oversight

Puerto Rico Department of Education Did Not Administer Properly Title I Contracts With National School Services of Puerto Rico For the 1999/2000 and 2000/2001 School Years.

Published by the Department of Education, Office of Inspector General on 2001-09-28.

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

                                 FINAL AUDIT REPORT


                      Puerto Rico Department of Education
                  Did Not Administer Properly Title I Contracts
                  With National School Services of Puerto Rico
                  For the 1999/2000 and 2000/2001 School Years




                                 FINAL AUDIT REPORT
                                            ED-OIG/A02-B0012
                                             September 2001



Our mission is to promote the efficiency,                      U.S. Department of Education
effectiveness and integrity of the                               Office of Inspector General
Department’s programs and operations.                               New York Audit Region
                                                                   San Juan, PR Area Office
                                       Notice

      Statements that managerial practices need improvements, as well as other
            conclusions and recommendations in this report represent the
opinions of the Office of Inspector General. Determinations of corrective action to be
      taken will be made by the appropriate Department of Education officials.

      In accordance with Freedom of Information Act (5 U.S.C. §522), 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

AUDIT RESULTS

Finding 1            PRDE awarded fixed-price contracts totaling $17,205,657 to
                     National School Services of Puerto Rico without full and
                     open competition ........................................................................... 3
                           Recommendations ............................................................... 4
                           PRDE’s response................................................................. 5
                           OIG’s reply.......................................................................... 5

Finding 2            PRDE failed to determine each line item of cost included in
                     the fixed-price contracts to ensure the contractor’s proposed
                     prices were fair and reasonable ................................................... 6
                             Recommendations ............................................................... 6
                             PRDE’s response................................................................. 6
                             OIG’s reply.......................................................................... 7

Finding 3            PRDE lacked controls to ensure compliance with the
                     contracts and Federal regulations ............................................... 8
                            Recommendations ............................................................. 10
                            PRDE’s response............................................................... 10
                            OIG’s reply........................................................................ 10

Other Matters ....................................................................................................... 11

Background .......................................................................................................... 13

Methodology and scope ........................................................................................ 13

Management controls........................................................................................... 14

Exhibit A:           Summary of Questioned Costs and Unsupported Costs,
                     1999/2000 Contract – Strengthening the Learning Centers for
                     Teachers of Students at Risk
Exhibit B:           Summary of Unsupported Costs, 1999/2000 Contract –
                     School Improvement and Professional Development
Exhibit C:           Photographs – Learning Centers Not Installed
Exhibit D:           PRDE’s response to draft audit report
                                          Executive Summary
Puerto Rico Department of Education (PRDE) failed to award properly four Title I1 fixed-price
contracts totaling $17,205,657 to establish learning centers in Puerto Rico’s 84 school districts
and carry out school improvement and professional development activities at needy elementary
schools during the 1999/2000 and 2000/2001 school years. PRDE awarded the contracts to
National School Services of Puerto Rico (NSSPR) without full and open competition. PRDE
also did not determine each line item of cost included in the fixed-price contracts. In April and
May 2001, subsequent to the start of our audit, PRDE canceled two of the contracts totaling
$6,393,506. Because PRDE did not competitively bid the contracts, PRDE and the U.S.
Department of Education (ED) could not be assured that the highest quality services and products
were received at competitive prices or that certain vendors were not given preferential treatment
or arbitrarily excluded. Moreover, resources used to pay unreasonable amounts could have
otherwise been used to attend to other projects or used for additional learning centers, as
provided for under the terms of the contracts.

PRDE also did not enforce the terms of the contracts. For example, PRDE did not adequately
review NSSPR’s invoices for supporting documentation of costs claimed or for adherence to the
contracts prior to payment. As a result, PRDE paid $1,324,825 in questionable costs and
$7,087,455 in unsupported costs to NSSPR for the two executed contracts. In addition, PRDE
did not ensure NSSPR established all learning centers as required, resulting in computer and
audiovisual equipment, desks, books, and software remaining boxed in unsuitable facilities in
school districts. PRDE did not obtain a contract compliance audit from NSSPR and did not
identify that NSSPR’s proposed training failed to incorporate the purpose of the learning centers,
resulting in most of the software and materials being left unused. Moreover, PRDE did not
inventory materials, equipment, and property purchased by NSSPR with Federal funds and did
not ensure that NSSPR replaced equipment removed for repair, as stipulated in the contracts.

In March 2001, we issued an audit report regarding a PRDE contract with NSSPR for the
1998/1999 school year that contained similar findings and recommendations. We again
recommend that the Assistant Secretary for Elementary and Secondary Education require PRDE
to establish controls to ensure all procurement transactions involving Federal funds provide for
full and open competition and maintain records justifying the lack of competition when
competitive bids are not obtained, as well as the basis for contractor selection. In addition,
PRDE should establish effective procurement procedures to ensure it obtains fair and reasonable
prices on contracts and should require a breakout of each element of cost, determining each line
item of cost, and documenting in its procurement files the cost analysis performed, to determine
if prices obtained on contracts are fair and reasonable. PRDE should return to ED $7,087,455 in
unsupported costs and $1,324,825 in questionable costs. PRDE should also establish controls to
ensure payments are made to contractors only after proper documentation is obtained and

1
    PRDE is awarded an allotment of Federal funds under Title I of Public Law 103-382, known as “Improving America’s School
    Act”, for improving the academic achievement of children with economic disadvantages and to help them meet the standards of
    performance established by the State.
supervisory review of payments and supporting documentation is conducted. Additionally,
PRDE should ensure that contract objectives are met. Lastly, PRDE’s 2000 Single Audit report
has not been submitted. Prior Single Audit reports have contained repeated findings, including
similar findings disclosed in this report. PRDE should take all necessary steps to assure that
Single Audit reports are submitted within the required time frames.

PRDE believes that because the allegations contained in this report pertain to a prior
Administration, the only equitable means to resolve the issues contained in the draft audit report
is through the Cooperative Audit Resolutions and Oversight Initiative (CAROI) process. PRDE
would like to engage in the collaborative nature of the CAROI process to remedy the issues
raised in the audit, rather than engaging in the costly and the lengthy litigation process. PRDE
provided examples of its efforts to improve Federal grants management oversight, including
issuing letters to personnel regarding the importance of processing requisitions, contracts and
purchase orders in a timely fashion to ensure compliance with Federal regulations. PRDE
believes a vast injustice would be served upon PRDE if the monetary findings were sustained
because significant repayment of funds would harm the very students PRDE serves.

We reviewed PRDE’s response, but our position and recommendations remain unchanged.
PRDE should conduct an independent assessment of its new corrective actions to ensure they are
sufficient. PRDE’s response is attached as Exhibit D.
PRDE did not administer properly Title I contracts with National
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AUDIT RESULTS

Finding 1

PRDE awarded fixed-price contracts totaling $17,205,657 to National School Services of
Puerto Rico without full and open competition


PRDE awarded NSSPR four Title I fixed-price contracts totaling $17,205,657 without full and
open competition. PRDE also did not maintain in its procurement records a justification for the
lack of competition for the four contracts. PRDE subsequently canceled two of the contracts
totaling $6,393,506. ED generally permits States, including Puerto Rico, to utilize their
procurement policies and procedures for procuring property. Puerto Rico’s procurement
regulations governing PRDE require that any acquisition of goods, works, and services in excess
of $25,000 must utilize formal competitive procedures. PRDE officials agreed the contracts
were not competitively bid but stated it occurred under PRDE’s prior administration. Because
PRDE did not competitively bid the contracts, PRDE and ED could not be assured products and
services were received at competitive prices or that certain vendors were not given preferential
treatment or arbitrarily excluded.

Procurement standards are detailed in 34 CFR § 80.36 (a) as follows: “When procuring property
and services under a grant, a State will follow the same policies and procedures it uses for
procurements from its non-Federal funds. The State will ensure that every purchase order or
other contract includes any clauses required by Federal statutes and executive orders and their
implementing regulations.”

Puerto Rico’s procurement regulations governing PRDE, Reglamento de Compras, Ventas y
Subastas de Bienes, Obras y Servicios No Personales del Departamento de Educación, (PRDE
Purchasing Regulations) Article 37, requires that any acquisition of goods, works and services
in excess of $25,000 must utilize formal competitive procedures.

On November 15, 1999, PRDE entered into a contractual agreement with NSSPR totaling
$9,500,000 to establish learning centers in Puerto Rico’s 84 school districts between November
1999 and July 2000. The period was subsequently extended through November 2000. The
purpose of the learning centers was to provide training to school districts’ superintendents and
their personnel in order to improve their professional skills. They in turn were to provide
training to the teachers. According to the agreement, the services to be provided by NSSPR
included, but were not limited to the following:

§   Purchase, delivery, installation, and configuration of computers and printers;
§   Purchase and installation of software;
§   Purchase and installation of furniture for the computer centers;
§   Purchase and installation of audiovisual equipment;
§   Training and technical support to teachers and parents of eligible students and follow-up
    visits;
§   Dissemination of the project through orientation meetings with superintendents, school
PRDE did not administer properly Title I contracts with National
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    principals, and the private sector; and
§   Any other necessary activity to undertake the purposes of the proposal or requested by PRDE.

On July 30, 1999, PRDE entered into a contractual agreement with NSSPR for another contract
totaling $1,312,151 to carry out professional development activities at needy Puerto Rico
elementary schools during the 1999/2000 school year. The period was subsequently extended
through September 30, 2000. NSSPR invoiced the total amount contracted, $1,312,151.
According to the agreement, the services to be provided by NSSPR included, but were not
limited to the following:2

§   Purchase, delivery, installation, and configuration of computers and printers;
§   Purchase and installation of software;
§   Training and technical support to teachers and parents of eligible students;
§   Dissemination of the project through orientation meetings with superintendents, school
    principals, and the private sector;
§   Satellite broadcasts of conferences; and
§   Any other necessary activity to undertake the purposes of the proposal or requested by PRDE.

On October 27, 2000, PRDE entered into contractual agreements totaling $6,363,506 with
NSSPR for the 2000/2001 school year. One contract, for $5,081,355, was to assist the learning
centers established in the 84 school districts during the 1999/2000 school year. The second
contract, for $1,312,151, was to provide training and technical assistance for school improvement
and professional development at Title I schools. PRDE canceled these contracts, on April 15,
2001 and May 6, 2001, respectively, subsequent to the start of our audit.

Our audit disclosed that PRDE issued the four contracts without full and open competition.
PRDE officials agreed that the contracts were not competitively bid. Since each of these
contracts was for the acquisition of goods and services in excess of $25,000, PRDE should have
utilized formal competitive procedures. For example, in the 1999/2000 $9,500,000 contract, 84
percent of the contract amount was for the purchase and installation of computers, printers,
software, furniture, and audiovisual equipment for the learning centers.

By not issuing the contracts with full and open competition, PRDE did not provide alternatives to
determine the most economical and practical procurement for the Federal government that
maximized the services provided. In addition, the lack of competition in its procurement
transactions with NSSPR prevented PRDE from assuring that equipment, materials, and services
were obtained in an effective manner, selecting the best vendor for best price and quality of
services.

Recommendations:

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

2
 Although the stated purpose of this contract was to carry out professional development activities at needy Puerto
Rico elementary schools, the services specified in the contract were the same as those listed in the $9,500,000
contract for installing learning centers.
PRDE did not administer properly Title I contracts with National
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1.1     Establish controls to ensure all procurement transactions involving Federal funds provide
        for full and open competition; and
1.2     Maintain records justifying the lack of competition when competitive bids are not
        obtained, as well as the basis for contractor selection.
1.3     Conduct an independent assessment of its corrective actions to ensure they are sufficient.

PRDE’s response:

PRDE believes because the allegations contained in this report pertain to a prior Administration,
the only equitable means to resolve the issues contained in the draft audit report is through the
CAROI process. PRDE provided examples of its efforts to improve Federal grants management
oversight, including establishing a reengineering team to streamline the proposal evaluation
process and comply with Federal regulations.

OIG’s reply:

The request for this audit to be resolved through the CAROI process may be considered by the
Assistant Secretary for Elementary and Secondary Education as part of the audit resolution
process. Our findings and recommendations remain unchanged, except we added
recommendation 1.3 to address corrective actions PRDE stated would be taken.
PRDE did not administer properly Title I contracts with National
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Finding 2

PRDE failed to determine each line item of cost included in the fixed-price contracts to
ensure the contractor’s proposed prices were fair and reasonable


PRDE did not obtain an itemized price list for any of its four contracts with NSSPR. PRDE
approved the proposals without determining each element of cost or performing a cost analysis of
the proposals. As a result, PRDE did not ensure it received fair and reasonable prices in
accordance with Federal and Puerto Rico laws and regulations for the four contracts.

OMB Circular No. A-87, Attachment A, paragraphs C.1, 2 provide that costs may be charged to
a Federal grant only if the costs are, among other requirements, reasonable. In determining the
reasonableness of costs, consideration must be given to, among other requirements, market prices
for comparable goods or services. PRDE’s Purchasing Regulations, Articles 6.2 and 6.3, provide
that austerity is the guiding principle for the procurement process and that the process be
competitive, fair, reasonable and economical. Further, Article 59.2 states if only one bid is
received, it is understood that if its price is unreasonable, the bid must be rejected. Further,
under PRDE procedures bids are broken down by line item, and Article 50.6 states that if a
global price is offered or discounted, that price or discount must be prorated among the various
line items. In the contracts, NSSPR also warranted that the prices of computers, printers, and
furniture to be acquired and the fees and services rendered would be the same or lower than
prevailing prices for similar goods and services in Puerto Rico.

Our audit disclosed that PRDE did not perform a cost analysis on any of the four NSSPR’s fixed-
price contracts totaling $17,205,657. By not performing a cost analysis in its procurement
procedures, PRDE could not ensure that prices obtained on the contracts were fair and
reasonable, or that the amounts billed complied with contractual requirements.

Recommendations:

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

2.1     Establish effective procurement procedures in order to ensure it obtains fair and
        reasonable prices on future contracts;
2.2     Require a breakout of each element of cost from future contractors and determine each
        line item of cost; and
2.3     Document in its procurement files the cost analysis performed to determine if prices
        obtained on future contracts are fair and reasonable.

PRDE’s response:

PRDE believes because the allegations contained in this report pertain to a prior Administration,
the only equitable means to resolve the issues contained in the draft audit report is through the
PRDE did not administer properly Title I contracts with National
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CAROI process. PRDE provided examples of its efforts to improve Federal grants management
oversight, including conducting training for all Office of Federal Affairs personnel on the
requirements of OMB Circular A-87 and Federal programs administered by the office.

OIG’s reply:

The request for this audit to be resolved through the CAROI process may be considered by the
Assistant Secretary for Elementary and Secondary Education as part of the audit resolution
process. Our findings and recommendations remain unchanged.
PRDE did not administer properly Title I contracts with National
School Services of Puerto Rico - FINAL                                  8            ACN: ED-OIG/A02-B0012



Finding 3

PRDE lacked controls to ensure compliance with the contracts and Federal regulations


PRDE did not enforce the terms of the contracts and, therefore, paid $1,324,825 in questionable
costs and $7,087,455 in unsupported costs to NSSPR for the $9,500,000 and $1,312,151 fixed-
price contracts awarded during the 1999/2000 school year.3 (See Exhibits A and B). In
addition, PRDE did not identify that NSSPR did not establish learning centers in four school
districts. (See Exhibit C). This occurred because PRDE did not implement controls to oversee
contract administration, including compliance with the contracts and Federal regulations, and to
properly review contractor’s invoices for adequate and reliable supporting documentation prior to
payment.

According to 34 CFR § 76.702, “A State and a subgrantee shall use fiscal control and fund
accounting procedures that insure proper disbursement of and accounting for Federal funds.”
Further 34 CFR § 80.20 (b)(6) states that, “Accounting records must be supported by such source
documentation as cancelled checks, paid bills, payrolls, time and attendance records, contract and
subgrant award documents, etc.”

        $9,500,000 Contract – “Strengthening the Learning Centers for Teachers of
        Students at Risk”

PRDE did not ensure compliance with contract requirements and Federal regulations because it
paid $9,500,000 to NSSPR without ensuring that NSSPR met the delivery requirements of the
contract or that it submitted adequate and reliable supporting documentation of costs claimed.
PRDE paid NSSPR $1,324,825 in questionable costs and $5,775,304 in unsupported costs for the
contract. In addition, NSSPR did not submit supporting documentation required by the contract
for local travel expenses, materials purchased, installation charges, subscription expenses, and
insurance expenses. We were unable to obtain supporting documentation for seven months of
training billed under the billing category entitled “professional services.” Yet, audit tests
conducted on training attendance rosters supporting five months of “professional services”
revealed NSSPR incorrectly billed for training. Based on third party invoices we were able to
obtain, NSSPR overcharged PRDE for computer equipment, software, photocopy machines,
projectors, students’ chairs, white boards, storage cabinets, and air conditioners. NSSPR also
billed PRDE for photocopier maintenance even though it did not purchase a maintenance
contract from the vendor and for installation costs for 84 learning centers even though it failed to
install the equipment at four of the centers.

We made site visits to 12 school districts and found that the equipment, software, and materials

3
 As of June 19, 2001, NSSPR had not submitted invoices for the $5,081,355 and $1,312,151 fixed-price contracts
awarded during the 2000/2001 school year, which were also included in our review. PRDE cancelled both contracts
effective April 15, 2001 and May 6, 2001, respectively.
PRDE did not administer properly Title I contracts with National
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had been delivered. The learning centers at four of the school districts had not been installed. We
also found that the equipment had not been stored in a safe and adequate area in two of the four
school districts. (See Exhibit C for examples of the condition of learning centers not
installed by NSSPR). For example, NSSPR delivered the equipment to the Culebra school
district in September 2000. As of May 30, 2001, the learning center had not been installed.
NSSPR delivered the equipment to the Bayamón II school district in November 2000. As of May
29, 2001, the center had not been installed and the equipment was stored in an unsuitable
building. The facility contained broken windows and the building had Puerto Rico Occupational
Safety and Health Office violations for air quality due to mold and mildew.

Because PRDE did not evaluate the proposal, PRDE did not identify that the training proposed
by NSSPR did not correspond to the purpose of the learning centers. Instead of providing
training related to the equipment and software purchased for the learning centers, NSSPR
provided training related to general educational subjects such as “Effective Teaching and
Assessment” and “Evaluation Techniques,” consequently most of the software and materials
remained unused.

We questioned claimed amounts for training or “professional services,” equipment, software, and
maintenance. For example, audit tests conducted on attendance rosters supporting five months of
“professional services” revealed NSSPR over-billed $95,200 for training. In addition, based on
vendors’ invoices, NSSPR overcharged PRDE for equipment and software. For example, we
obtained NSSPR’s parent company, National School Services Inc., Wheeling, Illinois (NSS-
Illinois) and NSSPR’s cost from vendors for photocopy machines, projectors, computer
equipment, students’ chairs, white boards, storage cabinets, and air conditioners totaling
$1,820,219. NSSPR billed PRDE a total of $2,657,224 for the same equipment, resulting in an
overcharge of $837,005 (46 percent). In addition, we obtained NSS-Illinois’s cost from a vendor
for software purchases totaling $68,372. NSSPR billed PRDE $172,872 for the same software,
resulting in an overcharge of $104,500 (153 percent). NSSPR billed PRDE $176,400 for the
purchase of software that was already included in the 840 computers acquired, resulting in
software overcharges totaling $280,900. Moreover, NSSPR billed $111,720 for photocopier
maintenance even though it did not purchase a maintenance contract from the vendor.

NSSPR also billed PRDE $60,969 for local travel, $887,403 for materials, $937,588 for
installation, $31,500 for subscriptions, and $15,900 for insurance. NSSPR did not submit to
PRDE evidence to support the amounts claimed. As a result we considered the amounts claimed
as unsupported. (See Exhibit A).

         $1,312,151 Contract – “School Improvement and Professional Development”

PRDE paid NSSPR the total amount of the 1999/2000 $1,312,151 contract. However, we
considered the total amount claimed by NSSPR as unsupported because we were unable to obtain
adequate and reliable supporting documentation of costs claimed. For example, the supporting
documentation that NSSPR provided for materials and software purchases was invoices on NSS-
Illinois’s and/or another subsidiary’s letterhead. There were no invoices from the original
vendors from whom NSSPR or NSS-Illinois purchased the materials and software. In addition,
we were not able to obtain supporting documentation for “professional services,” local travel,
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follow-up projects, subscriptions, surveys, lunches for teachers, and insurance. Moreover,
NSSPR’s invoice for the month of January 2000, did not include any supporting documentation
of costs claimed, although PRDE paid the invoice. (See Exhibit B).

        General non-compliance with contracts

Although required by the contracts, NSSPR did not:
• Submit comprehensive work schedules for the development of the proposals and
   specifications of all equipment planned for purchase;
• Submit quarterly and annual reports; and
• Submit audits by independent certified public accountants licensed to practice in Puerto Rico
   consisting of financial audits and contract-compliance audits.

In addition, for the 1999/2000, $9,500,000 contract, NSSPR did not replace defective equipment
and did not inventory materials, equipment, and property purchased with Federal funds.

Recommendations:

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

3.1     Return to ED $7,087,455 in unsupported costs and $1,324,825 in questionable costs;
3.2     Establish controls to ensure payments are made only after:
            • proper documentation (vendors’ invoices, when appropriate) is obtained from
                subrecipients/contractors, including documentation identifying that the learning
                centers were properly established;
            • supervisory review of payments and supporting documentation is conducted.
3.3     Provide contract compliance and administrative training to Office of External Resources
        and Finance Division personnel to ensure they verify supporting documentation; and
3.4     Ensure that contracted training is directly related to the purpose of the award.

PRDE’s response:

PRDE believes because the allegations contained in this report pertain to a prior Administration,
the only equitable means to resolve the issues contained in the draft audit report is through the
CAROI process. PRDE would like to engage in the collaborative nature of the CAROI process
rather than engaging in the costly and lengthy litigation process. PRDE provided examples of its
efforts to improve Federal grants management oversight, including issuing letters to personnel
regarding the importance of processing requisitions, contracts and purchase orders in a timely
fashion to ensure compliance with Federal regulations. However, PRDE believes a vast injustice
would be served upon PRDE if the monetary findings were sustained because significant
repayment of funds would harm the very students PRDE serves.

OIG’s reply:

The request for this audit to be resolved through the CAROI process may be considered by the
PRDE did not administer properly Title I contracts with National
School Services of Puerto Rico - FINAL                             11    ACN: ED-OIG/A02-B0012

Assistant Secretary for Elementary and Secondary Education as part of the audit resolution
process. Our findings and recommendations remain unchanged.
PRDE did not administer properly Title I contracts with National
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                                                Other Matters

Because PRDE’s Single Audit reports have been historically late, ED lacks the appropriate
information to monitor adequately PRDE’s administration of ED funds. The reports submitted
have contained repeated findings, including similar findings disclosed in this report, which have
yet to be corrected. As of September 24, 2001, the 2000 Single Audit report remains
outstanding.
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                                                 Background

NSSPR is a subsidiary of NSS-Illinois, a private, for-profit corporation located in Wheeling,
Illinois. PRDE contracts with NSSPR to provide educational services to Puerto Rico’s schools.
PRDE is both the State Educational Agency and Local Educational Agency in Puerto Rico.
During the 1999/2000 and 2000/2001 school years, PRDE reserved Title I funds to carry out
professional development activities at needy Puerto Rico elementary schools. To this end, PRDE
contracted with NSSPR to provide training and consultant services at Title I schools.

PRDE’s major contracts with NSSPR for the 1999/2000 and 2000/2001 award years funded with
Title I funds included the following:

        1999/2000
    Strengthening the Learning Centers for Teachers
    of Students at Risk                                                      $9,500,000
    School Improvement and Professional Development                           1,312,151
                                                                            $10,812,151

        2000/2001
    Strengthening the Districts’ Technology Service Centers for
    Teachers of Students at Risk                                              $5,081,355
    School Improvement and Professional Development                            1,312,151
                                                                              $6,393,506

The purpose of the 1999/2000 and 2000/2001 Strengthening the Learning Centers for Teachers
of Students at Risk projects was to establish modern technological resources and materials at
Laboratory Learning Centers already existing in 84 Puerto Rico school districts and assist the
school districts in order to reinforce and enrich the teaching-learning process.

An ED-OIG audit report issued in March 2001, disclosed that PRDE did not administer properly
a Title I, $9,700,000 contract with NSSPR for the 1998/1999 school year. As a result, PRDE
paid $1,193,993 in questionable costs and $6,647,500 in unsupported costs to NSSPR for the
contract.
                                     Methodology and scope

The purpose of our audit was to determine whether PRDE followed Federal and local laws in
procuring services for its 1999/2000 and 2000/2001 Title I contracts with NSSPR and ensured
that contract requirements were met prior to payment of contractor’s invoices.

The period of our audit was from July 30, 1999 through July 31, 2001. Because PRDE cancelled
two contracts awarded during the 2000/2001 school year, we limited the period through May 6,
2001, the date the last contract was cancelled. We performed our fieldwork at PRDE’s offices in
Hato Rey, Puerto Rico from February 23, 2001 through June 19, 2001. We also made site visits
to 12 school districts: the Gurabo, Las Piedras, and Humacao school districts on November 29,
2000; the Cataño school district on November 30, 2000; the Ciales school district on May 5,
PRDE did not administer properly Title I contracts with National
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2001; the Toa Alta, Toa Baja, and Comerío school districts on May 8, 2001; the Bayamón II
school district on May 29, 2001; the Culebra school district on May 30, 2001; the Vieques school
district on June 5, 2001; and the Naranjito school district on June 13, 2001.

To achieve the audit objectives, we interviewed officials from PRDE’s Office of External
Resources and school teachers and district administrators. Lastly, we traced NSSPR’s supporting
documentation of its expenses billed to PRDE for the two executed 1999/2000 Title I contracts.
To fully test NSSPR’s documentation, we obtained source documentation from vendors from
whom NSS-Illinois and NSSPR purchased software and equipment.

At our request, PRDE requested the supporting documentation from NSSPR on March 6, 2001,
but, the documentation was not provided.

Our audit was conducted in accordance with government auditing standards appropriate to the
limited scope of the audit described above.

                                      Qualification of Audit Results

We found duplicate attendance rosters submitted to PRDE by NSSPR to support the billings for
“professional services.” As a result, we are unable to render an objective opinion and conclusion
on the total amount billed for professional services.

                                        Data reliability assessment

To meet our objectives, we did not use electronic data from PRDE, NSSPR, NSS-Illinois or ED
for this audit.

                                           Management controls

We did not review the management control structure of PRDE. We previously reviewed the
management control structure and reported our opinion in our report dated March 28, 2001,
entitled Puerto Rico Department of Education Did Not Administer Properly a $9,700,000
Contract With National School Services of Puerto Rico. Our report herein, insofar as it relates to
the system of management control structure is based solely on our report Puerto Rico
Department of Education Did Not Administer Properly a $9,700,000 Contract With National
School Services of Puerto Rico.

.
PRDE did not administer properly Title I contracts with
National School Services of Puerto Rico - FINAL               Exhibit A        ACN: ED-OIG/A02-B00012



          Puerto Rico Department of Education/ National School Services of Puerto Rico
                  1999/2000 Strengthening the Learning Centers for Teachers of
                                    Students at Risk Project
                      Summary of Questioned Costs and Unsupported Costs


                                            Amount
                    Cost                   Invoiced       Accepted        Questionable   Unsupported
Notes             Category                 to PRDE         Costs             Costs          Costs

1.        Professional Services           $ 1,217,576     $ 484,000         $ 95,200       $ 646,376
2.        Local Travel                         60,969                                          60,969
3.        Materials                           887,403                                         887,403
4.        Equipment                         4,219,055      1,820,219          837,005       1,561,831
5.        Software                          1,983,009         68,372          280,900       1,633,737
6.        Installation                        937,588                                         937,588
7.        Maintenance                         111,720                         111,720
8.        Lunches for Teachers                 35,280        35,280
9.        Subscriptions                        31,500                                         31,500
10.       Insurance                            15,900                                         15,900

         Total                              $9,500,000    $2,407,871        $1,324,825     $5,775,304



Notes:

1. NSSPR billed PRDE $1,217,576 for “professional services” during the contract period.
   PRDE provided monthly reports containing training attendance rosters that supported
   “professional services” charges for the months of January through May 2000. Audit tests
   conducted on the training attendance rosters revealed NSSPR over-billed $95,200 for
   training. We were unable to obtain supporting documentation for $646,376, the remaining
   amount of “professional services” billed during the contract period. We also identified
   $8,000, which NSSPR did not bill to PRDE for 10 training sessions. As a result, we have
   included the $8,000 in the accepted costs.

2. NSSPR billed $60,969 for local travel expenses but did not submit to PRDE evidence to
   support the costs. As a result, we were unable to reconcile claimed amounts to adequate and
   reliable supporting documentation.

3. NSSPR billed $887,403 for materials. NSSPR’s supporting documentation was invoices on
   NSS-Illinois’s or another subsidiary’s letterhead, not vendors’ invoices. As a result, we were
   unable to reconcile claimed amounts to adequate and reliable supporting documentation.

4. NSSPR submitted invoices to PRDE for equipment purchases totaling $4,219,055 on NSS-
PRDE did not administer properly Title I contracts with
National School Services of Puerto Rico - FINAL           Exhibit A      ACN: ED-OIG/A02-B00012

    Illinois’s letterhead. We obtained NSSPR’s costs for photocopy machines, projectors,
    computer equipment, student chairs, white boards, storage cabinets and air conditioners
    totaling $1,820,219 from the vendors. NSSPR billed PRDE $2,657,224 for the same
    equipment, resulting in an overcharge of $837,005 (46 percent). In addition, NSSPR did not
    provide adequate and reliable supporting documentation for $1,561,831, the remaining
    amount of equipment purchases billed during the contract period.

5. NSSPR billed $1,983,009 for software purchases. NSSPR’s supporting documentation
   submitted to PRDE was invoices on NSS-Illinois’s or another subsidiary’s letterhead, not
   vendors’ invoices. We obtained from its vendors, NSSPR’s cost for software totaling
   $68,372. NSSPR billed PRDE $172,872 for the same software, resulting in an overcharge of
   $104,500. In addition, NSSPR billed PRDE $176,400 for the purchase of the Microsoft
   Office 2000â software. However, audit tests revealed that the 840 computers acquired
   already included the software. As a result, NSSPR overcharged PRDE $280,900 for software
   purchases. In addition, NSSPR did not provide adequate and reliable supporting
   documentation for $1,633,737, the remaining amount of software purchases billed during the
   contract period.

6. NSSPR billed PRDE $937,588 for installation costs for all the 84 centers even though it
   failed to install the equipment at four centers. In addition, NSSPR did not provide supporting
   documentation for the installation costs billed during the contract period.

7. NSSPR invoiced PRDE a total of $111,720 for photocopier maintenance even though it did
   not purchase a maintenance contract from the vendor.

8. NSSPR billed PRDE $35,280 for lunches provided to teachers during training sessions.
   However, NSSPR did not provide evidence of the amounts claimed. Based on our site visits
   to 12 school districts, we determined that NSSPR provided between $300 and $450 to 7 of
   the 12 school districts to cover lunches provided to teachers during training sessions. As a
   result, we accepted the total amount claimed for teachers’ lunches during the contract period.

9. NSSPR billed $31,500 for subscriptions but did not provide receipts of the amounts claimed.

10. NSSPR did not provide supporting documentation for $15,900, amount claimed for insurance
    during the contract period.
PRDE did not administer properly Title I contracts with
National School Services of Puerto Rico - FINAL              Exhibit B         ACN: ED-OIG/A02-B00012




                             Puerto Rico Department of Education
               1999/2000 School Improvement and Professional Development Project
                                 Summary of Unsupported Costs


                                                           Amount
                          Cost                            Invoiced                  Unsupported
Notes                   Category                          to PRDE                      Costs

          Professional Services                             $        542,700          $      542,700
          Local Travel                                                32,047                  32,047
          Materials                                                  271,695                 271,695
          Software                                                   208,800                 208,800
          Follow-up Projects                                          25,200                  25,200
          Subscriptions                                               83,250                  83,250
          Surveys                                                     41,500                  41,500
          Lunches for Teachers                                        18,000                  18,000
          Insurance                                                    3,000                   3,000
1.        Unsupported Costs Billed                                    85,959                  85,959

          Total                                                 $1,312,151                $1,312,151


Note:

1. The total of each cost category is understated because NSSPR did not identify in one of its
   invoices to PRDE totaling $85,959 the breakdown by cost category.
PRDE did not administer properly Title I contracts with
National School Services of Puerto Rico - FINAL               Exhibit C   ACN: ED-OIG/A02-B00012



                                       Learning Centers Not Installed




                         Culebra School District’s Learning Center -
    Equipment received in September 2000, as of May 30, 2001, equipment remained boxed.




                         Bayamón II School District’s Learning Center-
     Equipment received in November 2000, as of May 29, 2001, equipment remained boxed.
PRDE did not administer properly Title I contracts with
National School Services of Puerto Rico - FINAL           Exhibit D   ACN: ED-OIG/A02-B00012
PRDE did not administer properly Title I contracts with
National School Services of Puerto Rico - FINAL           Exhibit D   ACN: ED-OIG/A02-B00012
PRDE did not administer properly Title I contracts with
National School Services of Puerto Rico - FINAL           Exhibit D   ACN: ED-OIG/A02-B00012
                                        REPORT DISTRIBUTION LIST
                                     AUDIT CONTROL NO. ED-OIG/A02-B0012


                                                                                                        No. of Copies
Auditee

Honorable César Rey - Hernández ............................................................................ 1
Secretary of Education
Puerto Rico Department of Education
Calle Teniente González Esq. Calle Calaf – 12th Floor
Urb. Tres Monjitas
Hato Rey, Puerto Rico 00919

Action Official

Susan Neuman........................................................................................................... 1
Assistant Secretary for Elementary and Secondary Education
U.S. Department of Education
400 Maryland Ave., SW Room 3W315
Washington, D.C. 20202

Other ED Officials/Staff

Chief of Staff, Office of the Secretary....................................................................... 1
Under Secretary......................................................................................................... 1
Deputy Secretary ....................................................................................................... 1
Assistant Secretary for Intergovernmental and Interagency Affairs.......................... 1
Director, Budget Services, Office of the Under Secretary ........................................ 1
Director, Office of Public Affairs.............................................................................. 1
Director, Program Legal Group, Office for Civil Rights .......................................... 1


IG Officials

Deputy Inspector General for Audit .......................................................................... 1
Assistant Inspector General for Audit ....................................................................... 1
Assistant Inspector General for Investigations.......................................................... 1
Counsel to Inspector General .................................................................................... 1
Area Manager, Planning, Analysis and Management Services................................. 1
Director, Advisory and Assistance, Elementary and Secondary Education .............. 1
Regional Inspectors General for Audit...................................................................... 1
       Regions I through IX