Data were collected via a random sample of 280 recipient organizations in four States and a review of official documents and records. The sample received questionnaires requesting information on cash balances for specified periods and on matters related to DHEW's cash management practices. Data were verified through site visits to about 10 percent of the sample organizations. Results showed that the department's cash management system allows premature cash withdrawals because of poor organization and serious design deficiencies. Specific problems include inadequate accounting records and ineffective fund controls. Inadequate staffing may be the underlying cause of many of the problems noted. It is recommended that DHEW develop a control system to monitor recipients' cash balances and specify in agreements the conditions under which withdrawals can be made. In addition, letters of credit should be extended to all recipients who are eligible to use that financial method and an appropriate system should be established to handle loan and contract advances through the grants accounting system. The charging of advances to specific appropriations and the use of internal audits are also recommended. An appendix presents a November 7, 1978 memorandum from the DHEW Secretary to DHEW agencies concerning the development of a new grant and financial system. (Author abstract modified)