U.S. Department of Labor 
Office of Inspector General

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This report reflects the findings of the Office of Inspector General at the time that the audit was issued. More current information may be available as a result of the resolution of this audit by the Department of Labor program agency and the auditee. For further information concerning the resolution of this report's findings, please contact the program agency

Report Title: Georgia Mountains Regional Development Center

Report Number: 04-94-025-03-340

Issue Date: August 11, 1994

The Georgia Mountains Regional Development Center (Center) was established to promote economic development within a 13-county area in north Georgia. The Center has been designated as the Service Delivery Area for North Georgia. In addition, to DOL grants, the Center administers other Federal and State programs.

As a result of concerns raised by ETA, we reviewed selected expenditures of the Georgia Mountains Regional Development Center (Center), which were charged to DOL grants. Our audit period included Program Year 1992. However, our audit tests disclosed issues which caused us to examine earlier years' financial activities. We found problems with the Center's contract and administrative costs. As a result, we questioned $164,506 in charges to Labor grants.

Georgia law prohibits Regional Development Centers from directly delivering human services to the public. To avoid this prohibition, the Center created related nonprofit corporations and contracted with them for delivery of services. Recently, the Georgia State Attorney General issued an opinion indicating it was improper for the Center to have created and contracted with the related entities.

Following the opinion, the Center began contracting with a for-profit organization to serve the programs' participants. Many of the costs claimed by the contractor are for items or facilities the Center or its related entities have available. Consequently, the contracts with for-profit vendors have increased administrative costs of the programs and reduced funds available to assist those needing help.

The audit also found indirect costs the Center charged to the DOL grants often provided little or no benefit to Labor's programs. When beneficial, the services for which Labor programs were charged indirect costs could have been obtained at little or no costs from other sources.

The OIG audit also identified abuses related to a $336,000 contract modification involving a contract between the Center and a for-profit contractor. The funds were intended to provide participants with on-the-job training. However, because the contract's terms were improperly negotiated, the contractor retained nearly two-thirds of the funds as fees. We did not question these charges because a recent ETA review has recommended their recovery. However, the OIG questioned rental costs of $164,506, charged DOL grants, for space in buildings which were purchased predominately with Federal funds. The Center continued to charge rent for office space after the buildings' construction debt was retired through "rental" charges to Federal grants.

The OIG recommended the Assistant Secretary for Employment and Training require the State to pursue a more cost effective program delivery system. As several other Georgia Regional Development Centers operate in similar circumstance, corrective action should also address their activities. We also recommended recovery of $164,506 in improper rental charges.

In his response, the Center's Executive Director expressed general agreement that the Center's limited capability to deliver participant services has increased administrative costs borne by Federal programs. However, the Director contends the rental charges included allowable operation and maintenance expenses.

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