oversight

Audit of the Puerto Rico Vocational Rehabilitation Administration.

Published by the Department of Education, Office of Inspector General on 2002-06-26.

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

                               UNITED STATES DEPARTMENT OF EDUCATION 


                                                OFFICE OF INSPECTOR GENERAL




                                                                                                   June 26, 2002

Ms. María Rosa Iturregui, Administrator
Puerto Rico Vocational Rehabilitation Administration
Apartado 191118
San Juan, PR 00919-1118

Dear Ms. Iturregui:

This Final Audit Report presents the results of our audit of the Puerto Rico Vocational Rehabilitation
Administration (PRVRA). A draft of this report was provided to PRVRA. In its response, PRVRA
agreed with our findings and recommendations. We summarized PRVRA’s response in this report’s
“Audit Results” section, under “PRVRA’s Reply”. A copy of PRVRA’s response is provided as an
Attachment to this report.

                                                          BACKGROUND

The Rehabilitation Act of 1973, as amended, authorizes the allocation of Federal funds on a formula
basis for the administration and operation of a vocational rehabilitation program to assist individuals
with disabilities in preparing for and engaging in gainful employment.

As a condition for the receipt of Federal funds under Title I, part B, PRVRA, operating within the
Puerto Rico Department of Family1, was designated as the State agency to operate and administer the
State Vocational Rehabilitation Services Program for Fiscal Year (FY) 2000. Accordingly, PRVRA is
responsible for determining the use and disbursement of the program funds in accordance with Federal
regulations.

                                OBJECTIVES, SCOPE, AND METHODOLOGY

The purpose of our audit was to determine whether PRVRA properly accounted for the unliquidated
obligations according to the applicable laws, regulations, and terms of the grant.

The period of our audit was from October 1, 1999, to September 30, 2000. We performed our
fieldwork at PRVRA’s offices in San Juan, Puerto Rico from March 22, 2001, through June 27, 2001.
The entrance conference was held on March 22, 2001, and the exit conference was held on July 11,
2001.


1. Puerto Rico law 97 of June 10, 2000, transferred the administration of PRVRA from the Puerto Rico Department of
Family to the Puerto Rico Department of Labor and Human Resources.

                                  400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510
               Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
To achieve the audit objectives, we reviewed Puerto Rico Department of Family’s Single Audit
Reports for the years ended June 30, 1996, and June 30, 1997. We also interviewed officials from
PRVRA and the Puerto Rico Treasury Department. Lastly, we attempted to obtain PRVRA’s
supporting documentation for the unliquidated obligations. Unliquidated obligations are funds
authorized for expenditure but not yet expended. We were provided with internally generated
schedules without any source documentation. The records that were provided were not sufficient,
competent, or relevant evidence in support of the unliquidated obligations.

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

                                                AUDIT RESULTS

PRVRA did not properly account for the unliquidated obligations according to the applicable laws,
regulations, and terms of the grant.

Finding No. 1—PRVRA improperly reported expended funds as unliquidated obligations

PRVRA improperly reported $15,847,971 as unliquidated obligations for Vocational Rehabilitation
grant funds for FY 2000 on its cumulative quarterly Financial Status Report. The regulations in 34
C.F.R. § 80.32 define an expenditure report for nonconstruction grants as the Standard Form (SF) 269,
“Financial Status Report.” As of September 30, 2000, PRVRA reported on SF 269 total Federal funds
authorized of $62,196,812 for FY 2000. Of the $62.2 million, they reported on SF 269 unliquidated
obligations of $15.8 million. According to 34 C.F.R. § 80.3, unliquidated obligations for reporting
purposes under the accrual basis means the amount of obligations incurred by the grantee for which an
outlay has not been recorded.

Our review disclosed that PRVRA expended the $15.8 million reported as unliquidated obligations,
but it could not document how the funds were expended. PRVRA officials stated that they created this
amount as a “residual balance” of Federal grant funds by subtracting the Federal grant expenditures
they could account for of $46,348,841, from the total authorized Federal grant funds of $62.2 million.

The requirements set forth in 34 C.F.R. § 80.20 (a) (1) and (2) establish Federal regulations applicable
to financial management. The State must account for grant funds to maintain fiscal control and
accounting procedures thus, permitting the preparation of reports and tracing of funds adequate to
establish that such funds have not been used in violation of the applicable statutes.

We noted financial discrepancies within two separate PRVRA offices, Finance and Budget. Both the
Finance and Budget Offices maintain separate accounting systems for recording transactions. The lack
of communication between the two offices within PRVRA, resulted in the incorrect reporting of
financial transactions to the U.S. Department of Education (ED).

The Finance Office oversees the reporting of the Puerto Rico Integrated Financial Accounting System
(PRIFAS),3 an online computer system directly linked to the Puerto Rico Treasury Department


2. Unless otherwise specified, all regulatory citations are to the July 1, 1999 volume.
3. PRIFAS is the Puerto Rico Treasury Department central accounting electronic system, implemented on July 1, 1998.
                                                           2 

(Hacienda).4 The Finance Office uses PRIFAS to request and account for payment of expenditures.
The Budget Office oversees the Federal Reports Division. PRVRA’s Federal Reports Division
accessed PRIFAS at the time of filing the SF 269 and observed that the majority of the grant was
already expended. Although the PRIFAS information was in direct contrast with their internal
accounting records, the Federal Reports Division did not reconcile the differences. Instead, they
accounted for the expenditures using their internal records for the SF 269. Since 1996, no
reconciliations have been performed of the Finance and Federal Reports Division accounting records.
Due to the inadequate records, 1995-1996 was the last grant period closed out. No other
reconciliations have been performed to close the more recent grant periods.

PRVRA officials explained that they were in the process of implementing an automated system for
grant period 1999-2000. Similar unliquidated obligations problems have been reported as findings in
previous reports. For example, in the 1991 OIG report, Audit of the Vocational Rehabilitation
Program at Puerto Rico Department of Social Services, ACN 02-90202, as well as the 1994
Rehabilitation Services Administration (RSA) Programmatic Review, PRVRA did not provide
documentation for reported unliquidated obligations.

In light of the above problems, there are no assurances that the $15.8 million reported as unliquidated
obligations was expended for intended grant purposes. Accordingly, these funds are unsupported.

Recommendations:

We recommend that the Assistant Secretary for Special Education and Rehabilitative Services require
PRVRA to:

1.1 	    Provide support that the $15.8 million reported as unliquidated obligations, was expended for
         intended grant purposes and return to ED any amounts that cannot be supported;
1.2 	    Implement accounting controls to assure accurate Federal reporting of unliquidated obligations,
         and;
1.3 	    Perform reconciliations between financial information accumulated within PRIFAS and
         PRVRA’s internal accounting functions.

PRVRA’s Reply

PRVRA concurred with our findings and recommendations. PRVRA stated that the Budget Office
was instructed to reconcile the financial information with the Finance Office. Additionally, PRVRA
requested an audit from the Puerto Rico Office of Management and Budget regarding the unliquidated
obligations. A report is expected no later than June 30, 2002. PRVRA added that in order to maintain
proper accounting records, they were in process of implementing an accounting software application
developed in-house. They expect that by June 30, 2002, their accounting books will be accurate and
complete and that this system will enable them to account for their financial reports.




4. Hacienda is the state agency responsible for administration and disbursement of the Federal funds.

                                                             3 

Finding No. 2—PRVRA improperly requested an extension of time to expend unliquidated
obligations that had already been expended

PRVRA improperly requested and received from RSA, an extension of time to liquidate the $15.8
million they reported as unliquidated obligations on the SF 269. RSA monitors the financial status of
the program through the SF 269 reports submitted by the grantees. RSA relies on the A-133 Single
Audit to ascertain the accuracy of the SF-269 but, the 2000 Single Audit due March 2001, has yet to be
submitted. In accordance with 34 C.F.R § 80.23 (b) “Liquidation of Obligations,” at the request of the
grantee, RSA may extend the 90-day deadline after the end of the funding period for liquidation of all
obligations. Although PRVRA was aware that the funds reported as unliquidated obligations had been
expended, they requested an extension of time to liquidate the funds. This request was made to ensure
RSA did not reallocate the funds in accordance with 34 C.F.R. § 361.65.

Recommendation:

We recommend the Assistant Secretary for Special Education and Rehabilitative Services:

2.1 	   Provide oversight to PRVRA to assist in monitoring PRVRA’s financial status of the program
        for the 1999-2000 fiscal period and subsequent years.

PRVRA’s Reply

PRVRA concurred with our findings and recommendation. They instructed their Federal Reports
Division of the Budget Office to be diligent in requesting extensions of time. They have developed an
in-house accounting software application that will be used to account for all the transactions of
PRVRA including the financial reports as required by governmental accounting standards.


                                          OTHER MATTERS

Pursuant to the Single Audit Act of 1984, as amended, Office of Management and Budget Circular No.
A-133, revised on June 24, 1997, Audits of States, Local Governments, and Non-Profit Organizations,
Subpart B, §_.200(b) states:

        Non-Federal entities that expend $300,000 or more in a year in Federal awards
        shall have a single audit conducted in accordance with §_.500 . . . .

Subpart C, §_.320(a) of A-133 further states:
       The audit shall be completed and . . . submitted within the earlier of 30 days
       after receipt of the auditor's report(s), or nine months after the end of the audit
       period . . .

Subpart C, §_.320(d) of A-133 requires auditees to submit their single audit reports within their data
collection package to the Clearinghouse.



                                                     4 

Because Puerto Rico Department of Family’s Single Audit Reports have been historically late, ED
lacks the appropriate information to monitor adequately Puerto Rico Department of Family’s
administration of ED funds. Moreover, similar findings have been disclosed in the 1997 Single Audit
Report. These issues include findings that PRVRA could not locate evidence to support disbursements
and that the balances reported in the Financial Status Report (SF 269) did not agree with the general
ledger. During our review, we examined Puerto Rico Department of Family’s Single Audit Report for
the years ended June 30, 1996, and June 30, 1997. The 1997 report, which was due on July 31, 1998,
was not issued until July 2001. The 1998 Single Audit Report was due on July 31, 1999, the 1999
Single Audit Report on March 31, 2000, and the 2000 Single Audit Report on March 31, 2001. Both
the 1998 and 1999 reports were received in final form as of September 30, 2001. As of June 25, 2002,
the 2000 report is still awaiting submission.

Recommendation:

We recommend that the Assistant Secretary for Special Education and Rehabilitation Services require
PRVRA to:

3.1 	 Take pro-active steps to assure that Single Audit reports are submitted within the required
      time frames.


                                   MANAGEMENT CONTROLS

As part of our review, we assessed the system of management controls, policies, procedures, and
practices applicable to PRVRA’s accounting for unliquidated obligations. Our assessment was
performed to determine the level of control risk for determining the nature, extent, and timing of our
substantive tests to accomplish our audit objectives.

For the purpose of this report, we identified and classified the significant management controls into the
following categories:

ƒ   Form 269 reporting
ƒ   Accounting procedures

Because of inherent limitations, a study and evaluation made for the limited purpose described above
would not necessarily disclose all material weaknesses in the management controls. However, our
assessment disclosed significant management control weaknesses, which adversely affected PRVRA’s
ability to account for unliquidated obligations. These weaknesses included inadequate record keeping
of expenditures and unreliable supporting documentation. These deficiencies and their effects are fully
discussed in the AUDIT RESULTS section of this report.




                                                   5 

                                   ADMINISTRATIVE MATTERS

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report represent the opinions of the Office ofInspector Genera1.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.

If you have any additional comments or information that you believe may have a bearing on the
resolution of this audit, you should sent then directly to the following ED official, who will consider
them before taking final action on the audit:

                       Dr. Robert H. Pasternack
                       Office of Special Education and Rehabilitative Services
                       U. S. Department of Education
                       Mary E. Switzer Building, Room 3006
                       330 C. Street, SW
                       Washington, DC 20202


In accordance with Freedom ofInformation 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 publicto the extent
information contained therein is not subject to exemptions in the Act.




                                      Assistant Inspector General for Audit Services




                                                    6




                        -""----------­
                                                                                                               Attachment 1




                                      (Of..",\Ij ",'Wt AJ. 1II OF PUERTO RICO

                             mf>....Rr.\ lfN r o r l ABOR          .~ ",I)   IIIJMAN   RE sOu~a: s




 April 29. 2002




Daniel P. Schultz. Rcgionul illspcctor
General fOt" Audit - ~cgion II
U.S. Department of EdUCillion
Ollice of luspt.""l:lor (jellelal
clo New York City l30ard o f Education
65 Corm StTt.""d. Ith (loor
Hrooklyn, NY 1120 1

This is to respond to you r draft audit report A02-flO OI4. In that report are mentioned
some situatio ns rt.""gardillg improperly reported linanl:i.-I information and improperly
requesTed extension of lime. Attached i" our eorTccliv.: action plan for Ihis repon.

In add it ion [0 the corrective actions, we consider that you should be aware of some
actions that were taken in the last fiscal year that arc important in the financial
reporting process. On OClOber 2001. thc Onice of Intl!m:ll Auditing recommended
that, in order to maintain prope-r accounting records, :m accounting soft ware
appl ication \\QuIJ be nl:cucd. 011 Fr.:bruar)' 25. VRA Accounting was presented to
the Budgeting. Finance. and Purchasing o llice". This :lpplication w as de veloped in­
house and will be uS\:d to ucw unt Jo r all tlte transactions of PRVRA including
financial rCp0r1 s sueh as RSA·2, Financial Sta tus \{(!ports, and other fi nancial
reports as rcqui n.:d by the govemmcnlal accoll1lling standards. We expect Ihm by
June 30 our accounting hooks wi ll he <"Iccurolc <"lad complete.

If you havl: any questions. pl ease contact Mr. !l irmn Gonzalez, Director of the
Internal Audi ting Ollkc. at (787) 268-5909 .


                                .... .~ 1.-
                           .-
i\'laria Rosa lturrcgui , r..·m.c, eRe
Administrator




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             ISo" nU l "   Slrn J ... n, PR ~a'11 1 1 Ttl. (181) 129· 0160                'n. ( 711) nl'I010



                                                                                    7
We concur with those findings and con-ective actions have been taken as follows:

       Findings No.                   Description                   Corrective Action    _

                              PRVRA            improperly Personnel       from      the
                              reported expended. funds as Budgeting      Office    was
                              unliquidated obligation.    instructed to reconcile the
                                                          financial information with
                                                          the Finance Office. In
                                                          addition, we requested an
                                                          audit from the P.R. Office
                                                          of Management and Budget
                                                          regarding the unliquidated
                                                          obligations. A report to that
                                                          effects should be submitted
                                                          no later than June 30, 2002.

             2                PRVRA             improperly    We instructed the Federal
                              requested an extension of       Reports Division of the
                              time to expend l.U1liquidated   Budgeting Office to be
                              obligations that had already    diligent   in     requesting
                              been expended.                  extensions of time.




                                                              8 

                         REPORT DISTRIBUTION LIST 

                        CONTROL NO. ED-OIG/A02-B0014 




Auditee
      Ms. María Rosa Iturregui, Administrator
      Puerto Rico Vocational Rehabilitation Administration
      Apartado 191118
      San Juan, PR 00919-1118

ED Action Official
      Dr. Robert H. Pasternack, Assistant Secretary
      Office of Special Education and Rehabilitative Services


Other ED Officials/Staff (electronic copy)
Chief of Staff, Office of the Secretary
Under Secretary, Office of the Deputy Secretary
Deputy Secretary, Office of the Deputy Secretary
Director, Office of Public Affairs
Press Secretary
Assistant Secretary, Office of Legislation and Congressional Affairs
Assistant Secretary, Office of Intergovernmental and Interagency Affairs
Assistant General Counsel, Office of the General Counsel
Correspondence Control, Office of General Counsel
Audit Liaison Officer, Office of Special Education and Rehabilitative Services
Director, Financial Improvement and Post Audit Operations,
        Office of the Chief Financial Officer
Post Audit Group Supervisor, Financial Improvement and Post Audit Operations,
        Office of the Chief Financial Officer
Indirect Cost Group Supervisor, Financial Improvement and Post Audit Operations,
        Office of the Chief Financial Officer




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