximum annual salary allowed by law. For example, com-puter edits prevented the payment of 21 overtime hours to aGS-rated employee because the overtime payment plus the em-ployee's regular salary would have exceeded the maximum paypermissible by law (5 U.S.C. 5547). The law prohibits pay-ments exceeding the maximum pay rate for a GS-15 employee.Abou. 2 weeks after the computer's action, the employee'sfield office asked central payroll to pay the employee forthe 21 hours of overtime. A payroll clerk prepared an ad-justment edit sheet that was used to issue the employee a$213.99 check for the overtime. In combination with the

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employee's regular pay, the amount exceeded the maximum limitauthorized by law.

Conclusions and recommendations

Because pay clerks are allowed to adjust employee payrecords without review and approval by supervisors, they havethe opportunity to conceal errors or fraud. Also, t e lack ofreview and approval makes it difficult to determine whetherunauthorized payments are being made and whether previouserrors in pay have been properly corrected. We therefore rec-ommend that the HEW Secretary instruct the Director of theDivision of Central Payroll to:

-- Require supervisors of pay clerks to verifythe propriety and establish the accuracy ofall information in edit sheets proposirg ad-justments to employee pay.

-- Require the reviews to be completed and theadjustments approved before the edit sheetsare submitted for computer processing.

-- Include the requirement for review and approvalin Central Payroll's operating manual.

NEED TO ESTABLISH CONTROLOVER TEMPORARY PAY RECORDS

Central payroll has no established procedures to transferdata on temporary recoLds to permanent pay records once theyare established. Opportunities therefore exist for improperpayments to be made and erroneous withholding statements tobe issued to employees.

HEW's payroll system identified each employee's masterpay record by social security number. New employees withouta social security number are assigned temporary identificationnumbers for pay purposes until valid numbers can be obtainedfrom the Social Security Administration. Since 1971 HEW hasissued temporary identification numbers to approximately400 employees. Using special computer programs, we identified91 temporary pay records, maintained under special identifica-tion numbers, that were still active. Several had been activesince 1972. Analysis of these records and other related datashowed that central payroll did not follow any consistentpractice for handling the temporary pay records when validsocial security numbers were obtained.

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APPENDIX I APPENDIX I

Many times the temporary records were properly closedout. At other times, however, a new pay record was establishedunder the valid social security number while the temporaryrecord continued in active status. These dual pay recordsprovide the opportunity for erroneous payments. For example,one employee had been improperly paid $2,164.80 because ofsuch records. Also, sometimes action was not taken to createa new pay record after receiving valid social security numbersfor employees. Instead entral payroll continued processingpuyments under tempoLaty lumbers.

We noted that no written procedures existed to explainhow temporary records should be handled once permanent onesare established. This condition has also led to confusingand erroneous withholding statements being issued to 24of the 91 employees with active temporary numbers.Specifically,

-- 12 employees were issued statements undertemporary numbers although the correctsocial security numbers were availablewhen the statements were issued;

--7 employees with a combined income of$32,745 were issued no statements at all;

--1 employee was issued separate statementsunder both a temporary number and a validsocial security number; and

--4 employees were issued statements thatdid not include their total income. (In-come amounting to $5,762 earned under thetemporary numbers was not reported for 3employees, and income of $3,264 earned bythe other employee under his permanent so-cial security number was not included.)

Conclusions and recommendations

Since paychecks can be issued to employees under bothpermanent and temporary social security numbers, the poten-tial exists for improper or fraudulent payments. Temporarypay records have been maintained for excessive periods oftime because no procedures for eliminating them have beenestablished. The lack of procedures has also created con-fusion resulting in erroneous earning statements. We there-fore recommend that the HEW Secretary instruct the Directorof the Division of Central Payroll to:

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APPENDIX I APPENDIX I

-- Purge pay record files of all temporary payrecords for which there are also permanentrecords.

-- Implement procedures to insure that onlyone pay record can be active for an e.mi-ployee at a time.

-- Implement followup -'edures to insurethat new employees obtain social securityrumbers within 30 days.

BETTER MICROFILM COPIES OFTIME AND ATTENDANCE REPORTS NEEDED

Central payroll microfilms all time and attendance re-ports and retains microfilm reels for use in payroll researchand audits. Microfilm copies of reports for some employeeswere completely illegible; others were of poor quality anduseless. Research to verify complaints about pay errorstherefore could be delayed while original copies of the re-ports are obtained from storage facilities outside of Washing-ton, D.C.

The illegible microfilm copies of records resulted fromattempts to microfilm time and attendance reports for about2,000 consultants and experts. Such reports for these em-ployees were on blue paper, and the microfilming process HEWused would not reproduce data from that color paper. Appar-ently, HEW officials were not aware of this situation, be-cause they continued to have the documents microfilmed.

Central payroll was aware that the time and attendancereports microfilmed for other employees were of poor quality.For example, 72 of 129 microfilm reels of time and attendancereports we examined were labeled fogged," meaning the reelscontained a number of microfilm copies of reports that couldnot be read.

Central payroll officials attributed the poor qualityof the microfilms to untrained and careless employees. Of-ficials said the backlog of work did not allow them to re-place any copies of time and attendance reports. We believethe poor quality of the microfilm contributes to HEW's back-log and the time spent to review and replace illegible micro-film would be minimal compared to the time required to re-trieve original copies of the reports from storage. Moreover,we believe that the time spent by payroll officials to reviewthe microfilm could be minimized by establishing a qualitycontrol program providing for rejection of any reels of filmfound to contain illegible microfilm.

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Conclusions and recommendations

Economic advantages exist in retaining copies of timeand attendance reports on microfilm, including reductions instorage costs and personnel costs to research records. Also,the use of microfilm expedites record research and makes itpossible to respond more quickly to employee complaintsabout pay errors. Because of the poor quality of the micro-film, however, HEW cannot always ealize these benefits.

We believe action should be taken to improve the qualityof central payroll's microfilms and recommend that the HEWSecretary instruct the Director of the Division of CentralPayroll to:

-- Institute quality controls over microfilmingof all employee time and attendance reportsto provide for rejecting any illegible copies.

-- Change the consultants' and experts' timeand attendance reports as necessary so thatthey will reproduce legibly on microfilm.

(90578)

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