oversight

Puerto Rico Department of Education Needs Major Improvements in Its Administration of the Governor's Safe and Drug Free School Program.

Published by the Department of Education, Office of Inspector General on 2000-09-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                      Puerto Rico Department of Education
                Needs Major Improvements in Its Administration of
               the Governor’s Safe and Drug Free School Program

                                   FINAL AUDIT REPORT




                           Audit Control Number ED-OIG/A01-90007
                                       September 2000



Our mission is to promote the efficient                       U.S. Department of Education
and effective use of taxpayer dollars                           Office of Inspector General
in support of American education.                                             Boston, MA
                                            Notice

Statements that financial and/or managerial practices need improvement or recommendations
that costs questioned be refunded or unsupported costs be adequately supported, as well as
other conclusions and recommendations in this report, represent the opinions of the Office of
Inspector General. Determinations on these matters will be made by appropriate U.S.
Department of Education officials. In accordance with the Freedom of Information Act (5
U.S.C. §552), reports issued by the Office of Inspector General are available, if requested, to
members of the press and general public to the extent information contained therein is not
subject to exemptions in the Act.
                                            Table of Contents


Executive Summary ................................................................................................1

Finding 1            PRDE severely delayed the flow of Federal funds .......................2
                          Recommendations..................................................................5
                          PRDE’s response...................................................................5
                          OIG’s reply ...........................................................................5

Finding 2            PRDE failed to follow the Cash Management Improvement
                     Act, Zero Balance Accounting ........................................................6
                            Recommendations..................................................................7
                            PRDE’s response...................................................................7
                            OIG’s reply ...........................................................................7

Finding 3            PRDE lacked supporting documentation for cash draws and
                     payments to subrecipients ..............................................................8
                          Recommendations..................................................................9
                          PRDE’s response.................................................................10
                          OIG’s reply .........................................................................10

Finding 4            PRDE failed to pay the correct invoice amount, drew excess
                     Governor’s Program funds and erroneously charged
                     accounts due to inadequate reconciliation and validation by
                     departments ...................................................................................11
                           Recommendations................................................................12
                           PRDE’s response.................................................................12
                           OIG’s reply .........................................................................13

Other Matters .......................................................................................................14

Background ...........................................................................................................15
Audit objectives .....................................................................................................15
Methodology & scope 16
Management controls............................................................................................17

Exhibit A:           Number of months for subrecipients to receive first payment

Exhibit B:           Number of days Governor's Program funds were held at the Puerto
                     Rico Governmental Development Bank

Exhibit C: PRDE’s response to the draft audit report (without attachments)
                                   Executive Summary

Puerto Rico Department of Education’s (PRDE) administration of the Governor's Safe & Drug-Free
School Program (Governor’s Program) severely delayed the flow of Federal funds to subrecipients. In
addition, PRDE lacked adequate cash management practices and effective internal controls to properly
administer the program. PRDE’s Single Audit reports for the years ended June 30, 1998 and June 30,
1999 have not been submitted. Furthermore, similar cash management issues have been repeatedly
reported in PRDE’s Single Audit reports since 1991.

PRDE severely delayed the flow of Federal funds to Governor’s Program subrecipients because it did
not ensure contracts were signed prior to the beginning of the award period. Specifically, subrecipients
signed the contract 3 to 11 months after the beginning of the award period. As a result, PRDE
prevented institutions from rendering services and/or hindered their ability to offer optimum services to
program participants.

PRDE did not follow the Cash Management Improvement Act (CMIA), Zero Balance Accounting and
also lacked efficient cash management controls resulting in excess cash held totaling $1,862,988. As of
January 25, 2000, PRDE had not disbursed balances totaling $132,975 to 8 of the 14 institutions
reviewed. In addition, PRDE lacked supporting documentation for cash draws and payments made to
subrecipients, resulting in $77,082 of unsupported expenses. Also, PRDE’s lack of proper controls
resulted in underpaying funds totaling $400; drawing $270 in excess of the contract amount; and
erroneously charging accounts.

We recommend the Assistant Secretary for Elementary and Secondary Education require PRDE to
institute adequate controls to assure contracts are signed by both parties prior to the beginning of the
award period. PRDE must also establish adequate controls to ensure that only the amount of funds
necessary to meet immediate cash needs are requested from ED and that requests are supported with
reliable supporting documentation. In addition, PRDE must establish more thorough cash forecasting
procedures to encourage prompt and effective utilization of Governor’s Program funds and must
reconcile advance payments made to subrecipients.

PRDE agreed with most of the findings reported and has taken action in response to our
recommendations. PRDE disagreed that it failed to: reconcile advance payments to contractors and
lacked proper controls due to inadequate reconciliation and validation by departments responsible for
approving and disbursing Governor’s Program funds. Despite its disagreement, PRDE will implement
our recommendations regarding these issues. We have recommended PRDE obtain an independent
assessment to determine if the new control procedures detailed in its response are sufficient. PRDE’s
detailed response is attached as Exhibit C, except for the attachments that will be provided upon
request.
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Finding 1                                   PRDE severely delayed the flow of Federal funds



                                            PRDE severely delayed the flow of Federal funds to
                                            Governor’s Program subrecipients because it did not ensure
                                            contracts were signed prior to the beginning of the award
                                            period. Specifically, subrecipients signed the contract 3 to 11
                                            months after the beginning of the award period. These delays
                                            hindered the institutions’ ability to offer optimum services to
                                            program participants and resulted in the suspension of the
                                            program at one institution.

                                            Federal regulation 34 CFR 80.21 (g) (1) states that, “Unless
                                            otherwise required by Federal statute, awarding agencies
                                            shall not withhold payments for proper charges incurred
                                            by grantees or subgrantees...”

                                            PRDE published newspaper advertisements during the months
                                            of December 1997 and January 1998 to advise institutions of
                                            the availability of funds for the Governor’s Program for the
                                            next award year. PRDE also provided orientation to all
                                            parties interested in applying for funds under the program.
                                            Interested parties submitted proposals to PRDE with the
                                            required documents to process the contracts. These
                                            documents included a: (1) certification stating that the
                                            institution filed income taxes for the past five years, (2)
                                            certification of tax liability issued by the Puerto Rico Treasury
                                            Department, and (3) certification from the State Department
                                            acknowledging that the corporation was registered and in
                                            “good standing.”

                                            PRDE evaluated all proposals and, between August and
                                            September 1998, sent acceptance and/or rejection letters to
                                            the applicants. Acceptance letters included the amount of
                                            funds approved for the institution for the award year.
                                            However, PRDE did not award funds to the institutions timely
                                            because contracts were not signed, generally until three to
                                            eleven months after the start of the program.
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        3-11 month delay in                 When both parties signed the contract, PRDE requested the
        signing the contracts               funds from ED. As a result, the date that PRDE requested the
        resulted in subrecipients’          funds was the approximate time the contract was signed. After
        inability to provide optimum
                                            the contract was signed, institutions began to submit invoices
        services to participants
                                            for the services rendered. We reviewed the contracts of 14
                                            institutions for award year 1998-99. These contracts reflected
                                            as the date that they were signed one or two days prior to the
                                            beginning of the contract period. However, the contracts were
                                            signed 3-11 months after September 1, 1998, the beginning of
                                            the contract period.

                                            Of the 14 contracts tested, we conducted site visits to six
                                            institutions. Officials at one school reported signing the
                                            contract in January 1999 – five months after the beginning of
                                            the contract period; PRDE subsequently issued funds to the
                                            institution in April 1999. Officials at two of the six institutions
                                            stated they signed contracts in February 1999, six months after
                                            the beginning of the contract period. PRDE subsequently
                                            issued funds to the institutions in February and March 1999.
                                            Officials at the remaining three institutions could not recall
                                            when the contracts were signed, but PRDE drew funds from
                                            ED on February 23, 1999 for two of the institutions and on
                                            March 4, 1999 for the remaining institution.

                                            One of the three institutions was able to begin services using its
                                            own line of credit. However, not all institutions had sufficient
                                            funds or lines of credit to operate the program. Officials at one
                                            institution reported that the Governor’s Program was
                                            discontinued for the 1999-00 award year because of late
                                            receipt of funds for the 1998-99 award year. The institution
                                            did not have sufficient institutional funding to support the
                                            program until Federal funds were received.

                                            For the eight institutions not visited, PRDE drew funds three to
                                            eleven months following the start of the contract period and
                                            issued checks to the institutions five to twelve months after the
                                            start of the contract period.

                                            The following table illustrates PRDE’s restriction of
                                            Governor’s Program funds for the 14 institutions included in
                                            our testing.
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                                                                         Date                # of months
                                                                         PRDE             between program
                                                Program                  drew                  start date
                                                  Start                  funds                    and
                         Institution              date                 from ED           first draw from ED
                              A                 1-Sep-98               9-Dec-98                    3
                              B                 1-Sep-98               3-Feb-99                    5
                              C                 1-Sep-98               3-Feb-99                    5
                              D                 1-Sep-98               3-Feb-99                    5
                              E                 3-Sep-98              24-Feb-99                    6
                              F                 1-Sep-98              24-Feb-99                    6
                              G                 1-Sep-98              24-Feb-99                    6
                              H                 1-Sep-98              24-Feb-99                    6
                              I                 1-Sep-98              24-Feb-99                    6
                              J                 1-Sep-98               4-Mar-99                    6
                              K                 1-Sep-98              19-Mar-99                    7
                              L                 1-Oct-98              19-Mar-99                    6
                              M                 1-Sep-98              19-Mar-99                    7
                              N                 1-Oct-98              12-Aug-99                    11

                    Note: Shading represent the sites visited as part of the audit.


                                    A complete listing of the 14 institutions reviewed can be found in
                                    Exhibit A. This includes dates of proposal acceptance letters,
                                    effective date of contracts, date contracts were signed by PRDE
                                    officials, date PRDE drew Governor’s Program funds from ED,
                                    number of months between PRDE signing the contract and first draw
                                    from ED, date the institutions received their first Governor’s Program
                                    payment for the 1998-99 award year, and number of months it took
                                    subrecipients to receive funds after the contract was signed by PRDE.

                                    PRDE officials explained that institutions failed to provide the
                                    necessary documentation, resulting in the slow processing of the
                                    contracts. Contrary to PRDE statements, the institutions’ officials
                                    interviewed stated they did not provide additional documentation to
                                    PRDE prior to signing the contracts. PRDE officials also stated
                                    contracts were backdated because Puerto Rico law does not permit
                                    retroactive payment for contract services.
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Recommendations                     We recommend that the Assistant Secretary for Elementary and
                                    Secondary Education require PRDE to:

                                    1.1     Institute controls to assure contracts are signed by both
                                            parties prior to the beginning of the award period; and

                                    1.2     Conduct an independent assessment of the new control
                                            procedures to determine that controls are sufficient.

PRDE’s response                     PRDE agreed with the audit finding and stated it has taken significant
                                    corrective actions to improve the         deficiencies in the process of
                                    executing contracts to assure contracts are signed before the
                                    beginning of the award period. These include:
                                    § moving to earlier dates the orientations for applicants, the
                                        submission of proposals, and evaluation process;
                                    § encouraging applicants to submit all necessary documentation
                                        with their proposal in order to avoid delays in the contracting
                                        process;
                                    § revising the Notice Award letter to prospective contractors to
                                        include that within 10 days of receipt of the letter, they must
                                        submit all certifications to PRDE; and
                                    § sending follow-up letters for any contractor who does not comply
                                        with the 10-day deadline identifying the specific missing
                                        documents and stating that if certifications are not submitted
                                        within 10 days, the award will be in jeopardy.

OIG’s reply                         PRDE’s corrective action should improve the flow of Federal funds
                                    to subrecipients. We added recommendation 1.2 to address the
                                    corrective action PRDE stated would be taken.
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Finding 2                           PRDE failed to follow the Cash Management Improvement
                                    Act, Zero Balance Accounting



                                    Beginning in December 1998, PRDE drew $1,862,988 in excess of
                                    immediate cash needs and held the funds for 23 to 140 days before
                                    making initial disbursements to subrecipients. As of January 25,
                                    2000, PRDE still held funds totaling $132,975. For example, PRDE
                                    drew $650,000 on December 9, 1998, but did not disburse any
                                    funds to the subrecipient until 52 days later. PRDE still had $70,214
                                    to disburse, 413 days after drawing funds from ED. Further, PRDE
                                    failed to follow the Cash Management Improvement Act (CMIA),
                                    Zero Balance Accounting for cash draws because it believed the
                                    Governor's Program did not fall under the CMIA, Zero Balance
                                    Accounting.

                                    Federal regulation 31 CFR 205.2 sets forth the CMIA and states that
                                    Subparts A and B apply to programs listed in the Catalog of Federal
                                    Domestic Assistance (CFDA). As per the Agreement between the
                                    Commonwealth of Puerto Rico and the Secretary of the Treasury,
                                    United States Department of the Treasury (Agreement with the State
                                    pursuant to Section 5 of Pub. L. 101-453), the State’s threshold for
                                    major Federal assistance programs is $7 million. The Safe and Drug-
                                    Free Schools and Communities State Grant (CFDA 84.186) is
                                    included in the programs that meet or exceed this threshold.

                                    Federal regulation 31 CFR 205.7 (c)(1) sets forth the Zero Balance
                                    Accounting for the CMIA. It requires a state to request funds the
                                    same day it pays out funds for program purposes, and a Federal
                                    agency shall deposit funds in a State account the same day it receives
                                    a request for funds.

        Not minimizing the          PRDE did not follow the Zero Balance Accounting for the
        time elapsing between       Governor’s Program. Instead, PRDE requested from ED the total
        receipt and                 amount of the contracts as soon as the contracts were signed. These
        disbursement of
                                    funds remained in the Puerto Rico Treasury Department account at
        program funds resulted
                                    the Puerto Rico Governmental Development Bank earning interest
        in PRDE holding
        funds for over one          until PRDE processed invoices for payment. During the period
        year                        December 9, 1998 to August 13, 1999, PRDE drew $1,862,988
                                    from ED for Governor’s Program contracts for 14 institutions. Our
                                    review found PRDE held funds between 23 and 413 days before
                                    disbursement. As of January 25, 2000, PRDE had not disbursed
                                    balances totaling $132,975 to 8 of the 14 institutions. See Exhibit B
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                                    for the number of days PRDE held each cash balance.


Recommendations                     We recommend that the Assistant Secretary for Elementary and
                                    Secondary Education require PRDE to:

                                    2.1     Follow the CMIA, Zero Balance Accounting for the
                                            Governor’s Program;

                                    2.2     Compute the interest owed to the Federal government for the
                                            funds that were at the Puerto Rico Governmental
                                            Development Bank earning interest;

                                    2.3     Determine the current excess cash held and return it to ED;
                                            and

                                    2.4     Conduct an independent assessment of the new control
                                            procedures to determine that controls are sufficient.

PRDE’s response                     PRDE agreed with this finding and will follow the CMIA, Zero
                                    Balance Accounting for the Governor’s Program, will compute the
                                    interest owed to the Federal government for the funds that were
                                    earning interest at the Puerto Rico Governmental Development Bank,
                                    and determine the current excess cash held and will return to ED any
                                    funds that have been drawn in advance that are not in compliance
                                    with excess cash requirements at the resolution of this audit. PRDE
                                    updated payments made to subrecipients through August 31, 2000,
                                    leaving a remaining balance of $79,090 in excess cash. In addition,
                                    PRDE stated that there was a $20 mathematical error in the
                                    outstanding balance of institution E.

OIG’s reply                         PRDE’s corrective actions should resolve the situation. We checked
                                    the working papers of Institution E and determined the check for that
                                    payment was made for $51,771 when it was supposed to be for
                                    $51,551 ($11,273+$32,465+$8,013). As a result, PRDE overpaid
                                    $20. We accepted the evidence that PRDE provided for the
                                    payments made subsequent to our review. Consequently, the total
                                    excess cash balance was reduced to $80,010 (PRDE’s outstanding
                                    balance of $79,090 plus the $20 overpaid). We did not reduce the
                                    amount of excess cash reported to reflect PRDE’s updated balance
                                    through August 31, 2000 because it shows the severity of the excess
                                    cash balances for a small program. PRDE should work with program
                                    officials to determine the excess cash balance that should be returned
                                    to ED. We added recommendation 2.4 to address the corrective
                                    action PRDE stated would be taken.
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Finding 3                             PRDE lacked supporting documentation for cash draws and
                                      payments made to subrecipients



                                      PRDE lacked adequate controls to properly review subrecipients’
                                      invoices in order to reconcile “advance”1 payments and to properly
                                      evidence Governor’s Program funds drawn from ED. As a result,
                                      PRDE drew $23,094 of Governor's Program funds without proper
                                      supporting evidence and failed to adjust $53,988 in “advance”
                                      payments to subrecipients.

                                      Federal regulation 34 CFR 80.20 (a) states that, “A State must
                                      expend and account for grant funds in accordance with State
                                      laws and procedures for expending and accounting for its own
                                      funds. Fiscal control and accounting procedures of the State, as
                                      well as its subgrantees and cost-type contractors, must be
                                      sufficient to: …(2) permit 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.”

                                      Federal regulations 34 CFR 80.20 (b) states that, “The financial
                                      management systems of grantees and subgrantees, must meet the
                                      following standards: (1) accurate, current, and complete
                                      disclosure of the financial results of financially assisted activities
                                      must be made in accordance with the financial reporting
                                      requirements of the grant or subgrant….”

         Unsupported draws            We traced six draws made during the period of December 9, 1998
         totaled $23,094              through August 13, 1999 totaling $1,862,988 on behalf of 14
                                      judgmentally selected institutions that participated in the Governor’s
                                      Program during award year 1998-99. Our review disclosed that
                                      PRDE could not provide supporting documentation for $23,094.
                                      Specifically PRDE,

                                           Ø requested $14,426 in a February 3, 1999 draw, yet these
                                             same funds were previously requested in a December 9,


1
 ED required PRDE to “advance” payments to subrecipients. As per PRDE’s contract with the subrecipients, once
both parties signed the contract, subrecipients could submit invoices for three months of estimated expenditures. In
order to receive the next advance payment, institutions submitted evidence of expenditures incurred during the
previous three months. However, as explained in Finding 1, subrecipients did not receive the first payment until
months after the start of the contract.
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                                            1998 draw; and
                                          Ø could not provide supporting evidence for $8,668 included in
                                            a March 19, 1999 draw.

                                    PRDE was unaware of the duplicate request and the unsupported
                                    draw.

        Unreconciled                PRDE began making “advance” payments of Governor’s Program
        “advance” payments          funds to subrecipients on a quarterly basis during the 1998-99 award
        totaled $53,988             year. According to established procedures, subrecipients must
                                    submit invoices to PRDE based on expenses they expect to incur
                                    during the first quarter of the award year. For each of the remaining
                                    three quarters, subgrantees must provide evidence of actual expenses
                                    incurred during the previous quarter in order to receive the next
                                    advance payment. However, based on our review of PRDE’s
                                    records, PRDE’s actual procedure does not always result in advance
                                    payments to subrecipients. Once the contract is signed by both
                                    parties, which is three to eleven months after the beginning of the
                                    award period, the subrecipient’s first payment is a reimbursement of
                                    expenses incurred from the start of the program through the date the
                                    contract is signed. Subsequent payments are then made under the
                                    advance payment method.

                                    PRDE did not perform reconciliations for estimated expenses paid to
                                    subrecipients and the actual expenses reported for six institutions
                                    tested. As a result, five of the six institutions received payments
                                    totaling $53,988 for which PRDE did not have supporting
                                    documentation. As of January 25, 2000, PRDE made no effort to
                                    request the supporting documentation for the expenses paid in
                                    advance or request that the excess funds disbursed be returned.


Recommendations                     We recommend that the Assistant Secretary for Elementary and
                                    Secondary Education require PRDE to:

                                    3.1      Return the Federal funds totaling $23,094 that could not be
                                             supported;

                                    3.2      Provide the supporting documentation for the $53,988 of
                                             unsupported expenses paid to subrecipients, otherwise, return
                                             that amount to ED;

                                    3.3      Provide Finance Division and External Resources personnel
                                             proper training to ensure that they verify supporting
                                             documentation;
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                                    3.4     Perform the quarterly reconciliations needed to ensure
                                            compliance with the established procedures;

                                    3.5     Apply a reimbursement method on the last payment made to
                                            subrecipients; and

                                    3.6     Conduct an independent assessment of the new control
                                            procedures to determine that controls are sufficient.

PRDE’s response                     PRDE disagreed with this finding. PRDE stated that the $14,426
                                    unsupported draw should not be required to be returned because
                                    these funds were included in the excess cash calculation in Finding 2.
                                    Regarding the $8,668 unsupported draw, PRDE stated that it was
                                    going to provide evidence that a total of $8,308 was paid. In
                                    addition, PRDE disagreed with the fact that the advance payments
                                    were not reconciled. PRDE claimed that in most cases it reconciled
                                    the accounts either on a timely basis or subsequent to our review.
                                    Despite its disagreement, PRDE stated it will provide proper training
                                    to the Finance Division and External Resources personnel to ensure
                                    that they verify the supporting documentation, perform quarterly
                                    reconciliation to ensure the compliance with the established
                                    procedures, and apply the reimbursement method on the last payment
                                    to subrecipients.

OIG’s reply                         PRDE’s corrective actions should resolve the situation; however,
                                    contrary to what PRDE stated, the unsupported draw of $14,426
                                    was included in the February 3, 1999 draw of $250,000. The
                                    requisition for this draw showed a payment of $15,727 for Institution
                                    A, however; this payment was made from the $650,000 draw of
                                    Institution A and not from the $250,000 draw. Therefore, it is not
                                    part of the excess cash balance of Institution A shown in Finding 2
                                    and PRDE should return the $14,426 drawn in excess in the
                                    $250,000 draw. Regarding the $8,668 unsupported draw, PRDE
                                    stated that it would provide evidence that a total of $8,308 was paid,
                                    however it did not provide the documentation, therefore, our position
                                    remains the same. The evidence that PRDE presented for the
                                    unreconciled “advance” payments totaling $53,988 are the payment
                                    vouchers, not the supporting evidence of expenses incurred.
                                    Therefore, our position remains the same. Additionally, although
                                    PRDE stated that it reconciled the accounts on a timely basis, at the
                                    time of our review, the expense reports were not reconciled. We
                                    added recommendation 3.6 to address the corrective action PRDE
                                    stated would be taken.
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Finding 4                             PRDE failed to pay the correct invoice amount, drew excess
                                      Governor’s Program funds, and erroneously charged
                                      accounts due to inadequate reconciliation and validation by
                                      departments



                                      In addition to the inadequate cash management controls reported in
                                      Findings 2 and 3, PRDE also lacked proper controls due to
                                      inadequate reconciliation and validation by departments responsible
                                      for approving and disbursing Governor’s Program funds. As a
                                      result PRDE:

                                      Ø underpaid funds totaling $400 to one institution;
                                      Ø drew $270 in excess of the contract amount; and
                                      Ø erroneously charged the accounts of an institution that received
                                        both SEA and Governor’s Program funds.

                                      Education Department General Administrative Regulations
                                      (EDGAR) 76.702 states that, “A State and a subgrantee shall
                                      use fiscal control and fund accounting procedures that insure
                                      proper disbursement of and accounting for Federal funds.”

        External Resources            PRDE’s Office of External Resources was responsible for
        Office did not verify         operational, fiscal, and other matters related to Federal programs.
        with the Finance              All institutions that participated in the Governor's Program
        Division that
                                      submitted to the Office of External Resources all requests for
        subrecipients’ payments
                                      payment. The Office of External Resources then verified and
        were made correctly.
                                      certified the invoices and sent them to the Finance Division which in
                                      turn, made a final revision to the invoices and disbursed the funds.
                                      However, we found that the Office of External Resources did not
                                      verify the final disbursements made because they believed that
                                      disbursements were made by the Finance Division as approved and
                                      timely.
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                                      During our review, we traced payments made to 14 institutions and
                                      found that PRDE had incorrect payment information for three
                                      institutions. PRDE overpaid $9,419 to one institution; however
                                      there was no monetary effect because PRDE made the appropriate
                                      adjustment. The second institution submitted an expense report for
                                      $28,844, yet PRDE issued a check for $28,444, underpaying the
                                      institution by $400. For the third institution, PRDE requested $270
                                      in excess of the contract award and did not award the funds to the
                                      subrecipient. These funds are in the Puerto Rico Governmental
                                      Development Bank earning interest.


                                      We also found that for one institution, which received both
                                      Governor’s Program funds and State Education Agency funds,
                                      PRDE charged State fund expenses totaling $15,235 to the Federal
                                      funds account and $19,935 expenses from Federal funds to State
                                      funds. As a result, PRDE overcharged $4,700 to State funds.

                                      The External Resources fiscal officer was not aware of the payment
                                      discrepancies mentioned above.


Recommendations                       We recommend that the Assistant Secretary for Elementary and
                                      Secondary Education require PRDE to:

                                      4.1       Make the $400 payment to the institution;

                                      4.2       Return the Federal funds totaling $270;

                                      4.3       Make an adjusting entry for the $4,700 of
                                                overcharged expenses;

                                      4.4       Strengthen its internal control structure by establishing
                                            better communication between departments thereby
                                            assuring that periodic reviews and reconciling
                                            financial information processed at separate
                                            departments are implemented; and

                                      4.5       Conduct an independent assessment of the new control
                                                procedures to determine that controls are sufficient.

PRDE’s response                       PRDE disagreed with this finding. PRDE stated that it maintains a
                                      strong system of checks and balances. In addition PRDE
                                      acknowledged that although it drew $270 in excess, this amount
                                      was not paid to the contractor and is included in the remaining
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                                      balance of $360 referenced in Finding 3. Despite PRDE’s
                                      disagreement, it agreed to strengthen its existing reconciliation and
                                      validation policies through additional training of PRDE staff, as well
                                      as orientation to the proponents.

OIG’s reply                           PRDE’s corrective action should resolve the situation. We
                                      accepted the evidence that PRDE submitted for the $400 payment
                                      and the $4,700 adjusting entry. However, the $270 that was
                                      drawn in excess was not included in the excess cash balance of
                                      Finding 2 because after the $18,630 direct payment, the balance
                                      was $41,370; this was the balance used in the schedule not the
                                      $41,640 that was requested; therefore PRDE should return the
                                      $270. We added recommendation 4.5 to address the corrective
                                      action PRDE stated would be taken.
The PRDE needs major improvements in its
administration of the Governor’s Safe and
Drug Free School Program- Final                       Page 14                    ACN: ED-OIG/A01-90007




Other Matters                       Because PRDE’s Single Audit reports have been historically late, ED
                                    lacks the appropriate information to adequately monitor PRDE’s
                                    administration of ED funds. The reports submitted have contained
                                    repeated findings, including similar cash management problems
                                    disclosed in this report, which have yet to be corrected. During our
                                    review, we examined PRDE’s Single Audit reports for the years
                                    ended June 30, 1996, and June 30, 1997. The 1997 report, which
                                    was due by the end of July 1998 was submitted in February 2000.
                                    The 1998 Single Audit report should have been submitted in
                                    September 1999 and the June 30, 1999 Single Audit report in March
                                    2000. As of June 13, 2000, neither the 1998 nor the 1999 reports
                                    have been submitted.
The PRDE needs major improvements in its
administration of the Governor’s Safe and
Drug Free School Program- Final                            Page 15                        ACN: ED-OIG/A01-90007




Background                            The purpose of the Safe and Drug Free Schools and Communities
                                      Act is to provide Federal financial assistance to States for school and
                                      community-based programs on drug and alcohol abuse education and
                                      prevention, including programs to prevent violence in and around
                                      schools. Of each state’s allocation, 80 percent is administered by the
                                      State Educational Agency (SEA) for drug and violence prevention
                                      programs in local school systems. The remaining 20 percent is used
                                      by the Governor’s office (Governor's Program) for grants and
                                      contracts with community-based organizations for broad based
                                      prevention programs. Governor’s Program funds are for projects
                                      developed by parents, community action programs, training and job
                                      placement agencies, non-profit entities, other general programs and
                                      education activities for the prevention of drugs and violence. The
                                      Governor’s office must award 10 percent of its funds to law
                                      enforcement education partnerships.

                                      During award year 1998-99, 25 private institutions participated in the
                                      Governor's Program. PRDE assigned $2,585,522 to the Governor's
                                      Program funds for award year 1998-99. The Governor's Program
                                      functions on a contract basis. PRDE “advances”2 funds to institutions
                                      not considered high risk, and pays on a reimbursement method to
                                      high-risk institutions. Initially, PRDE used the reimbursement method
                                      for all contracts. However, in response to complaints to ED from
                                      subrecipients about untimely payment of contract funds, PRDE
                                      notified ED that they developed a process for providing advance
                                      payments to subrecipients and contractors effective February 24,
                                      1999.

Audit objectives                      The purpose of our audit was to determine if PRDE’s administration
                                      of the Governor's Program was proper.
                                      Specific objectives included the following:

                                      1. Determine if PRDE has adequate controls to request Governor’s
                                         Program funds from ED and distribute the funds to subrecipients;

                                      2. Determine if PRDE has a system to monitor sub-recipients;

                                      3. Determine if PRDE has adequate controls for administering
                                         contracts for Governor's Safe & Drug-Free School Program
                                         funds; and


2
 See Finding 3 for a detailed explanation of the “advance” payment method and Finding 1 for the timeliness of
payments.
The PRDE needs major improvements in its
administration of the Governor’s Safe and
Drug Free School Program- Final                         Page 16                      ACN: ED-OIG/A01-90007


                                    4. Determine the flow of the federal funds from ED to PRDE
                                       through to the subrecipients and/or contractors.

Methodology & scope                 To accomplish our objectives, we interviewed officials at:
                                    Puerto Rico Comptroller’s Office, Puerto Rico Treasury Department,
                                    Puerto Rico Governmental Development Bank, External Resources
                                    Office, and PRDE’s Finance Division to evaluate PRDE’s process for
                                    administering the Governor's Program. We also reviewed PRDE’s
                                    A-133 audit report for the years ending June 30, 1996 and June 30,
                                    1997.

                                    A total of 25 institutions participated in the Governor’s Program for
                                    award year 1998-99. We judgmentally selected 14 institutions for
                                    testing. Our sample included four institutions also tested in the Even
                                    Start Program audit, which was conducted simultaneously; eight
                                    institutions that received over $55,000 in Governor’s Program funds;
                                    one institution because of complaints to ED program officials; and one
                                    institution which corresponds to the 10 percent law enforcement
                                    contract. We selected all the draws reported in the Grant
                                    Administration and Payment System (GAPS) award history report for
                                    the period December 9, 1998 through April 23,1999 and tested
                                    these funds drawn for 13 of the 14 institutions in our sample. We
                                    selected an additional draw made on August 13, 1999 that
                                    corresponded to the 10 percent law enforcement portion of the
                                    Governor’s Program. Of the 14 institutions selected, we conducted
                                    site visits to 6 institutions to interview institutions’ officials. We also
                                    reviewed the institutions’ expense files at PRDE’s Office of External
                                    Resources.

        Data reliability            We did not use electronic data provided by PRDE for this audit With
        assessment                  the exception of GAPS information, we did not rely on electronic
                                    data provided by the U.S. Department of Education. To verify the
                                    accuracy of the GAPS data, we traced the funds drawn, as reported
                                    in GAPS, from ED to PRDE’s source documentation. Based on our
                                    tests, we conclude the data was sufficiently reliable to meet the audit
                                    objectives.
The PRDE needs major improvements in its
administration of the Governor’s Safe and
Drug Free School Program- Final                          Page 17                       ACN: ED-OIG/A01-90007

Audit period                        Our audit covered the period December 9, 1998 through August 13,
                                    1999. Updated data as of January 25, 2000 was incorporated into
                                    the findings presented. We performed fieldwork at PRDE’s offices in
                                    Hato Rey, Puerto Rico from June 28, 1999 through February 29,
                                    2000. We determined the status of the 1998 and 1999 Single Audit
                                    reports on June 13, 2000. In addition, we conducted two site visits
                                    to institutions on September 24, 1999 and the other four in
                                    September 16, 1999, November 12, 1999, December 14, 1999 and
                                    January 18, 2000, respectively. Our audit was conducted in
                                    accordance with government auditing standards appropriate to the
                                    limited scope of the audit described above.

Management controls                 As part of our audit, we made an assessment of PRDE’s management
                                    control structure, policies, procedures, and practices applicable to the
                                    audit scope. The purpose of our assessment was to determine the
                                    level of control risk; that is, the risk that material errors, irregularities,
                                    or illegal acts may occur.

                                    We identified and classified the significant management controls into the
                                    following categories:

                                    § Cash management
                                    § Contracts

                                    Because of inherent limitations, a study and evaluation made for the
                                    limited purpose described above would not necessarily disclose all
                                    material weaknesses in the control structure. However, our
                                    assessment disclosed weaknesses specifically related to the cash
                                    management and contracts. These weaknesses are discussed in the
                                    body of this report.
                                       REPORT DISTRIBUTION LIST

                                                                                                                  No. of copies

Auditee........................................................................................................................1

Action Official .............................................................................................................1
Michael P. Cohen
Assistant Secretary for Elementary and Secondary Education

Other ED Offices
Assistant Secretary for Intergovernmental and Interagency Affairs .................................1

Supervisor Post Audit Group, Office of the Chief Financial Officer ...............................1

Office of Public Affairs.................................................................................................1

ED-OIG
Inspector General.........................................................................................................1

Deputy Inspector General.............................................................................................1

Assistant Inspector General for Investigations ...............................................................1

Assistant Inspector General for Audit (A) .....................................................................1

Deputy Assistance Inspector General for Audit (A).......................................................1

Planning, Analysis, and Management Services ..............................................................1

Audit Services..............................................................................................................1

Director, State and Local Assistance Advisory & Assistance Team...............................1

Area Managers ...........................................................................................................6
The PRDE needs major improvements in its
administration of the Governor's Safe and Drug
Free School Program - Final                                                                                                   Exhibit A


                                        Number of months for subrecipients to receive first payment


                                                       Date        Date         # of months            Date          # of months
                   Proposal        Effective          PRDE         PRDE        between PRDE            of first   for subrecipients
                  acceptance         date            officials     drew         signing the           payment      to receive funds
                     letter            of             signed        funds        contract and          to          after the contract
  Institution         date          contract       the contract   from ED    first draw from ED   subrecipients   is signed by PRDE
      A             9/4/98          9/1/98          8/30/98       12/9/98            3                1/29/99             5
      B            8/11/98          9/1/98           9/1/98        2/3/99            5                3/11/99             6
      C            9/14/98          9/1/98           9/1/98        2/3/99            5                2/25/99             6
      D            8/11/98          9/1/98          8/31/98        2/3/99           5                 6/22/99            10
      E            8/11/98          9/3/98           9/3/98       2/24/99            6                3/29/99             7
      F            8/11/98          9/1/98           9/1/98       2/24/99            6                3/29/99             7
      G            8/26/98          9/1/98           9/1/98       2/24/99            6                3/31/99             7
      H            8/11/98          9/1/98           9/1/98       2/24/99            6                 4/5/99             7
      I            8/11/98          9/1/98           9/1/98       2/24/99            6                5/10/99             8
      J            8/11/98          9/1/98           9/1/98        3/4/99            6                5/17/99             9
      K            8/26/98          9/1/98          8/31/98       3/19/99            7                4/27/99             8
      L            9/14/98         10/1/98          10/1/98       3/19/99            6                6/14/99             9
      M            9/14/98          9/1/98           9/1/98       3/19/99            7                 5/5/99             8
      N            8/26/98         10/1/98          9/30/98       8/12/99           11                9/30/99            12

Note: Shading represents the site visited as part of the audit.
The PRDE needs major improvements in its administration of
the Governor's Safe and Drug Free School Program - Final
                                                                                                                                                        Exhibit B
           Number of days Governor's Safe & Drug Free School Program funds were held at the Puerto Rico Governmental Development Bank

                                                                                                                                                       ExcessDays
                                    Date funds                                                                                                         funds were in
                                      were     Date PRGDB           Period          Payment                                                              PRGDB
                     Amount         requested   received           covered          voucher     Payments         Check                      Date check     as of
  Institution        requested      by PRDE     the funds         by invoices         date        made           amount         Balance     was cashed    1/25/00

       A                $650,000      12/09/98       12/09/98                                                               $     650,000                   52
                                                                    Sept.98          01/22/99   $ 11,502
                                                                    Oct. 98          01/22/99   $ 33,776
                                                                    Nov. 98          01/22/99   $ 11,633     $     56,912   $     593,088    01/29/99       72
                                                                    Dec. 98          02/02/99   $ 15,727     $     15,727   $     577,362    02/18/99       93
                                                                    Jan. 99          02/23/99   $ 53,669     $     53,669   $     523,693    03/11/99       114
                                                                    Feb. 99          03/25/99   $ 86,362     $     86,362   $     437,331    04/01/99       160
                                                                    Mar-99           05/05/99   $ 16,062     $     16,062   $     421,269    05/17/99       196
                                                                    Apr-99           06/14/99   $ 41,679     $     41,679   $     379,589    06/22/99       239
                                                                    May-99           07/29/99   $ 11,548
                                                                    Jun-99           07/29/99   $ 43,857     $ 55,405       $     324,185    08/04/99       266
                                                                    Jul-99           08/23/99   $ 25,316     $ 25,316       $     298,869    08/31/99       323
                                                                    Aug-99           10/15/99   $ 47,060     $ 47,060       $     251,809    10/27/99       364
                                                                    Sep-99           11/29/99   $ 170,213    $ 170,213      $      81,596    12/07/99       379
                                                                    Oct-99           12/17/99   $ 11,381     $ 11,381       $      70,214    12/22/99       413



       B                 $75,000      02/03/99       02/03/99                                                               $      75,000                   37
                                                                    Oct. 98          02/19/99   $    3,413
                                                                    Nov-98           02/19/99   $    5,565
                                                                    Dec-98           02/19/99   $    5,042
                                                                    Jan-99           02/19/99   $    7,595   $     21,615   $      53,385    03/11/99        66
                                                                    Feb.99           03/15/99   $    6,035   $      6,035   $      47,350    04/09/99       108
                                                                    Mar-99           04/26/99   $   12,754   $     12,754   $      34,596    05/21/99       125
                                                                 April - June 99     05/05/99   $   28,687   $     28,687   $       5,909    06/07/99       236
                                                                     Jul-99          08/27/99   $    5,909   $      5,909   $         -      09/26/99



      C                  $65,574      02/03/99       02/03/99                                                               $     100,000                    23
                                                                Sept. 98 - Jan. 99 02/10/99     $   34,426   $     34,426   $      65,574    02/25/99        77
                                                                 Feb. - April 99   04/06/99     $   28,444   $     28,444   $      37,130    04/20/99       135
                                                                 May - June 99     05/19/99     $   36,730   $     57,691   $         400    06/17/99       357



       D                 $95,000      02/03/99       02/03/99                                                               $      95,000                   140
                                                                    Sept. 98         04/06/99   $    7,938
                                                                     Oct-98          04/06/99   $   11,588
                                                                    Nov-98           04/06/99   $    6,874
                                                                    Dec-98           04/06/99   $    6,793
                                                                     Jan-99          04/06/99   $    8,537
                                                                     Feb 99          04/06/99   $    6,859
                                                                    Mar-99           04/26/99   $    7,527   $     56,115   $      38,885    06/22/99       148
                                                                    Apr-99           06/03/99   $    8,251   $      8,251   $      30,634    06/30/99       213
                                                                    May-99           06/24/99   $    6,700   $      6,700   $      23,934    09/03/99       202
                                                                     Jun-99          08/05/99   $    6,261   $      6,261   $      17,674    08/23/99       268
                                                                 July - Aug 99       10/05/99   $   12,497   $     12,497   $       5,176    10/28/99       357

       E                $100,000      02/23/99       02/24/99                                                               $     100,000                   127
                                                                    Oct. 98          02/17/99   $    2,809
                                                                    Nov-98           02/17/99   $    7,893   $     10,701   $      89,299    06/30/99       34
                                                                    Dec-98           02/23/99   $    8,089
                                                                    Jan-99           03/15/99   $    9,963   $     40,955   $      71,246    03/29/99        49
                                                                    Feb-99           03/26/99   $    8,175   $      8,175   $      63,071    04/13/99       101
                                                                    Mar-99           05/05/99   $   10,035   $     10,035   $      53,036    06/04/99       156
                                                                    Apr-99           06/07/99   $    8,767   $     16,202   $      44,268    07/29/99       175
                                                                    May-99           08/04/99   $   11,273
                                                                    Jun-99           08/04/99   $   32,465   $     43,737   $         531    08/17/99       336



       F                 $50,000      02/23/99       02/24/99                                                               $      50,000                   34
                                                                    Sept. 98         02/17/99   $    2,096
                                                                     Oct-98          02/17/99   $    3,662
                                                                    Nov-98           02/17/99   $    3,661
                                                                     Dec-99          02/19/99   $   13,484   $     40,955   $      27,097    03/29/99       114
                                                                    Jan. 99          05/25/99   $    3,835
                                                                     Feb-99          05/25/99   $    2,972
                                                                    Mar-99           05/25/99   $    2,406   $      9,212   $      17,885    06/17/99       175
                                                                     Apr-99          08/05/99   $    3,920
                                                                    May-99           08/05/99   $    4,094   $      8,014   $       9,871    08/17/99       210
                                                                     Jun-99          08/31/99   $    9,738   $      9,738   $         133    09/21/99       238
                                                                     Jul-99          09/24/99   $      133   $        133   $         -      10/19/99


                                                                                 Page 1 of 2
The PRDE needs major improvements in its administration of
the Governor's Safe and Drug Free School Program - Final
                                                                                                                                                            Exhibit B
            Number of days Governor's Safe & Drug Free School Program funds were held at the Puerto Rico Governmental Development Bank

                                                                                                                                                           ExcessDays
                                     Date funds                                                                                                            funds were in
                                       were     Date PRGDB              Period          Payment                                                              PRGDB
                     Amount          requested   received              covered          voucher    Payments         Check                       Date check     as of
  Institution        requested       by PRDE     the funds            by invoices         date       made           amount         Balance      was cashed    1/25/00


       G                  $75,000     02/23/99        02/24/99                                                                 $      75,000                    36
                                                                   Oct 98 - Jan 99 02/19/99        $   25,681
                                                                  March 99 - May 99 03/10/99       $   23,234   $     48,915   $      26,085     03/31/99       141
                                                                  June 99 - Sept. 99 06/03/99      $   26,085                  $         -       07/14/99



       H                $250,000      02/24/99        02/24/99                                                                 $     250,000                    41
                                                                       Sept. 98         02/23/99   $   15,789
                                                                       Oct. 98          02/23/99   $   14,510
                                                                       Nov. 98          02/23/99   $   15,933
                                                                       Dec. 98          03/10/99   $   17,553   $     63,785   $     186,215     04/05/99        85
                                                                        Jan-99          04/27/99   $   18,153   $     18,153   $     168,062     05/19/99       104
                                                                       Feb-99           05/14/99   $   22,478   $     22,478   $     145,584     06/07/99       139
                                                                       Mar-99           06/14/99   $   21,594   $     21,594   $     123,989     07/12/99       168
                                                                       Apr-99           07/09/99   $   17,545   $     17,545   $     106,445     08/10/99       182
                                                                       May-99           08/09/99   $   16,708   $     16,708   $      89,737     08/24/99       205
                                                                        Jun-99          08/18/99   $   16,596   $     16,596   $      73,141     09/16/99       244
                                                                        Jul-99          09/27/99   $   16,849   $     16,849   $      56,292     10/25/99       336



        I                 $75,000     02/24/99        02/24/99                                                                 $      75,000                     76
                                                                   Sept. 98 - Jan. 99 02/19/99     $    8,060   $      8,060   $      66,940     05/10/99       183
                                                                    Feb. -June 99     08/05/99     $   66,940   $     66,940   $         -       08/25/99



       J                  $50,000     03/04/99        03/04/99                                                                 $      50,000                    75
                                                                        Sept. 98        03/15/99   $      400
                                                                        Oct. 98         03/15/99   $    2,035
                                                                        Nov. 98         03/15/99   $    4,335
                                                                        Dec. 98         03/15/99   $    3,667
                                                                         Jan-99         03/15/99   $    3,795 $       14,232   $      35,768     05/17/99        75
                                                                   Feb. 99 - April 99   04/07/99   $   13,594 $       13,594   $      22,173     05/17/99       119
                                                                   May 99 - June 99     05/14/99   $   22,173 $       22,173   $         -       06/30/99



       K                  $41,640     03/19/99        03/19/99                                                               $        60,000                    40
                                                                 Nov., Dec. 98, Jan. 9903/12/99    $   18,630   $     18,630 $        41,370     04/27/99        99
                                                                  Feb. and March. 99 04/27/99      $   12,484   $     12,484 $        28,886     06/25/99       104
                                                                        Apr-99         06/03/99    $    6,210   $      6,210 $        22,676     06/30/99       165
                                                                        May-99         06/25/99    $    6,210
                                                                        Jun-99         08/03/99    $    6,210   $     12,420 $        10,256     08/30/99       228
                                                                        Jul-99         10/06/99    $    9,896   $      9,896 $           360     11/01/99       313




       L                  $94,693     03/19/99        03/19/99                                                               $         94,693                    88
                                                             Nov., Dec.98, Jan. Feb. 99
                                                                                     05/17/99      $   28,825 $       28,825 $      65,867.65    06/14/99       251
                                                                   March - Jul 99    10/28/99      $   65,867 $       65,867 $              1    11/24/99       313



       M
                          $75,000     03/19/99        03/19/99                                                               $        75,000                    48
                                                                        Feb. 99         03/26/99   $   53,721 $       53,721 $        21,279     05/05/99       97
                                                                        Apr-99          06/09/99   $   21,279 $       21,279 $           -       06/23/99       313

                                                                                                                               $     166,081
       N                $166,081      08/12/99        08/13/99    Oct 98 - March 99     08/03/99   $   77,713        N/A       $      88,368
                                                                       Apr-99           08/03/99   $   67,698        N/A       $      20,670
                                                                       May-99           08/03/99   $    9,449        N/A       $      11,221
                                                                       Jun-99           08/03/99   $   11,220        N/A       $           1     09/30/99       49


Total amount requested
                  $1,862,988
Total outstanding balance                                                                                                      $     132,975

The payment information is through January 25, 2000




                                                                                    Page 2 of 2