U.S. Department of Labor Office of Inspector General

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Report Title: California Human Development Corporation (CHDC)

Report Number: 18-94-018-03-365

Issue Date: August 18, 1994

($1,165,160 Questioned)

CHDC is a nonprofit corporation that operates in 4 States (California, Hawaii, Oregon and Washington) and has received a number of grants from DOL to provide employment and training services to migrant and seasonal farmworkers. CHDC also receives funds directly from other Federal agencies and as flow-thru funds from the various states to operate programs such as those for substance abuse, learning centers, child care, weatherization and rehabilitation, financial aid, literacy, basic adult education and emergency shelters. OIG performed a financial and compliance audit of expenditures made by CHDC's branch office known as Washington Human Development (WHD), selected Seattle-King County Private Industry Council agreements and property administrative practices. The audit resulted in $1.17 million in questioned costs (27 percent of the $4.3 million in reported costs for the 18-month period audited).

Our major findings were: (1) that WHD charged salaries and fringe benefits of administrative personnel, audits, surveys and consultants in the amount of $690,121 to the training cost category, which allowed WHD to circumvent the 20 percent limitation on administration costs; (2) costs claimed of $222,113 in WHD's Financial Status Reports were not supported by expenditure records; and (3) CHDC demonstrated a total lack of control over Federal funds including drawing down funds far in excess of WHD's immediate needs, failing to pay WHD vendors timely, and failing to complete bank reconciliations and related followup matters timely. Interest computed on the excess cash that should be returned to DOL is $67,244. Our other questioned costs resulted from duplicate charges, inequitable allocations, unreasonable/unallowable charges and lack of supporting documentation.

In early May, the OIG issued an alert memo to inform the Secretary and ETA that CHDC had already drawn down just about all of the years' funds under its DOL grants and, in doing so, had diverted about $1.5 million for non-grant uses (in addition to our questioned costs on the Washington grant). We informed the Department that CHDC appeared to be virtually bankrupt, with a large corporate debt and severe cash flow problems. ETA ten notified CHDC that it would not be refunded for Program Year 1994. The training programs were offered to the three States. They all accepted; however California and Oregon chose CHDC to run the programs for them as a subgrantee. On September 1, 1994, CHDC declared Chapter 11 bankruptcy.