[Audit Report on the Child Support Enforcement Program, Division of Paternity and Child Support, Department of Justice, Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-921

Title: Audit Report on the Child Support Enforcement Program, Division
       of Paternity and Child Support, Department of Justice,
       Government of the Virgin Islands



Date:  September 30, 1999



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U.S. Department of the Interior
Office of Inspector General


                                                  V-IN-VIS-003-99
AUDIT REPORT


CHILD SUPPORT ENFORCEMENT PROGRAM,
DIVISION OF PATERNITY AND CHILD SUPPORT,
DEPARTMENT OF JUSTICE,
GOVERNMENT OF THE VIRGIN ISLANDS


REPORT NO. 99-I-921

SEPTEMBER 1999



Honorable Charles W. Turnbull
Governor of the Virgin Islands
No. 21 Kongens Gade
Charlotte Amalie, Virgin Islands 00802


Subject: Audit Report on the Child Support Enforcement Program,
         Division of Paternity and Child Support, Department of
         Justice, Government of the Virgin Islands (No. 99-i-921)


Dear Governor Turnbull:

This report presents the results of our review of the management
of Child Support Enforcement Program grants by the Division of
Paternity and Child Support, Virgin Islands Department of
Justice.  The objective of the audit was to determine whether (1)
the Division complied with grant terms and applicable laws and
regulations; (2) charges made against grant funds were
reasonable, allowable, and allocable in accordance with the grant
agreement provisions; (3) funds received through electronic
transfers were deposited to appropriate accounts and accounted
for in the Government's Financial Management System; and (4)
drawdowns were made in accordance with the Cash Management
Improvement Act of 1990.  The scope of the audit initially
included fiscal years 1997 and 1998 but, at the request of
Division officials, was expanded to include fiscal year 1996.

Based on our audit, we concluded that although the Division of
Paternity and Child Support generally expended grant funds for
purposes which were allowable under the grants, the Division did
not ensure that (1) costs claimed against grant accounts were
reasonable and adequately supported, (2) the grants were
administered in accordance with grant terms and applicable laws
and regulations, and (3) drawdowns of grant funds were made and
documented in accordance with the Cash Management Improvement
Act.   Specifically, we found that the Division of Paternity and
Child Support:

-  Expended $78,884 for office space that was not used and an
additional $87,468 for office space construction work for which
it should not have been responsible, did not ensure that
competitive procurement practices were used, and did not ensure
that payroll costs were supported by valid time and attendance
records.

-  Did not maintain adequate property control records or perform
periodic physical inventories of equipment, did not properly
record and safeguard collections, and did not correctly calculate
indirect costs chargeable to the grants.

-  Did not request drawdowns of Federal grant funds until after
payment checks had been prepared for issuance and did not
maintain adequate supporting documents for drawdowns made prior
to June 1998.

We made 10 recommendations to you, as the Governor of the Virgin
Islands, to address the deficiencies identified by the audit.
Based on the August 31, 1999, response to the draft report
received from your office, we consider Recommendations A.3, A.4,
B.1, B.2, B.3, C.1, and C.2 resolved and implemented and
Recommendation B.4 unresolved and request additional information
for Recommendations  A.1 and A.2 (see Appendix 3).

Section 5(a) of the Inspector General Act (Public Law 95-452, as
amended) requires the Office of Inspector General to list this
report in its semiannual report to the Congress. Therefore,
please provide a response to this report by January 21, 2000.
The response should be addressed to our Caribbean Office, Federal
Building - Room 207, Charlotte Amalie, Virgin Islands  00802. The
response should provide the information requested in Appendix 3.

We appreciate the assistance provided by the Division of
Paternity and Child Support in the conduct of our audit.

                                           Sincerely,

                                           Earl E. Devaney
                                           Inspector General


CONTENTS

                                                             Page

INTRODUCTION...........................................  1  

BACKGROUND........................................  1  
OBJECTIVE AND SCOPE...............................  1  
PRIOR AUDIT COVERAGE..............................  2  

FINDINGS AND RECOMMENDATIONS...........................  3  

A.  GRANT EXPENDITURES............................  3  
B.  GRANT ADMINISTRATION..........................  8  
C.  GRANT DRAWDOWNS................................13  

APPENDICES

1.  CLASSIFICATION OF MONETARY AMOUNTS.............16  
2.  GOVERNOR OF THE VIRGIN ISLANDS RESPONSE........17  
3.  STATUS OF AUDIT REPORT RECOMMENDATIONS.........23  

INTRODUCTION

BACKGROUND

The Division of Paternity and Child Support was established
within the Virgin Islands Department of Justice by Title 3,
Section 119, of the Virgin Islands Code to administer Title IV-D
of the Social Security Act in the Virgin Islands.  The purpose of
the Title IV-D (or Child Support Enforcement) Program is to
provide for the coordination and oversight of state efforts to
collect child support payments from absentee parents and
distribute such funds to the custodial parents.

The Child Support Enforcement Program is funded through
entitlement grants awarded by the U.S. Department of Health and
Human Services, which provide 66 percent of the Program's
personal services and other operating costs and 90 percent of
necessary data processing support costs. The remaining costs of
the Program (34 percent of personal services and other operating
costs and 10 percent of data processing support costs) are to be
matched by the Division of Paternity and Child Support from local
funds.  The Division received Federal grants of $2.5 million
during fiscal year 1996, $2.2 million during fiscal year 1997,
and $1.5 million during fiscal year 1998.  Under the terms of the
entitlement grants, grant funds do not have to be expended in the
year during which the funds are awarded.

OBJECTIVE AND SCOPE

The objective of the audit was to determine whether (1) the
Division of Paternity and Child Support complied with grant terms
and applicable laws and regulations; (2) charges made against
grant funds were reasonable, allowable, and allocable in
accordance with the grant agreement provisions; (3) funds
received through electronic transfers were deposited to
appropriate accounts and accounted for in the Government's
Financial Management System; and (4) drawdowns were made in
accordance with the Cash Management Improvement Act of 1990.  

The scope of the audit initially included a review of Child
Support Enforcement Program transactions that occurred during
fiscal years 1997 and 1998 but was expanded, at the request of
Division officials, to include fiscal year 1996.  The scope of
our review was limited to the extent that the Division of
Paternity and Child Support did not maintain complete and
up-to-date grant files; therefore, we were not able to reconcile
all drawdowns of grant funds to the related grant expenditures.

To accomplish the audit objective, we reviewed grant award
documents, supporting documentation for expenditures claimed
against the grants, supporting documentation for electronic
transfers of Federal funds, and the operating procedures used by
the Division of Paternity and Child Support.  The audit was
conducted at the Division of Paternity and Child Support and at
the Departments of Justice, Finance, and Property and
Procurement.

Our review was made, as applicable, in accordance with the
"Government Auditing Standards," issued by the Comptroller
General of the United States.  Accordingly, we included such
tests of records and other auditing procedures that were
considered necessary under the circumstances.

As part of our audit, we included an evaluation of internal
controls over the Division's operations to the extent we
considered necessary to accomplish the audit objective.  Internal
control weaknesses were identified in the areas of grant
expenditures, grant administration, and grant drawdowns.  These
weaknesses are discussed in the Findings and Recommendations
section of this report.  The recommendations, if implemented,
should improve the internal controls in these areas.

PRIOR AUDIT COVERAGE

In 1989, the Office of Inspector General issued the audit report
"Review of the Child Support Enforcement Program, Division of
Paternity and Child Support, Department of Justice, Government of
the Virgin Islands" (No. 89-78).  The report stated that (1)
funds were adequately accounted for and that the Division was in
the process of implementing new operating procedures designed to
bring it into full compliance with program requirements, (2)
internal control weaknesses should be corrected to ensure that
cash and checks are adequately safeguarded and disbursements to
custodial parents are made timely, and (3) a contract was awarded
noncompetitively.  To address these issues, the report made two
recommendations.  The Governor concurred with the
recommendations, which were considered resolved and implemented.
The issues discussed in the prior audit report were similar to
those disclosed by our current audit.

In February 1998, the Administration for Children and Families,
U.S. Department of Health and Human Services, issued an audit
report (No. VI-97-RSR) on the Division of Paternity and Child
Support, Virgin Islands Department of Justice.  Although the
report stated that "the systems used to accumulate, record and
report collection, expenditure and statistical data were
generally accurate and reliable," the report identified
deficiencies which required improvements to be made to the
reporting systems.  The report contained 15 recommendations,
which the Division sufficiently addressed in its response to the
report.

FINDINGS AND RECOMMENDATIONS

A. GRANT EXPENDITURES

The Division of Paternity and Child Support did not ensure that
costs claimed against Child Support Enforcement Program grants
were reasonable and adequately supported.  Specifically, the
Division (1) incurred costs for the rental of unused office space
and for office space construction work that was performed for a
prior occupant, (2) did not ensure that competitive procurement
practices were used, and (3) did not ensure that payroll costs
were supported by valid time and attendance records.  U.S. Office
of Management and Budget Circular A-87, "Cost Principles for
State, Local and Indian Tribal Governments," defines the types of
costs that are allowable under Federal grant programs and the
types of documentation that should be maintained to support
allowable costs.  Additionally, Title 31, Chapter 23, of the
Virgin Islands Code contains the Government's basic procurement
requirements.  However, deficiencies existed because the Division
entered into its existing office space rental agreements without
negotiating with the landlord to secure office space that it
believed would be needed and did not comply with existing rules
and regulations regarding competitive procurements and the
documentation of payroll costs.  As a result, the Division (1)
expended $78,884 for office space that was not used and could
expend an additional $147,108 for the unused office space during
the remaining life of its rental agreement, (2) expended more
than $87,468 for construction work that it did not request and
for which it should not have been responsible and could expend an
additional $163,116 for work during the remaining life of its
rental agreement, (3) had little assurance that it received the
best price for contract services that were not competitively
procured, and (4) had little assurance that employees worked all
hours for which they were paid (see Appendix 1).

Rental Agreements

In April 1996, the Division entered into rental agreements for
two adjacent office spaces on St. Thomas at monthly rental costs
of $2,132 and $2,548, for a monthly total of $4,680.  About the
same time, a third adjacent office space that was used by one of
the Division's contractors became available.  Division officials
said that because they believed  they would eventually need
additional office space, the Division assumed the rental lease of
the contractor at an additional monthly rental cost of $2,948,
for a new monthly total of $7,628.  The Division occupied this
third office space and paid the additional monthly rental cost of
$2,948 for 3 months before the rental agreement was formally
executed through the Office of the Governor.

In addition, the Division assumed a further monthly cost of
$2,364, which represented the amortized construction costs
incurred by the landlord to set up the third office space to the
specifications of the contractor that had previously occupied the
space.  Although Division officials told us that they did not
believe the Division should have been held liable for these
construction costs, they agreed to pay the costs to rent the
additional office space.  Therefore, the Division was paying
total monthly rental costs of $9,992 for office space on St.
Thomas.

Unused Office Space.  We found that the Division had never
occupied or used one of the two office spaces which it initially
rented in April 1996.  Because the monthly rental cost for this
office space was $2,132, the Division, through April 1999 (37
months), incurred rental costs totaling $78,884 for this office
space.  Circular A-87 states that the cost of "idle facilities"
is not allowable as a claim against Federal grants and defines
idle facilities as "completely unused facilities that are excess
to the governmental unit's current needs."  Division officials
told us that they had not been able to use the space because the
Federal grantor agency had denied their request for construction
money to prepare the space for occupancy and that the Virgin
Islands Government did not have funds to pay for the construction
work.  These rental costs were disallowed by the U.S. Department
of Health and Human Services, which concluded in its February
1998 audit report (see Prior Audit Coverage) that "it is
unreasonable to continue to claim costs for unoccupied office
space."  As a result, local funds were used to pay for the
disallowed rental costs.  We estimate that if the Division
continues to pay the $2,132 monthly rental cost for the
unoccupied office space, it will incur additional unnecessary
costs of $147,108 over the remaining term of the rental agreement
(69 months).  Therefore, the Division should assess its space
needs and either make arrangements to begin using the vacant
office space or negotiate with the landlord to terminate the
lease for the unused space.  In our opinion, payment of a
reasonable termination penalty would be preferable to paying an
additional $147,108 for unused office space.

Amortized Construction Costs.  With regard to the $2,364 monthly
amount paid by the Division to liquidate the cost of construction
work performed by the landlord in the third office space at the
request of the former occupant, the Division, through April 1999
(37 months), had incurred related costs totaling $87,468.
Although Circular A-87 states that "[c]osts incurred for ordinary
and normal rearrangement and alteration of facilities are
allowable," we believe that because the construction work had
been performed at the request and specification of a prior
occupant, the Division should not have assumed responsibility for
reimbursing the landlord for the construction costs.  Division
officials said that they should not have assumed the construction
costs of the prior occupant but that they accepted the landlord's
terms without question to avoid losing the opportunity to obtain
the vacated office space.  We estimate that if the Division
continues to pay the $2,364 monthly amount for the prior
construction costs, it will incur additional unnecessary costs of
$163,116 over the remaining term of the rental agreement (69
months).

During the July 12, 1999, exit conference on a preliminary draft
of this report, the Director of Paternity and Child Support
stated that the unused office space was being used  temporarily
for storage but that the Division was planning to terminate the
lease for its present space and move to the Government Employees
Retirement System Building.

Procurement Practices

Title 31, Chapter 23, Section 236(a), of the Virgin Islands Code
states that "[a]ll purchases of, and contracts for, supplies,
materials, equipment, and contractual services, . . . shall be
based on competitive bids."   Title 31, Chapter 23, of the Virgin
Islands Rules and Regulations further states that "all purchases
and contracts, . . . whether by formal advertising or by
negotiation, shall be made on a competitive basis to the maximum
practicable extent."  Federal grant management regulations, which
are contained in the Code of Federal Regulations (45 CFR 92, the
"Common Rule") and U.S. Office of Management and Budget Circular
A-102, "Grants and Cooperative Agreements with State and Local
Governments," also require that competitive procurement practices
be used for Federally funded programs.

The Division of Paternity and Child Support had six contracts,
each for more than $5,000 and totaling $8.3 million, in effect
during the period of audit.  However, we did not find any
documentation in the procurement files at the Division or at the
Department of Property and Procurement that competitive
procurement practices were used or that any of the exemptions
from competition specified in the Virgin Islands Code were
applicable.  As a result, the Division had little assurance that
it obtained the most favorable prices and the highest quality
products or services.  The Division's Computer Manager, who was
responsible for supervising procurement activities for the
Division, told us that based on prior experience, the Division
was "comfortable" with certain contractors (satisfied with their
performance) and awarded subsequent contracts to those
contractors.

Payroll Costs

The payroll section of the Virgin Islands Department of Justice
was responsible for processing payroll transactions for employees
of the Division of Paternity and Child Support based on biweekly
time cards and time sheets prepared at the Division and then
transmitted to the Department for processing.  To test the
accuracy of payroll transactions, we reviewed the supporting
documents for a random sample of five pay periods from each of
the 3 fiscal years during the period of audit (1996, 1997, and
1998).  We traced the work hours shown on the original entry
document (Division of Paternity and Child Support employee time
sheets) through each level of records (time and attendance
records and payroll registers) to ensure that the payroll costs
claimed for grant purposes were accurate.

Circular A-87 states, "Charges to Federal awards for salaries and
wages, whether treated as direct of indirect costs, will be based
on payrolls documented in accordance with generally accepted
practice of the governmental unit and approved by a responsible
official(s) of the governmental unit."  However, the Division of
Paternity and Child Support and the payroll section of the
Department of Justice did not ensure that payrolls for the
Division's employees were adequately supported.  For example, of
the 324 employee payroll records reviewed, we found 41 instances
where differences existed between the hours worked as shown on
the employees' times sheets and those shown on the payroll
registers and 14 instances where the payroll registers were not
supported by time sheets.  

Department of Justice payroll personnel told us that because they
had a deadline for submitting employee payroll documents to the
Department of Finance for processing and payment, they processed
the payroll as though the employee had worked a regular 80-hour
shift, even though an employee may not have submitted a time
sheet for a biweekly pay period.  According to the personnel,
they would then make necessary adjustments in the next pay period
if the employee subsequently submitted a time sheet.  However,
neither Department of Justice nor Division of Paternity and Child
Support personnel followed up to obtain the necessary document
from the employee or adjusted the employee's pay based on the
hours worked if the employee did not submit the overdue time
sheet.  As such, we concluded that there was little assurance
that employees of the Division of Paternity and Child Support
worked the number of hours for which they were paid or were
charged for the number of hours of leave used.

We noted that in its February 1998 audit report (see Prior Audit
Coverage), the U.S. Department of Health and Human Services also
found that "prior period payroll registers were utilized to
prepare current monthly payroll summaries because the current
payroll registers were not available."

Recommendations

We recommend that the Governor of the Virgin Islands instruct the
Director of Paternity and Child Support to:

1.Assess its office space needs and either make arrangements to
begin using the vacant office space on St. Thomas for which the
Division is making monthly rental payments or negotiate with the
landlord to terminate the lease on the unused space.

2.Negotiate with the landlord to reduce or eliminate the monthly
amount paid for construction work which was requested by and
performed for a prior occupant of office space currently rented
by the Division.

3.Implement internal policies and procedures to ensure that the
Division complies with the competitive procurement requirements
of the Virgin Islands Code, the Virgin Islands Rules and
Regulations, and the Common Rule (45 CFR 92).

4.Implement internal policies and procedures to ensure that all
employees submit required time sheets in sufficient time to allow
for the processing of biweekly payrolls and that payroll costs
are supported by documentation that complies with the
requirements of Circular A-87.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The August 31, 1999, response to the draft report (Appendix 2)
from the Governor of the Virgin Islands stated concurrence with
Recommendations 1 and 2, indicated concurrence with
Recommendation 4, and indicated nonconcurrence with
Recommendation 3.  Based on the response, we consider
Recommendations 3 and 4 resolved and implemented and we request
additional information for Recommendations 1 and 2 
(see Appendix 3).

Recommendation 3.  Nonconcurrence indicated.

Governor of the Virgin Islands Response.  The response stated
that the Paternity and Child Support Division did not concur with
the finding that "six contracts totaling $8.3 million . . . had
not been procured pursuant to the competitive procurement
practices prescribed by the Virgin Islands Code."  The response
also stated, "During the period covered by the Draft Audit
Report, a competitive bid process was not required because the
contracts' reviewed by the Auditors were in fact amendments to
contracts executed during the [previous] Administration."
Despite the nonconcurrence, the response stated that the
competitive procurement requirements of the Virgin Islands Code
and the Code of Federal Regulations "will be adhered to
strictly."

Office of Inspector General Reply.  Contrary to the statement
made in the response, we found that only three of the six
contracts included in our review had originally been awarded
prior to the period covered by the scope of our audit (fiscal
years 1997 and 1998) and that, even in those three cases, the
original contract periods ran through the period covered by our
review.  The amendments to those three contracts were for (1)
additional enhancements and support for a software system, (2)
training on child support procedures, and (3) additional office
rental space.  The other three contracts were originally issued
during fiscal years 1997 or 1998.  Therefore, as part of our
audit, we reviewed the method of procurement used for all six
original contracts and any subsequent amendments.  Our review of
the contract files at the Paternity and Child Support Division
and at the Department of Property and Procurement did not
disclose any evidence that competitive procurement procedures had
been used for the six original contracts or any subsequent
amendments.  Therefore, we believe that the finding and related
recommendation are valid.  However, based on the statement in the
response that the competitive procurement requirements "will be
adhered to strictly," we consider the recommendation resolved and
implemented.

B. GRANT ADMINISTRATION

The Division of Paternity and Child Support did not ensure that
Child Support Enforcement Program grants were administered in
accordance with grant terms and applicable laws and regulations.
Specifically, the Division did not (1) maintain adequate property
control records or perform periodic physical inventories of
equipment, (2) ensure that Program income collections were
properly recorded and safeguarded, and (3) correctly calculate
indirect costs chargeable to the grants.   The Common Rule (45
CFR 92) contains the general administrative requirements related
to property management and Program income, and Circular A-87
contains the general principles for determining indirect costs.
Additionally, the Government Accounting Manual, issued by the
Virgin Islands Department of Finance, establishes the procedures
for safeguarding collections.  The deficiencies occurred because
the Division did not assign personnel to perform the required
property management functions and did not monitor the collection
and recording of Program income and the computation of indirect
costs.  As a result, Federally funded equipment valued at about
$22,800 and Child Support Enforcement Program fee collections of
approximately $23,000 were subject to loss, and the Government
did not recover indirect costs of $16,183 (see Appendix 1).

Property Management

The Common Rule (45 CFR 92.32) requires that grantees maintain
property records which include specific information on equipment
purchased with Federal funds and conduct physical inventories of
such equipment at least every 2 years.  To determine whether the
Division of Paternity and Child Support complied with these
requirements, we selected for review 12 property items, valued at
$22,800, that were purchased with grant funds during the period
of audit.  However, we were unable to physically locate any of
the 12 items or trace them to property management records because
the Division did not maintain property control records, affix
property identification tags, or perform periodic physical
inventories of the property.  The lack of property control
procedures occurred because the Division's Director had not
delegated these duties to any Division personnel.  As a result,
the 12 items included in our review were subject to loss or
misuse.

Controls Over Collections

The Common Rule (45 CFR 92.25) states that "[g]rantees are
encouraged to earn income to defray program costs" and that
"[o]rdinarily program income shall be deducted from total
allowable costs to determine net allowable costs."  Accordingly,
the Division charged an application fee of $20 to parents who
established child support cases.  The revenues from these fees
were deposited into the Attorney General's Trustee Account.
However, we found that revenue collections of were incorrectly
reported on the quarterly report forms because Division officials
did not adequately monitor the collection of revenues, the
reconciliation of collections and deposits, and the preparation
of the quarterly report forms.  For example, we found that the
Division, in fiscal year 1996, underreported application fee
collections by $2,270; in fiscal year 1997, overreported
collections by $100; and in fiscal year 1998, underreported
collections by $240.

We also found that the Division did not adequately safeguard
collections of approximately $23,000.  The Division had one
collector on St. Thomas, who was responsible for collecting
Program application fees and child support payments and preparing
cashier receipts to record the collections.  However, we observed
individuals, including two Division employees and a contract
security guard who were not bonded or authorized as cashiers,
making collections on behalf of the Division.  The security guard
received a payment of $350 from an absentee parent during a time
when Division employees were participating in a staff meeting.
He placed the cash in an envelope in his unlocked desk and later
gave it to the Division's authorized collector.  However, the
individual who made the payment did not receive a receipt as
evidence of having made the $350 payment.  The Government
Accounting Manual requires that cash collections be accepted only
by collectors and assistant collectors who are approved by the
Commissioner of Finance.  In our opinion, these collection
officers should be bonded to safeguard the interests of the
Government if funds collected are lost.

In March 1999, near the completion of our audit, the Division had
the two unauthorized employees who had made collections bonded
and authorized to receive collections.

Indirect Costs

U.S. Office of Management and Budget Circular A-87 contains
general guidelines under which state and local government
agencies that receive Federal grants can recover a proportionate
share of the administrative overhead or "indirect costs"
associated with managing the grant programs.  These indirect
costs are computed on the basis of an indirect cost rate
negotiated between the state or local government agency and the
cognizant Federal agency.[1]  The specific procedures used by
Government of the Virgin Islands agencies to prepare indirect
cost proposals for Federal review and approval are prescribed by
the Virgin Islands Office of Management and Budget.  For most
Government agencies, including the Division of Paternity and
Child Support, the indirect cost rates are computed on the basis
of direct salaries and wages, excluding fringe benefits.  For
example, if an agency had an approved indirect cost rate of 10
percent, it could claim $10 of indirect costs against its Federal
grant programs for every $100 of direct salaries paid to
employees of those grant programs.

Within the Division of Paternity and Child Support, the Assistant
Budget Control Officer prepared a quarterly summary of
expenditures that categorized expenditures as "payroll expenses"
and "other operating expenses."  The reported payroll expenses
were based on a computerized spreadsheet that was prepared for
each pay period.  The spreadsheets were based on information
obtained from the official payroll registers.  We reviewed these
documents for the period of audit and found that indirect costs
were incorrectly calculated because (1) the totals shown for
gross salaries on the computerized spreadsheets were not computed
correctly, (2) employees' gross salaries were incorrectly stated,
and (3) employees' gross salaries were omitted from the payroll
spreadsheets and payroll registers.  Because of the incorrect
computations, indirect costs were initially underreported by
$9,474 in fiscal year 1996 and $16,183 in fiscal year 1998.  We
found that additional underreporting of indirect costs occurred
because the Division incorrectly used the fiscal year 1996
indirect cost rate of 18.07 percent to calculate indirect costs
for the first quarter of fiscal year 1997.  The approved fiscal
year 1997 indirect cost rate was 37.04 percent.

At the time of the audit, the Assistant Budget Control Officer
told us that expenditure adjustment reports had been prepared to
correct the errors, but she could not provide documentation to
support these corrections.  As part of the response to the draft
report, the Division provided documentation to show that the
underreporting of indirect costs for fiscal years 1996 and 1997
had been corrected.  However, the Division did not provide
documentation regarding the $16,183 underreporting of  indirect
costs for fiscal year 1998.  We believe that the Division should
establish procedures to ensure that indirect cost calculations
are reviewed for accuracy and are based on the applicable rates
for each fiscal year.

Recommendations

We recommend that the Governor of the Virgin Islands instruct the
Director of Paternity and Child Support to:

1.Implement internal property management procedures and delegate
property management responsibility to specific Division employees
to ensure that complete and accurate property control records are
maintained, property identification tags are affixed to all
Government-owned property, and physical inventories of equipment
and other personal property are conducted at least biennially.

2.Implement internal policies and procedures to ensure that
collections and deposits are reconciled and that program income
is correctly recorded on the Child Support Enforcement Program
Financial Report - Quarterly Report of Expenditures and Estimates
(OCSE-131).

3.Enforce the provisions of the Government Accounting Manual
which require that only collectors and assistant collectors
approved by the Commissioner of Finance be allowed to make
collections and that receipts be issued to customers immediately
upon collection.  These collection officers should be bonded to
safeguard the interests of the Government if funds collected are
lost.

4.Implement internal policies and procedures to ensure that
indirect cost calculations are reviewed for accuracy and are
based on the approved indirect cost rates applicable to each
fiscal year before requests for reimbursement are submitted to
the grantor agency.




Governor of the Virgin Islands Response and Office of Inspector
General Reply

The August 31, 1999, response to the draft report (Appendix 2)
from the Governor of the Virgin Islands stated concurrence with
Recommendations 2 and 3, stated nonconcurrence with
Recommendation 1, and indicated nonconcurrence with
Recommendation 4.  Based on the response, we consider
Recommendations 1, 2, and 3 resolved and implemented and
Recommendation 4 unresolved (see Appendix 3).

Recommendation 1.  Nonconcurrence stated.

Governor of the Virgin Islands Response.  The response stated,
"Although our property control records were not up to date at the
time of the Auditors visit, we do not concur with the Auditors'
determination that [the Paternity and Child Support Division] did
not maintain any property control records, affix property tags to
any equipment or perform periodic physical inventories. . . .
Furthermore, we do not concur with the Auditors' finding that
[Division] equipment was subject to loss and misuse."  The
response further stated that 10 of the 18 items cited in the
draft report as not having been found "were in fact maintenance
agreements for the computer system" and that the remaining 8
items "were installed in computers on St. Thomas and St. Croix."
Despite the nonconcurrence, the response stated that the
Division's Interim Director "has implemented internal property
management procedures and delegated property management
responsibilities to the Clerical Support Assistant on St. Thomas
and the Administrative Officer on St. Croix.  As a result of the
Draft Audit Report, these employees have conducted an inventory
to ensure that our property control records are accurate and
up-to-date and that property identification tags are affixed to
all government-owned property."

Office of Inspector General Reply.  The property items discussed
in the finding were selected on the basis of purchases made
during the period of the audit.  The procurement documents listed
the items in such a way that they appeared to be software
packages and electronic components for the Division's
Unix-based[2] computers.  Although we discussed our preliminary
findings with Division officials during the audit, the officials
did not tell us that the procurement documents actually referred
to "maintenance agreements" for 7 (not 10, as stated in the
response) software packages.  We were informed of the agreements
after the draft report was issued, and at that time, we told the
Interim Director that we would revise the finding in the final
report.  With regard to the 12 (not 8, as stated in the response)
electronic components that were installed inside the Division's
computers, each item had a value of from $900 to $4,120.  While
we agree that it would not have been practical to affix property
identification tags to those items, the Division should have
maintained property control records that, at a minimum, listed
the description of each item, its serial number, and the serial
number and location of the computer into which it was installed.
We believe that without adequate property controls, those
electronic components could have been subject to loss or misuse.
However, based on the statement in the response that the Division
has implemented property management procedures and delegated the
property management responsibilities to specific employees, we
consider the recommendation resolved and implemented.

Recommendation 4.  Nonconcurrence indicated.

Governor of the Virgin Islands Response.  The response stated,
"We have implemented policies and procedures to ensure that
indirect cost calculations are reviewed for accuracy and are
based on the approved indirect cost rates applicable to each
fiscal year . . . .  Although the indirect cost reimbursements
were incorrectly calculated for FY [fiscal year] 1996 and FY
1998, expenditure adjustment reports were prepared and accepted
by the Grantor to correct the errors.  Hence, these amounts were
paid by the Grantor and not lost as stated in the Draft Audit
Report."

Office of Inspector General Reply.  Although the response stated
that adjustments had been submitted to correct the underreporting
of indirect costs for fiscal years 1996 and 1998, the additional
documents included with the response support only the adjustments
processed for fiscal years 1996 and 1997.  Therefore, the
Paternity and Child Support Division should submit to the grantor
agency an adjustment to correct the $16,183 underreporting of
indirect costs for fiscal year 1998.


**FOOTNOTES**

[1]:The cognizant Federal agency for the Virgin Islands is the
Office of Inspector General, U.S. Department of the Interior.

[2]:Unix is a computer operating system for mainframe computers
that serves the same purpose that Microsoft Windows serves on
most desktop and laptop computers.

C.  GRANT DRAWDOWNS

The Division of Paternity and Child Support did not ensure that
drawdowns were made and documented in accordance with applicable
requirements.  Specifically, fund transfers were not requested
until after checks were prepared for payment by the Department of
Finance, and supporting documentation was not maintained for
drawdown requests made prior to June 1998.   Both the Cash
Management Improvement Act of 1990 and the Code of Federal
Regulations (45 CFR 92.20(a)) establish procedures applicable to
the processing and documentation of grant drawdowns. However,
Division officials said that they were not aware of the Federal
requirements related to the drawdown of grant funds.  As a
result, grant funds of about $400,000 were not available in a
timely manner to pay grant-related expenses.

Cash Management Improvement Act

The Cash Management Improvement Act of 1990 requires funds
between Federal and state/local government agencies to be
transferred timely.  This requirement was designed to encourage
the development of efficient cash management systems and to
ensure equity in the transfer of funds from Federal grantor
agencies to state/local governments and ultimately to grant
program participants.

Supporting Documentation.  The Code of Federal Regulations (45
CFR 92.20 (a)) states that "[f]iscal control and accounting
procedures of the State, as well as its subgrantees . . . must be
sufficient to . . . [p]ermit the tracing of funds to a level of
expenditures adequate to establish that such funds have not been
used in violation of the restrictions and prohibitions of
applicable statutes."   The Code also states that "records must
contain information pertaining to grant or subgrant awards and
authorizations, obligations, unobligated balances, assets,
liabilities, outlays or expenditures and income."

We reviewed 96 invoices for payments, along with the
corresponding miscellaneous disbursement vouchers, that were
included in the contract files at the Division for fiscal years
1996, 1997, and 1998.  We also attempted to trace the
expenditures to the corresponding drawdowns but found that the
Division did not maintain supporting documentation for any
drawdown requests made prior to June 1998.  The Division's
Assistant Budget Control Officer, who prepared and maintained
fund drawdown requests, said that she was not aware of the need
to maintain supporting documents for the drawdowns until she was
informed by grant program officials at the U.S. Department of
Health and Human Services.  As a result, we were unable to
reconcile 69 of the 96 vendor payments to the related drawdowns.

Fund Transfers.  For the 27 invoices (96 minus 69) for which
related drawdown documentation was available, we determined that
the drawdowns were not requested by the Division until after the
vendor payment checks had been prepared[3] by the Department of
Finance. This practice was contrary to Title 31, Section 205(e),
of the Code of Federal Regulations, which states, "Reimbursable
funding is a method of transferring Federal funds to a State
after the State has paid out its own funds for program purposes.
After June 30, 1994, reimbursable funding is prohibited, except
where mandated by Federal law."  We are not aware of any Federal
laws related to the Paternity and Child Support Program that
mandate the use of the reimbursable funding method.  Despite this
restriction on the use of the reimbursable method, the Division's
Assistant Budget Control Officer said that she believed that
drawdown requests were not necessary prior to vendor payments.
However, the Acting Director of Accounting at the Department of
Finance told us that checks cannot  "technically" be released for
payment until the corresponding drawdown has been received by the
Department of Finance.  The Acting Director, however, stated that
payments were sometimes processed prior to the receipt of the
grant drawdowns and, in such cases, the Department of Finance had
to use other funds in the Special and Other Funds bank account to
pay the vendor pending receipt of the Federal funds.

To determine the extent to which the late drawdown of grant funds
affected the Government's ability to pay Division of Paternity
and Child Support expenses, we attempted to compare the dates on
which drawdowns were made and the dates on which the payment
checks were mailed to the vendors.  However, we could not
determine the check release dates because the handwritten
registers at the Department of Finance were not up to date or did
not contain sufficient details to identify individual checks.
Nevertheless, based on the Department's automated check
registers, we were able to determine that 27 checks, totaling
about $400,000, for payment of Division of Paternity and Child
Support vendors were prepared an  average of 69 days before the
grant funds to cover those checks were drawn down by the
Division.

Recommendations

We recommend that the Governor of the Virgin Islands instruct the
Director of Paternity and Child Support to:

1.Implement internal policies and procedures to ensure that
supporting documentation, as required by  the Code of Federal
Regulations (45 CFR 92.20(a)), is maintained for each grant
drawdown received.  Such documentation should be sufficient to
reconcile the amount of drawdown requests to the related
expenditures and to show that grant funds were used in accordance
with grant terms and applicable laws and regulations.

2.Implement internal policies and procedures to ensure that, in
accordance with the Cash Management Act of 1990 and implementing
regulations contained in the Code of Federal Regulations,
drawdowns of grant funds are made on the same day that vouchers
for payments to vendors are submitted to the Department of
Finance for processing.



Governor of the Virgin Islands Response and Office of Inspector
General Reply

The August 31, 1999, response to the draft report (Appendix 2)
from the Governor of the Virgin Islands indicated concurrence
with Recommendation 2 and nonconcurrence with Recommendation 1.
Based on the response, we consider Recommendations 1 and 2
resolved and implemented (see Appendix 3).

Recommendation 1.  Nonconcurrence indicated.

Governor of the Virgin Islands Response.  The response stated
that it did "not concur with" our finding "that supporting
documentation was not maintained for drawdown requests made prior
to June 1998."  The response further stated, "Although not all of
the supporting documentation for drawdown requests was detailed
enough to be matched with a specific drawdown at the time of the
Auditors' review, PCSD [the Paternity and Child Support Division]
now follows policies and procedures requiring documentation
sufficient to reconcile the amount of the drawdown requests to
the related expenditures."

Office of Inspector General Reply.  Despite the nonconcurrence,
the response agreed that supporting documentation was not
detailed enough to trace expenditures to the corresponding
drawdowns.  Based on the statement in the response that the
Division "now follows policies and procedures requiring
documentation sufficient to reconcile the amount of the drawdown
requests to the related expenditures," we consider the
recommendation resolved and implemented.

**FOOTNOTES**

[3]:Records at the Department of Finance did not provide
sufficient information for us to determine the dates on which
payment checks were transmitted to the vendors for payment.
However, we were able to determine the dates on which the checks
were prepared.

APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS


Funds To Be Put To Better Use  
Finding Area                        

A.  Grant Expenditures    
Unused Office Space               $78,884 *
Office Space Construction Work     87,468 **

Subtotal                          166,352

B.  Grant Administration           16,183 **

Total                            $182,535

                                  __________
*Amount represents local funds.
**Amount represents Federal funds.


APPENDIX 2
Page 1 of 6


GOVERNOR OF THE VIRGIN ISLANDS RESPONSE

APPENDIX 3

STATUS OF AUDIT REPORT RECOMMENDATIONS


-----------------------------------------------------------
Finding/Recommendation

Action   Reference   Status   Required 

A.1 and A.2   Management Provide target dates and concurs;
titles of officials additional responsible for information
implementation needed.

A.3 and A.4   Implemented.
No further action is required.

B.1, B.2, and B.3   Implemented.

B.4 Unresolved.No further action is required. Provide a plan of
action that includes the target date and the title of the
official responsible for C.1 and C.2

Implemented.submitting to the grantor agency an adjustment for
the underreporting of indirect costs for fiscal year 1998.

No further action is required.
-----------------------------------------------------------




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TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



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