oversight

Puerto Rico Department of Education Did Not Administer Properly Three Contracts With R.V. Research and Management Group, Inc.

Published by the Department of Education, Office of Inspector General on 2002-09-12.

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

                    Puerto Rico Department of Education 

                Did Not Administer Properly Three Contracts 

               With R.V. Research and Management Group, Inc. 



                                  FINAL AUDIT REPORT 





                         Audit Control Number ED-OIG/A02-B0025 

                                      September 2002 




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
                      U.S. DEPARTMENT OF EDUCATION 

                              OFFICE OF INSPECTOR GENERAL 

                                   75 Park Place, 12th Floor 

                                  New York, New York 10007 




September 12, 2002


Honorable Cesar A. Rey
Secretary of Education
Puerto Rico Department of Education
Calle Teniente Gonzalez, Esq. Calle Calaf- 12th Floor
Urb. Tres Monjitas
San Juan, Puerto Rico 00919

Dear Secretary Rey:

Attached is our report entitled Puerto Rico Department ofEducation Did Not Administer
Properly Three Contracts With R. V. Research and Management Group, Inc. The report
incorporates the comments you provided in response to the draft audit report. If you have any
additional comments or information that you believe may have a bearing on the resolution of this
audit, you should send them directly to the following Education Department official, who will
consider them before taking final Departmental action on the audit:

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

Office of Management and Budget Circular A-50 directs Federal agencies to expedite the
resolution of audits by initiating timely action on the findings and recommendations contained
therein. Therefore, receipt of your comments within 30 days would be greatly appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. §552), reports issued to the
Department's grantees and contractors are made available, ifrequested, to members of the press
and general public to the extent information contained therein is not subject to exemptions in the
Act.


                                                 Sincerely,




                                                 Daniel P. Schultz
                                                 Regional Inspector General for Audit

Attachment
                                           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. §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


AUDIT RESULTS

Finding 1            PRDE awarded fixed-price contracts totaling $4,597,935 to 

                     RV Research without full and open competition ........................3

                          Recommendations................................................................4 

                          PRDE’s response .................................................................4                 

                          OIG’s reply ..........................................................................5            


Finding 2            PRDE failed to determine that the costs of the fixed-price 

                     contracts 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................................................................9                  

                           PRDE’s response ...............................................................10                 

                           OIG’s reply ........................................................................10            


Background ...........................................................................................................11 


Objectives, Scope, and Methodology ....................................................................11 


Management Controls ..........................................................................................12 


Exhibit A: 	         Summary of Questioned Costs and Unsupported Costs,
                     1997/1998 – Computer Software Learning Videos

Exhibit B: 	         Summary of Questioned Costs and Unsupported Costs,
                     June 1998 – December 1998 – Computer Software Learning Videos

Exhibit C: 	         Summary of Questioned Costs and Unsupported Costs,
                     2000/2001 – MultiCenters

Exhibit D: 	         PRDE’s response
                                           Executive Summary 

Puerto Rico Department of Education (PRDE) failed to award properly two Elementary and
Secondary Education Act, Technology Literacy Challenge Funds (Title III) and one Goals 2000:
Educate America Act (Goals 2000)1 fixed-price contracts totaling $4,597,935 for the purchase of
computer software learning videos and to establish learning centers in five Puerto Rico schools.
PRDE awarded the contracts to R.V. Research and Management Group, Inc. (RV Research) in
June 1997, May 1998, and March 2000 without open competition. 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. PRDE also did not
monitor the terms of the contracts. For example, PRDE did not adequately review RV
Research’s invoices for supporting documentation of costs claimed prior to payment. As a
result, PRDE paid $1,774,275 in unsupported costs and $371,748 in questioned costs to RV
Research.

On January 23, 2002, the former Secretary and Associate Secretary of PRDE, as well as, the
president of RV Research were indicted on charges of conspiracy to interfere with commerce by
extortion (in violation of 18 U.S.C.§ 1951 and § 1952), theft concerning program receiving
Federal funds (18 U.S.C. § 666); conspiracy to commit money laundering (18 U.S.C. § 1956(h);
and money laundering asset forfeiture (18 U.S.C.§ 982). On February 6, 2002, PRDE’s former
Secretary and Associate Secretary pled guilty to various felony charges involving extortion,
program fraud, and money laundering. Additionally, on April 5, 2002, the president of RV
Research pled guilty to extortion, program fraud, and money laundering. He further agreed to
criminal asset forfeiture of not less than $800,000.

In March 2001 and September 2001, we issued audit reports regarding PRDE’s Title I contract
administration for the school years 1998/1999 through 2000/2001 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; maintain records justifying the
lack of competition; enforce the requirement of obtaining a breakout of each element of cost and
document the cost analysis performed to ensure prices obtained on contracts are fair and
reasonable; and establish controls to ensure payments are made to contractors only after proper
documentation is obtained and review is conducted. In addition, PRDE should review all current
contracts using Federal funds to determine whether competition and cost analysis were
performed. Lastly, PRDE should return to ED $1,774,275 in unsupported costs and $371,748 in
questioned costs.

1
    PRDE is awarded an allotment of Federal funds under the Elementary and Secondary Education Act, Title III –Technology
    Literacy Challenge Grants (Public Law 103-382) and the Goals 2000: Educate America Act (Public Law 103-227). The
    Technology Literacy Challenge Fund supports the development and implementation of systemic technology plans at state,
    local, and school levels to improve teaching and learning of all children. The Goals 2000: Educate America Act helps states
    and communities realize the national commitment to improving education and ensuring that all children reach high academic
    standards.
PRDE stated it issued corrective action letters to inform, among others, PRDE personnel,
contractors, and vendors of the new procurement and monitoring procedures. On June 19, 2001,
the Puerto Rico Secretary of Education issued the “Procedures for Contracting Professional and
Consulting Services Funded with Federal Funds.” Also, on July 30, 2001, the Secretary issued
strict guidelines to be followed before the award or renewal of any type of contract. PRDE
revised the “Procedures for Awarding Competitive Federal Funds,” in order to reinforce the
requirements established by the Federal programs in the evaluation of proposals. PRDE does not
fully agree with the questioned costs for finding number 3, but PRDE does share the concerns of
the OIG with regards to compliance with Federal procedures. However, PRDE stated that the
current leadership and administration is taking the necessary steps to improve the PRDE controls
over all applicable Federal laws, regulations, and requirements. We added recommendations to
our report to require PRDE to 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 three contracts with RV
Research - FINAL                                                               3            ACN: ED-OIG/A02B0025

AUDIT RESULTS

Finding 1

PRDE awarded fixed-price contracts totaling $4,597,935 to RV Research without full and
open competition


PRDE awarded RV Research two Title III and one Goals 2000 fixed-price contracts totaling 

$4,597,935 without full and open competition. PRDE also did not maintain in its procurement 

records a justification for the lack of competition for the three contracts. ED generally permits 

States, including Puerto Rico, to use 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 could not provide evidence that the contracts were competitively bid because the 

contracts were under a prior administration. Because PRDE did not competitively bid the 

contracts, it could not be assured products and services were obtained at competitive prices or 

that certain vendors were not given preferential treatment or arbitrarily excluded. 


Procurement standards are detailed in 34 C.F.R. § 80.36 (a)2 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 use formal competitive procedures. 


On June 1, 1997, PRDE entered into a contractual agreement with RV Research totaling 

$998,750 to provide “Computer Software Learning Videos” to 1,000 schools selected by PRDE. 

 According to the agreement, the services to be provided by RV Research included the 

following: 


ƒ     Purchase and delivery of videos; and 

ƒ     Provide training to 100 school districts for implementation of the videos. 


On May 29, 1998, PRDE entered into a contractual agreement with RV Research for a second 

contract totaling $499,375 to provide “Computer Software Learning Videos” to 500 intermediate 

schools and high schools selected by PRDE. According to the agreement, the services to be 

provided by RV Research included the following: 




2
    Unless otherwise specified, all regulatory citations are to the July 1, 1998, volume.
PRDE did not administer properly three contracts with RV
Research - FINAL                                                 4          ACN: ED-OIG/A02B0025

ƒ   Purchase and delivery of videos; and 

ƒ   Training of regional personnel in charge of the project. 


On March 7, 2000, PRDE entered into a contractual agreement totaling $2,999,810 with RV 

Research to establish five MultiCenters. The MultiCenters are learning centers located at the 

schools that utilize computers, specialized software, and tactical equipment for instruction. On 

November 2, 2000, PRDE and RV Research signed an amendment to the March 2000 contract, 

increasing the contract amount to $5,099,810. On May 25, 2001, PRDE and RV Research 

signed a second amendment to the contract reducing the contract amount to $3,099,810. 


Our audit disclosed that PRDE issued the three contracts without open competition. PRDE 

officials stated that the contracts were not competitively bid because PRDE’s prior 

administration considered the contracts as “professional services” contracts, and under Puerto 

Rico laws, these types of contracts were not subject to open competition. As evidenced by the 

three contracts, the majority of the amounts invoiced were for the purchase and delivery of 

learning videos and the purchase and installation of MultiCenters. As a result, PRDE should 

have utilized formal competitive procedures. 


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 RV Research 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:

1.1 	   Establish controls to ensure all procurement transactions in excess of $25,000 involving
        Federal funds provide for full and open competition;
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 	   Review all current contracts using Federal funds to determine whether competition and
        cost analysis were performed; and
1.4 	   Conduct an independent assessment of the control procedures and guidelines
        implemented by PRDE to determine if the controls are sufficient.

PRDE’s response:

PRDE stated it issued corrective action letters to inform, among others, PRDE personnel,
contractors, and vendors of the new procurement and monitoring procedures. On June 19, 2001,
the Puerto Rico Secretary of Education issued the “Procedures for Contracting Professional and
Consulting Services Funded with Federal Funds.” Also, on July 30, 2001, the Secretary issued
strict guidelines to be followed before the award or renewal of any type of contract.
PRDE did not administer properly three contracts with RV
Research - FINAL                                               5           ACN: ED-OIG/A02B0025

Additionally, a checklist will be developed to ensure that contracts received in the Payment
Division have all the required documents before processing any payments.

OIG’s reply:

We reviewed the procedures and guidelines implemented by PRDE. PRDE’s corrective action
should improve the procurement process. We added recommendation 1.4 to address the
corrective action PRDE stated would be taken.
PRDE did not administer properly three contracts with RV
Research - FINAL                                                6            ACN: ED-OIG/A02B0025



Finding 2

PRDE failed to determine that the costs of fixed-price contracts were fair and reasonable


PRDE did not obtain an itemized price list for any of its three contracts with RV Research.
PRDE approved the proposals without determining each element of cost or completing 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 three contracts.

OMB Circular No. A-87, Attachment A, paragraphs C.1, 2 provide that costs may be charged to
a Federal award 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. 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 should be 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.

Our audit disclosed that PRDE did not perform a cost analysis on any of the three RV Research’s
fixed-price contracts totaling $4,597,935. By not performing a cost analysis in its procurement
procedures, PRDE could not ensure that prices obtained on the contracts were fair and
reasonable.

Recommendations:

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

2.1 	   Establish effective procurement procedures to ensure it obtains fair and reasonable prices
        on future contracts;
2.2 	   Enforce the requirement of obtaining a breakout of each element of cost from future
        contractors;
2.3 	   Document in its procurement files the cost analysis performed to determine if prices
        obtained on future contracts are fair and reasonable; and
2.4 	   Conduct an independent assessment of the control procedures implemented by PRDE to
        determine if the controls are sufficient.

PRDE’s reply:

PRDE revised the “Procedures for Awarding Competitive Federal Funds” in order to reinforce
the requirements established by the Federal programs in the evaluation of proposals.
PRDE did not administer properly three contracts with RV
Research - FINAL                                           7          ACN: ED-OIG/A02B0025

OIG’s reply:

We reviewed the procedures implemented by PRDE. PRDE’s corrective action should improve
the procurement process. We added recommendation 2.4 to address the corrective action PRDE
stated would be taken.
PRDE did not administer properly three contracts with RV
Research - FINAL                                              8           ACN: ED-OIG/A02B0025



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 $371,748 in questioned costs
and $1,774,275 in unsupported costs to RV Research for three fixed-price contracts totaling
$4,597,935 awarded in June 1997, May 1998, and March 2000. (See Exhibits A, B, and 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 the
contractor’s invoices for adequate and reliable supporting documentation prior to payment.

According to 34 C.F.R. § 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 C.F.R. § 80.20 (b)(6) provides that “Accounting records must be supported by such
source documentation as cancelled checks, paid bills, payrolls, time and attendance records,
contract and subgrant awards documents, etc.”

        $998,750 Contract – “Computer Software Learning Videos”

PRDE did not ensure compliance with contract requirements and Federal regulations because it
paid $998,750 to RV Research for computer software learning videos without ensuring that RV
Research submitted adequate and reliable supporting documentation of costs claimed. PRDE
paid RV Research $306,415 in questioned costs and $436,500 in unsupported costs for the
contract. RV Research did not submit to PRDE adequate supporting documentation for the
purchase and delivery of videos to 1,000 schools and for training provided for the videos. We
were able to obtain from RV Research its third party invoices for the purchase and delivery of
the videos and one training course provided. RV Research billed PRDE $515,750 for the
purchase of the videos, yet its vendor’s invoice totaled $250,000, resulting in an overcharge of
$265,750 (106 percent). RV Research also billed PRDE $45,000 for the delivery of the videos,
but its costs for delivering the videos was $4,335, resulting in an overcharge of $40,665 (938
percent). RV Research also billed PRDE $438,000 for training. We were able to obtain from
RV Research one invoice totaling $1,500 for training provided. As a result, we consider
$436,500 as unsupported costs. See Exhibit A for the details of the questioned and unsupported
costs. We verified RV Research delivered the videos to PRDE, but were unable to determine if
PRDE distributed the videos to the 1,000 schools.

        $499,375 Contract – “Computer Software Learning Videos”

PRDE did not ensure compliance with contract requirements and Federal regulations because it
paid $492,381 to RV Research for computer software learning videos without ensuring that RV
Research submitted adequate and reliable supporting documentation of costs claimed. As of
March 20, 2002, RV Research had not submitted additional invoices for payment. RV Research
billed $314,806 for “Professional Services” but did not submit supporting documentation to
PRDE did not administer properly three contracts with RV
Research - FINAL                                              9            ACN: ED-OIG/A02B0025

PRDE or us. As a result, we consider this amount as unsupported costs. RV Research also
billed PRDE $152,806 for the purchase of the videos, yet its vendor’s invoice totaled $124,500,
resulting in an overcharge of $28,306 (23 percent). RV Research billed PRDE $24,769 for the
delivery of the videos, but its total costs for delivering the videos was $4,069, resulting in an
overcharge of $20,700 (509 percent). See Exhibit B for the details of the questioned and
unsupported costs. We verified that RV Research delivered the 498 videos to PRDE and that the
videos were distributed to schools.

        $3,099,810 Contract - MultiCenters

PRDE did not ensure compliance with contract requirements and Federal regulations because it
paid $2,390,742 to RV Research for MultiCenters without ensuring that RV Research submitted
adequate and reliable supporting documentation of costs claimed. RV Research submitted a total
of 11 invoices to PRDE, of which eight were for “Professional Services.” As of March 20, 2002,
RV Research had not submitted additional invoices for payment. PRDE paid RV Research
$16,327 in questionable costs and $1,022,969 in unsupported costs for the contract. We
accepted costs totaling $1,351,446 from documentation we were able to obtain from RV
Research supporting payroll expenses, various training provided, and third party invoices
supporting purchase of materials, software, and computer equipment for the MultiCenters. See
Exhibit C for the details of the questioned and unsupported costs.

We made site visits to the five MultiCenters and found the learning centers were established but
three were not being used because of lack of funding from PRDE. Two of the five MultiCenters
were using other Federal funds (Title I and/or Special Education funds) to support the
MultiCenters. The MultiCenters opened between the period August 2000 and January 2001.
The five schools submitted proposals to PRDE to fund the MultiCenters for the 2001/2002
school year, but the funding was denied.

        General non-compliance with contracts

Although required by the contracts, RV Research did not:
•     Submit annual progress reports to PRDE for the 1997 and 1998 contracts; and
•     Submit quarterly financial reports.

Recommendations:

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

3.1     Return to ED $1,774,275 in unsupported costs and $371,748 in questioned costs; and
3.2     Establish controls to ensure payments are made only after:
           • 	 proper documentation (vendors’ invoices, when appropriate) is obtained from
                subrecipients/contractors; and
           • 	 review of payments and supporting documentation is conducted.

PRDE’s response:
PRDE did not administer properly three contracts with RV
Research - FINAL                                                10            ACN: ED-OIG/A02B0025



PRDE does not fully agree with the questioned costs for finding number 3, but PRDE does share
the concerns of the OIG with regards to compliance with Federal procedures. PRDE stated that
the current leadership and administration is taking the necessary steps to improve PRDE controls
over all applicable Federal laws, regulations and requirements.

PRDE did not agree with the questioned costs related to the MultiCenters because all the
services related to the MultiCenters were provided. PRDE understands that some changes must
be made to the proposal process in order to separate the professional services from the purchase
of equipment and materials, in order to improve the analysis of proposals and contracts, and to
help determine if the prices obtained are fair and reasonable. PRDE believes that the rate
charged by the contracted party for professional services rendered by the professionals working
at the MultiCenters was not excessive (between $15 and $30 per hour) and that the amounts
being questioned are related to the difference between the rate paid by the contracted party to
their employees and the rate charged to PRDE. The questioned costs related to site visits are
based on a number that PRDE believes is not clear in the finding.

For the Computer Software Learning Videos, PRDE does not consider the price for technical
videos of this nature plus training and delivery excessive. PRDE stated that the services and
materials are allowable under OMB Circular A-87. The PRDE is currently working to improve
the filing system and is providing training to its personnel.

PRDE stated that they have no responsibility to obtain evidence, during the proposal evaluation
process, of the costs to be incurred by the contracted parties to obtain the materials to be sold to
PRDE. They do not agree with the questioned costs because they are based on the amount paid
by the contracted third party to their supplier.

OIG’s reply:

We reviewed PRDE’s response, but our position and recommendations remain unchanged.
PRDE provided no documentation to support the reasonableness of the questioned or
unsupported costs detailed in the finding. The amounts overcharged by the contractor based on
its actual costs represent questioned costs. We did make changes in the report to clarify the costs
of site visits under the MultiCenters contract.
PRDE did not administer properly three contracts with RV
Research - FINAL                                              11           ACN: ED-OIG/A02B0025

                                                Background

RV Research is a private for-profit corporation located in Bayamón, Puerto Rico. RV Research
was incorporated in January 1997, and began contracting with PRDE to provide educational
services to Puerto Rico’s schools in June 1997.

PRDE is both the State Educational Agency and Local Educational Agency in Puerto Rico.
Beginning in June 1997, PRDE contracted with RV Research to provide learning videos for
selected schools using Goals 2000 and Title III funds, and in March 2000 to install learning
centers at selected schools utilizing Title III funds.

On January 23, 2002, the former Secretary and Associate Secretary of PRDE, as well as, the
president of RV Research were indicted on charges of conspiracy to interfere with commerce by
extortion (in violation of 18, U.S.C.§ § 1951 and 1952), theft concerning program receiving
Federal funds (18 U.S.C. § 666); conspiracy to commit money laundering (18 U.S.C. § 1956h);
and money laundering asset forfeiture (18 U.S.C.§ 982). On February 6, 2002, PRDE’s former
Secretary and Associate Secretary pled guilty to various felony charges involving extortion,
program fraud, and money laundering. Additionally, on April 5, 2002, the president of RV
Research pled guilty to extortion, program fraud, and money laundering. In pleading guilty, he
further agreed to criminal asset forfeiture of not less than $800,000.

In March 2001, and September 2001, we issued audit reports regarding PRDE’s Title I contract
administration for the school years 1998/1999 through 2000/2001 that contained similar findings
and recommendations contained in this report. On May 29, 2002, the Deputy Secretary of the
U.S Department of Education designated PRDE as a “high-risk” grantee under 34 C.F.R. §
80.12, making the agency subject to special conditions in all of the Federal education programs
that it administers.

                                 Objectives, Scope, and Methodology

The purpose of our audit was to determine whether PRDE followed Federal laws in procuring
services for its Goals 2000 and Title III contracts with RV Research and ensured that contract
requirements were met prior to payment of contractor’s invoices.

The period of our audit was from June 1, 1997 through October 31, 2001. We performed our
fieldwork at PRDE’s offices in Hato Rey, Puerto Rico, and RV Research’s offices in Bayamón,
Puerto Rico, from August 13, 2001 through February 27, 2002, the date of our exit conference.
We also made site visits to the five MultiCenters: Vega Alta on November 14, 2001; Caguas and
Guaynabo on November 15, 2001; Bayamón on November 20, 2001; and Carolina on November
21, 2001. We also made site visits to PRDE’s warehouse in Bayamón, Puerto Rico to verify
delivery of the learning videos.

To achieve the audit objectives, we interviewed officials from PRDE’s Office of Federal Affairs,
school teachers and principals, PRDE warehouse staff and RV Research’s president. Lastly, we
traced RV Research’s supporting documentation of its expenses billed to PRDE for the Title III
and Goals 2000 contracts. RV Research provided documentation to us that it did not provide to
PRDE did not administer properly three contracts with RV
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PRDE upon submitting its invoices for payment. This information has been incorporated in the
questioned and unsupported costs reported in Finding 3 of this report. To meet our objectives
we did not use electronic data from PRDE, RV Research, or ED.

Except as discussed below, our audit was conducted in accordance with government auditing
standards appropriate to the limited scope of the audit described above.

                                     Qualification of Audit Results

PRDE failed to provide us with a management representation letter. PRDE stated that because
of the Federal criminal investigation alleging wrongdoing in the previous administration’s use of
Federal grant funds, they were unable to provide the requested representation. Such a letter
acknowledges that management has a responsibility for the fair representation of records and
reports, and asserts that the auditors have been provided with complete and accurate records. It
also states that, to the best of management’s knowledge, there have been no irregularities or
violations of law or regulation in connection with issues covered in the audit scope.

The failure of PRDE to sign a management representation letter prevents us from completing a
required audit step and causes us to qualify any conclusions we have drawn on the basis of the
data made available to us.

In addition, we found RV Research charged payroll for its employees to PRDE and at the same
time charged the employee site visits to the learning centers as “Professional Services.” As a
result, we are unable to determine the total amount billed for professional services.

                                          Management Controls

We did not review the management control structure of PRDE. In our report entitled Puerto
Rico Department of Education Did Not Administer Properly a $9,700,000 Contract with
National School Services of Puerto Rico, dated March 28, 2001, we reviewed the management
control structure. 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 three contracts with RV
Research - Final                                                Exhibit A          ACN: ED-OIG/A02-B00025



                         Puerto Rico Department of Education/ RV Research
                                            1997/1998
                                Computer Software Learning Videos
                        Summary of Questioned Costs and Unsupported Costs


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

1.        Training                          $438,000        $  1,500           $     0          $436,500
2.        Delivery - Materials                45,000           4,335            40,665                 0
3.        Materials                          515,750         250,000           265,750                 0

         Total                              $998,750        $255,835          $306,415          $436,500



Notes:

1. 	 RV Research billed PRDE $438,000 for training given to PRDE personnel on how to use the
     software. We were unable to obtain supporting documentation for $436,500, the remaining
     amount of training billed during the contract period.

2. 	 RV Research billed PRDE $45,000 for delivery of materials. RV Research provided
     evidence of delivery of 1,000 sets of 25 videos to PRDE. Vendor’s invoices for delivery
     totaled $4,335, resulting in an overcharge of $40,665 (938 percent).

3. 	 RV Research billed PRDE $515,750 for materials. RV Research provided an invoice from
     “Video Professor” for $250,000 for 1,000 sets of 25 learning videos, resulting in an
     overcharge of $265,750 (106 percent).
PRDE did not administer properly three contracts with RV
Research - Final                                               Exhibit B       ACN: ED-OIG/A02-B00025



                         Puerto Rico Department of Education/ RV Research
                                     June 1998- December 1998
                                Computer Software Learning Videos
                        Summary of Questioned Costs and Unsupported Costs


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

1.        Materials                         $152,806        $124,500          $28,306       $         0
2.        Delivery - Materials                24,769           4,069           20,700                 0
3.        Professional Services              314,806               0                0           314,806

         Total                              $492,381        $128,569          $49,006       $314,806



Notes:

1. 	 RV Research billed PRDE $152,806 for materials. Although the supporting documentation
     reported a total of 510 sets of videos purchased at $10 per video, the evidence provided for
     the delivery of the videos showed a total of 498 sets of videos delivered to PRDE’s
     warehouse. As a result, the accepted costs for this category are $124,500 (498 videos),
     resulting in an overcharge of $28,306 (23 percent).

2. 	 RV Research billed PRDE $24,769 for delivery of materials. RV Research’s vendor’s
     invoice submitted as supporting documentation totaled $4,069, resulting in an overcharge of
     $20,700 (509 percent).

3. 	 RV Research billed PRDE $314,806 for professional services charges, yet did not submit any
     supporting documentation to PRDE or us for these charges.
PRDE did not administer properly three contracts with RV
Research - Final                                               Exhibit C       ACN: ED-OIG/A02-B00012




                           Puerto Rico Department of Education/ RV Research
                                              2000/2001
                                             MultiCenters
                          Summary of Questioned Costs and Unsupported Costs


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

   1.        Professional Services          $100,000         $ 2,250            $    0      $ 97,750
   2.        Professional Services           250,000           70,851                0       179,149
             Materials                        63,345           63,345                0             0
             Software                        560,541          560,541                0             0
             Computer Equipment              402,600          402,600                0             0
   3.        Professional Services           350,000           69,768                0       280,232
   4.        Professional Services           350,000           22,950                0       327,050
   5.        Professional Services           142,611           74,777                0        67,834
   6.        Professional Services            46,419           24,797                0        21,622
   7.        Professional Services            61,543           31,231            6,641        23,671
   8.        Professional Services            63,683           28,336            9,686        25,661


            Total                         $2,390,742       $1,351,446         $16,327      $1,022,969



Notes:
   1. 	 RV Research billed PRDE $100,000 for professional services. PRDE provided
        copies of nine site visits to learning centers. RV Research purchased the franchise for
        the MultiCenters from Degem Systems Ltd. Degem Systems Ltd. advised RV
        Research to charge between $200 and $300 per visit for professional services. We
        averaged these amounts and allowed $250 per visit for professional services, resulting
        in accepted costs of $2,250 (nine visits @ $250) and unsupported costs of $97,750.

   2. 	 RV Research billed PRDE $250,000 for professional services. RV Research
        submitted copies of attendance rosters, for nine training sessions for the MultiCenters
        staff. Additionally, RV Research provided several invoices totaling $68,601 for
        services such as air conditioners, painting, and iron works, resulting in accepted costs
        of $70,851 and unsupported costs of $97,750.
PRDE did not administer properly three contracts with RV
Research - Final                                           Exhibit C     ACN: ED-OIG/A02-B00012

   3.   RV Research billed PRDE $350,000 for professional services. The supporting
        documentation provided by PRDE, as well as by RV Research, totaled $69,768. This
        documentation consisted of site visits ($10,500) , payroll ($42,735) , and several
        invoices ($16,533) for chairs and tables. As a result, RV Research did not provide
        supporting documentation for $280,232.

   4.   RV Research billed PRDE $350,000 for professional services. The supporting
        documentation provided by RV Research totaled $22,950, which consisted of payroll.
        As a result, RV Research did not provide supporting documentation for $327,050.

   5.   RV Research billed PRDE $142,611 for professional services. Although this invoice
        was identified as professional service charges, RV Research included additional costs
        for communication services, technical services, equipment and educational programs
        in this amount. We accepted for costs totaling $74,777 because RV Research
        provided payroll registers, and some documentation of communication, equipment and
        materials charges. Unsupported costs totaled $67,834 because the documentation
        provided for technical services, development of educational material and training were
        narrative explanations.

   6.   RV Research billed PRDE $46,419 for professional services. Although this invoice
        was identified as professional services charges, RV Research included additional costs
        for materials, communication services and technical services. We accepted costs
        supported by RV Research payroll registers, and supporting documentation of
        communication services totaling $24,797. Unsupported costs totaled $21,622 because
        supporting documentation was lacking or consisted of narrative explanations.

   7.   RV Research billed PRDE $61,543 for professional services. Although this invoice
        was identified as professional services charges, RV Research included costs for
        communication services, materials, training and technical services. We accepted costs
        supported by RV Research payroll registers, and supporting documentation of
        communication services totaling $31,231. The documentation presented for the
        training was considered questioned because the training was provided to RV Research
        staff. Additionally, RV Research submitted supporting documentation for the
        technical services’ visits, but it was also considered a questioned cost because the
        technicians were included in other cost categories. Unsupported costs totaled $23,671
        because supporting documentation was lacking or consisted of narrative explanations

   8.   RV Research billed PRDE $63,683 for professional services. Although this invoice
        was identified as professional services charges, RV Research included costs for
        additional items such as communication services, technical services, equipment
        maintenance, and materials. We accepted costs supported by RV Research payroll
        registers, and supporting documentation of communication services and maintenance
        totaling $28,336. The technical services, as well as the training sessions, were
        questioned because the technician was already included in the professional services
        category and the training was provided to RV Research staff. Unsupported costs
PRDE did not administer properly three contracts with RV
Research - Final                                           Exhibit C   ACN: ED-OIG/A02-B00012

        totaled $25,661 because supporting documentation was lacking or consisted of
        narrative explanations.
PRDE did not administer properly three contracts with RV
Research - Final                                                                                                                 Exhibit D                                    ACN: ED-OIG/A02-B00012




                                                    Commonwealth of Puerto Rico
                                                                           Ri c o
                                                           DEPARTMENT OF
                                                                      Of EDuCATIO
                                                                         EDUCATIONN

        Char
        Ch .. A.      R~J'
                      R~ ,. Hua    lladu.
                            Hc", 'adu.           Pb . D.
                       SCtrtL."
                       SC OT ti . . ,.




            August 1,
                   2, 2002



            Mr. Daniel P. Schultz
            Regional Inspector Gelleral for AuditAudil
            U.S.
            US. Depa
                   Depanmenl
                         nm ent of
                                 ofl:'d
                                      Educalion
                                         ueation
            Offi
            O ffi ce of Inspec  tor Gent'r~
                        Inspector    Gen er~ 1
            65 Co url   Su"Cet. r 2'"
                    urt Street.   2'" floor
                                      floo r
            Rrooklyn,, NY 1120[
            Ilrooklyn         11201

                      Schuli~ :
            Dea r Mr. Sehulu:
            Dear

            This letler
                    letter is in response t0 to the Preliminary Audi A~ditt Repon
                                                                              Report entitle<!:   P~('rto Rico
                                                                                      entitled: Puerto      Ri co O('
                                                                                                                  Depart
                                                                                                                      partment
                                                                                                                          me nt of
            Educatiun
            f.du                           Admini ste r Pru
                   cali ull Did Not Administer              PrUI)"
                                                                pl' rl ~' Three Contracts
                                                                                    Contrac ts w   with
                                                                                                     ith R.V . Researc h and
            J\lan
            J\ l anagement
                    age menl Croup, In c. (Io:          D-O IC /A0
                                                   (I-: D_OIC  /A022_R002S)
                                                                      -R002 5) We received this rep!)rI    repon and per your
            instrueti(lns are
            instnu::lions   aTe forwarding
                                 f(lr\\"arding ou r comments 10         OIl in response 1
                                                                 10 yyOIl                0 Ih
                                                                                        10               g~.
                                                                                            thee find in gs.

               ndi ng #1:
            Finding
            Fi        il l :

            PRDE
            rRDE awarded fh:e<.!
                           thed price
                                 pric.:                    conlr~C 'I S
                                                           ~ontr~~        totalling
                                                                          101311 ing $4,5 97,9:;5 to
                                                                                     $4,597,9:;5  \0 RV Researc
                                                                                                        Researchh without full and open
            COmpt:lilion.
            compe ti tion.

            Awol/m
            AlIl olIlII oj
                        of qw!slilJlI('l     w:;/s: None
                           qlll!$/i(J!I(,(// WSIS:  No ne

            Management
            ;\"IRnagc ment Respu
                           Response:
                                 nse:

            As of January 23. 20tJO
                                  2000 1\-Is.
                                         Ms. Eileen Loiz.
                                                      Lo iz, F.Eo;q
                                                                 sq .•.. was appointed as Director for Ihe Federa
                                                                                                            Fedemll AITai rs
            Office, and initi
                          ii\iti at ed a full TCview
                                 alc<l         re" iew of lhe   the procurement process for all federal federal programs.
            Immedia1ely
            Immediately the reafic
                               reafie r. several
                                         severa l corre<:
                                                  ,orrective
                                                          ti\"e actio
                                                                  ac1ionn letters were issued to inform, among o1hers,
                                                                                                                    others,
            PRDE personnel.
            PRDE   persOllneL contractors and vendors oflbe    or the new procurement and mon  monitori
                                                                                                    itori ng procedures.

            The Secretary of Euueation
                               Education issueu
                                            issued on<.>n June 1'J, 2()Ot the "Procedures for Controlc
                                                                <), 20(.11                    Contr.lcling
                                                                                                       ting Profcssiunal
                                                                                                             Professional
            and Consulting
                 Consultiulo; Sernecs
                              S<:r\"iecs Funded w  wilh
                                                      ith Federal Funds"'.
                                                                    Funds". These procedu res em phasize the sped specific
                                                                                                                         fie
            infon  nation lhat
            information   that shou
                               should       inelud<:<.1 ill
                                     ld be included      in ~ eOlltr3el.
                                                              eontrac\. Also, o n Jut)'                 Sce r~t"'"y iss
                                                                                   July 30, 200 1 the Secretary     issued
                                                                                                                        ued
                                     foll uwc<.! before the award or renewal of any lype
            strict guidelines to be followed                                            Iype of cont ract.


        1'P.O
           .0 HOX
              1l0.~   1(>0,5',.
                      1!l()l"S' , fI,\
                                  f',\ \ ... \'. 1·lJf.l<lfl
                                          !I l'. I·UF.!<l(l ,'"
                                                             ('" n     ,>I,..
                                                                 <) ,W,"
                                                                                                     "".   ,
             ll.pu' m ~I" ,,'
        Th<< D<pu(m.",
        Th                ,,( f:<I,,,
                              f:<I"' ~  ,,, ·t\ '~,
                                      . 'I""     1<"<, M'      ""'
                                                               ,I.. " ''''''',.,·r!t.
                                                                        ,,, ,,,, ., ,. " , ".
                                                                                           ,._   """,~.
                                                                                                 ,'II " ,".    "<\"' .",."",i "'''''''
                                                                                                               ,·,1,,0.''',,''.; , ~",,, '0$
                                                                                                                                         , <s   0or1   .'"I,I'''·M  <''' "I'''''''''''''
                                                                                                                                                       ."'1'1",'''''<''' "w" " "n"".     ''''~ ""
                                                                                                                                                                                               , L"
        th~ l>;I~"
            ~ ~~IO    vf
                      ul   ra,·~.
                           ra c~. Wh',
                                  w~" .. ",'.'
                                         -,'.'   "~r. ~
                                                 "~~. ~""'      ".,,"" .... , """'"
                                                        ''''' . "."~,, ."I           _.• ··,• •.Lt
                                                                              ""_,,, ...             .".,<1"",,. I"'''''·.'  ,<I.;.~.
                                                                                                                 1" 1,,,,'.1 ,<I
                                                                                                     .'" '''''.'''               <; .~.     "'tL~"""
                                                                                                                                            ~,,~"" '"                    t~ 0 ,<' ,,,,,.
                                                                                                                                                                r.I ...•.r~
                                                                                                                                                              ""o:I;              ' '' ''' n~  ,,""·~"
                                                                                                                                                                                           I>~ ''''''' ''P
PRDE did not administer properly three contracts with RV
Research - Final                                                                                 Exhibit D                   ACN: ED-OIG/A02-B00012



           Mr. Daniell'
               D:tnitl P. Schultz
           Page 2

           A checklist will nl::  devciopc.! to ensure thai
                               be de,·clope,j              that eontrac\5
                                                                contracts rCt:civcd
                                                                             re<:cived in the Payment
                                                                                                 PaymCTlt Division have all
           thc requirCl11l;1Il
           Ihc  requirerm:11I documents
                               JOClllllCIllS before processirr,l:   ~ny paymen
                                                      processirl.': any   payments.ts. 1\·lany      ! ho.:~<: <;01Tl."Ct;"e
                                                                                       i\l illly of l/reS!;   ~"QIT...'"Ct i'·e actions
           h~ve al
           h~,·c already
                   ready been enacted fur  for (hc
                                               lht liscal
                                                   liseal year cmlirrg
                                                                cmli ll g June  30, 2003.
                                                                          Junc 30.   2003, andami all moW
                                                                                                       new proceuun:s
                                                                                                               pro<::cdures arc  are in
           place to ensure   the appropriate
                     cnsurc lhe                 ;mplem~nlali()n of
                                 appmpriate imp)"menlati<>n         o r federa
                                                                        foocn l programs.
                                                                                progra ms.

           Finding 1/2
                   #2

           PRDE faikd
                failed to ,klcmlinc
                          delemlinc thalthc  cost;; of fixed-price
                                    that the costs     fixed' priee conlracts
                                                                    contracts were fair
                                                                                   fai r and reasonable.
                                                                                             rcasonable.

           Am"'",/ of questioned
           Am"'",1                  rosts: Nunc
                      qlll!slio!rcd COSI$: Nonc

           J\lallage
           Manage me nl
                     nt Response
                        Respo nse

           PR D!:' Tevised
           I'RDE                "PTocedures for
                    revised the "rrocc<iure, fOT Aw ~ n;hn~
                                                      ...J;n~ Compctiri ,'c ~cderal
                                                              Co)mpClirivc             ¥,,,,dc", in ardor
                                                                            ~c<.leral Funds",             to roinfnrce
                                                                                                    ord~r ta roinforce
           the require
                n::quircments                    federal Jlrogr~ms
                        ments established by the federal  programs in the evalu     ation of proposals. Some of the
                                                                             evaluation
           s!t:p~ '$01
           s!t:ps take" wcrc
                         were Ihe to))owing:
                              the to!lowmg;

                         Est ab lish~d internal controls on allm:w
                         Estahlish~d                                 all new procurement prOCl.procedures.
                                                                                                     -durcs.
                         Coordinated and  amI initialed    !r~ini ng s 10
                                                ini tialed !rainings        all division dircctors
                                                                         to ail           di rcrtors and coord     inators of federal
                                                                                                            coordinators
                         programs on        basic know
                                       011 hasic       knowletlge       reg~rdi1\g all federal
                                                             lf1:l ge rq;arding           ff1:leral progmms
                                                                                                     programs (puipose
                                                                                                                   (pll'1>USC of the
                         progrnm,    ~eti\"il ies all
                         prO£T:lm. activit         allowed,    Iisc;!1 aspects of the law , etc.).
                                                       owed, IiSClll                           etc. ).
                         Iniliatetl
                         Init iated a thorough review of all federal contrac ts with effeClive                             ~tarting on
                                                                                                      effective period starting
                         2001,
                         2001, and
                         Veri
                         Verify       thm proponents provide a dew
                               fy ing Ihat                                det~ il
                                                                                i l bre~kou
                                                                                    breakoutl of cOS   elcl11ent~._
                                                                                                 COS t elements

           Findi ng #3
           Finding

           PRDE lacked   control~
                lacke!.l controls       to ensure compliance with the contracts
                                                             wilh lhe con tracts and federal regulations_
                                                                                             regulatiuns.

           Amrmm of qlU.')·/iQII('d
           AmnWII                   COSI$-: $2,146,023
                    qlU')-liOlll'd COSH     $2.146,023

           l\lanagemenl Res pon§e

           This find
                linding
                     ing is divided    in two proj
                            divi<lc!.l ill           ~ts: I) MultiCenlcrs
                                                 projects:                                Software learning
                                                             MuhiCcn lers and 2) Computer Sonware
           Videos _ We have prepared onT
           Videos.                                                       e~ch project.
                                           onr response indi"idually for each

           i\lultiee tlte r~:
           i\lulticentcrs:

           The PRDE    does not
                PROF. docs    nOI agree with the questioned COSts related
                                                                       relatCtlto the Muliieenlers
                                                                               to Ihe                             ~lI the
                                                                                                         be<:ause all
                                                                                      I>,·Iulticenters because
           services relawu
           sen'icts relate..t to    the Multiccnter.;
                              to..> Ihe Muitiecnters wen:
                                                      were provi!.lctl.
                                                             provided. The payments made    rn~de in re lal;on
                                                                                                           lation to the
           MultiCrmlers
           MuitiCenters were IIllde        accorda nce wilh
                                   made in accordance       lhe propos~1
                                                       with Ihe proposal and the contract with       th" provid~r
                                                                                               wi lh the  provider_

                 PRDF.E uunderstands
           The f'RD         ndcrst~nds that
                                         lhat some changes must be made to the proposal pro<:es~   process inrn order to
           scp:mlte the professional
           scpamtc          profess ional services frolll
                                                      frQIlI the purchasc
                                                                 purchase of equipment and materials
                                                                                                  mate ri als (which is
           already in eCiccI
           alrc<ldy      cffeet (juring
                                 during fiscal         2003), in order to improve th
                                          liscal year 2(03).                              ilnal ysis
                                                                                     thee <lnal ~is of
                                                                                                     uf propOS3!S and
                                                                                                                    lind
           (on
           con lruetS,       to help
               tr.!cts. and 10  he lp detcm,ine                         Me fair and reasonable.
                                      detCnllinc if the prices obtained are         reasonable_
PRDE did not administer properly three contracts with RV
Research - Final                                                                                         Exhibit D                      ACN: ED-OIG/A02-B00012



           Mr. OJn;el!'.
               OJniel P. Schultz
           Page J3

           The PROE    understands Ihal Ihe
               PRD I3 l.l1\dcrstands         the majQrity
                                                 majority of the questiQned
                                                                  questio neJ costs
                                                                                eOSIS related to the MultiCenters
                                                                                                     Multi CCnTcr$ liTe
                                                                                                                   nre
           rd"t"u \Q the
           rd"tcJ IQ th" prQfessional              rend<:-reJ by thc
                         proicssional services rel1dcred         the supplie                         wQr~cd hy Ih",i,..
                                                                     supplier.r. including the hours worked      their
           employees and the sire I'isi's
                                    \'isi ts perfonnoo
                                             performed by them.
                                                            them.

           The PROE believes that            thltt the ralerate charged by the contracted party for proressional       professional services
           rendered by the professionals wurking at                               MulllCelllers was not
                                                                       ut the MultlCenters                no t exeesi,"e   (bclween SI5
                                                                                                               exeesi"e (between        $15 and
           S30 pcr hou r) ami   amJ Ilmt              amounts being
                                        that the amoums            bein g questioned
                                                                              qllcstionC(1 arearc related to the difference between the
           rale  p"id by the contrdeted
           nile plliJ               contracted PJrty   ]J~ ny to thei
                                                                    theirr empluycl"s
                                                                               cmpl"yn's ,md  and the ralc
                                                                                                         ralC charged
                                                                                                               cha rge<.l 10
                                                                                                                          to Ihe I'I'RDE.
                                                                                                                                     RDE. TIle nle
           evidence of the P,1yrUl1  p.tyrul1 2.t  201 the eQntractcd
                                                              (;o!)l(aet.;:d party
                                                                                 pa,ly site     should
                                                                                        si te shou    ld be Ihe
                                                                                                              the hours worked by Iheir       their
           employees multiplied fly            by the ralerate chnr~cd
                                                                  ch~rgcd 10 PRO!!  PRDI3 for  fQr the level of each prufcssional.
                                                                                                                           professional. The
           questioned
           questioncd costs COStS related to the site     sile visits     llre based UI1
                                                                 viSi ts 'Ire           un a number th31  thai il is flOt       in the findillg
                                                                                                                     not clear inlhe      fi ndin.g
           because the tl1\: rat.:   \I as 5250
                              ratc "as        5150 pcr per 110ur
                                                             hour and was cakubted  calculated as S250 5250 per visit for the th e purpose of
                                 'lucstioned cos
           calc ul ating the (IUeSliooed                     There;~
                                                         ts. There
                                                    COS IS.            i ~ ~ 111~I~rial
                                                                                m~l~rial dirTereocc
                                                                                          uirTen,nc~ b<:lw(:co
                                                                                                         betwee n S150
                                                                                                                    5250 per hour vs. S250   $150
           pn vis it.
           per      il. NQue     thekss Ihe
                         Nonetheless                S1S0 is an "rbilr~ry
                                              the S2S0              "rbitr~ry numbernUmb"r 3nd  ~nd Ih"re
                                                                                                    there is evid"nee      that Ihe
                                                                                                               evidence thai    the sile
                                                                                                                                      si te visits
           wer"
           were performed as part         pan of Ihe        \\'orked 10
                                                      the ,,'orked        to be provided for the MuiliCe             nter5 and Ihe amounts
                                                                                                           MulliCenters
           im'Qiced were with
           im'oiced              wilhin       th e ~ml.ll"'ts
                                         in Ihe                  prcscnt(.-.i
                                                   .mounts prcscnh           ..~l in thc
                                                                                     the proposal for professional services. See the
           response lu fmd  fi mJin                thc changes lIl~de
                                  in g #-/; I fur the                tn~de to th e con lrac tractting
                                                                                                  in g process.

           Co mputer Softwar~
           Computer  SOfh\ 9 r~ Learning
                                L ea r ~ing             V id ~"s:
                                                        \'id~"s:


           The proposal pre~cmed                Computer Soflw~r~
                            presemed for the (Qmputer         Soflwar~ Learning Vidoos      Videos was to provide 1,000 sets of
           25 videos at S39.9;
                            539.9; per video inc lu ding dehvcr}'dehvery and tmining.   training. The price is not considered considercd
           c-xccssi,'c for lechnieal
           excessive        technical videos of oflhis
                                                    this nature plus training and del            i"<:ry. The'c
                                                                                              deli'·cry. There is evidence
                                                                                                                       cvidcnee of Qfthe
                                                                                                                                     the
                        9')1 sels
           receipt of 9')2    sets of videos :u  at the PROE
                                                          PRDE ",,,rehuuse,
                                                                    w,,'chuusc, plus    pl us one set al     the Office of
                                                                                                         a\ Ihe               Qf Federal
                                                                                                                                 FederaL
           ArTairs. The ev    idence for
                           evideoee    fQr the lraining
                                               traio ing provided was also included wilh           with Ihe    i l1l'o;cc~. The PROE
                                                                                                          the invoices.           PRDE
           cotllracted for services and materials thai
           contracted                                       th~t 3re
                                                                   are allowable
                                                                        aUQwable lUlder   unucr OMB Circul:u-
                                                                                                           Circular A   A·87
                                                                                                                          .. 87 and has
           evide"ce
           evidellce ofQf the delivery         th~ 11l:"I~rials
                                del ivery of the    tllah:rials 3"d     the sc ....
                                                                  and lhe         t...·;ees  provided.. The PRDE is currently
                                                                                      ·ices provided
           working on Ih  thee improvement of Ihe  the !lJiu¥
                                                        !ililiS system
                                                                s>'slcrn and
                                                                           lind is providing Iraini  trainings
                                                                                                            ngs 10 to ils personnef
                                                                                                                          personnel in
           order to improve the filing and mainlcnann"mainlenan~'<: of       sllpponing evidence. 111c
                                                                        uf supporting                         TI,e PRO!!
                                                                                                                      PRDE has also
           eSI~blisbed a
           estnblishcd   ~ plan
                            pl~n 10
                                  tQ sub mitt the Report
                                                     Repon ing Packages including the Single Aud                 Audilit Reports on an
           timely mJnncr      starling o n fiscal year 1003.
                   manncr Slarting                                        ti tll ely submi
                                                           2003. The timely                    ssion will help
                                                                                        submission            hdp in findin~ more
           efficiently  supponing
           eifieiently supponi    ng evidence forfQr any sclt;:<;     tralls.1~tio n .
                                                                  ted tran5.1ction.
                                                           sck':l.:d

           The
           Thc PRDE has     11:IS no responsibility to obtain el'idc c" illc n'·e
                                                                             nn:....dltring
                                                                                    hiring thcthe proposal evaluati    on process, or
                                                                                                              evaluation             of
           the COStS    tQ be ;,lcurreu
                  costs to       i'lcurrcd by !he     ("olltr~eled parties
                                                 th" comraeled     p~nics 10         t ~in lhe
                                                                             to ob tain    the materials          'iOld 10
                                                                                                nmlerials to be .<;old  to Ihe
                                                                                                                           the PRDE;
           thl:
           tlto.; PRDE ver ifies if the tlte prices   pr<:scmed in the propusal
                                              prkes prcsclHed             proposal are fair (tlld     rcason~b/c and the contracts
                                                                                                 and reasonable              contractS
           a~ ba.sed
           arc    based 011   the proposed ??riri ee
                         011 thc                                         CSt~hlish~"t1 in a eomrdct
                                                    ce which is then estahlished                contntct with              p~rty. T
                                                                                                           wilh the third party.  Thehe
           PRDE has no control over Ihe           the prkes
                                                       prices negotiated
                                                               negolialed hy Ihosethose Ihird
                                                                                           third parties
                                                                                                 panics wilh their suppliers. The
           ~mounts or Ih
           amounts         th e questioned       costs for Ihis finding
                                  queslioned c05tS                          are based on
                                                                  IinJing arc              011 the 3mOunt
                                                                                                   amount paid by Ihe      contracted
                                                                                                                       the con trac ted
                              thdr supp
           third party to Iheir             lier; Iherefore
                                     sup plier;               w<; du oot
                                                  therefore wt:       nOI agree wil wit h Ihe
                                                                                           the questioned    eOSI$.
                                                                                               qUl:Slioll(;d eOSIS.

           Although we do not    nOI fully agree
                                           agTt;C with the questioned costs for   fur finding number 3. we share th    thee
           concerns
           cOllcerns by the Oflice
                                Onice of ththee InspeClor Gena31
                                                           General on Ihe  the previous administration's        i on~ wilh
                                                                                          administration 's act ions  with
           regards 10  compliatzce o f federal funds
                    to compliatlCe                runds expendilur
                                                        expcnditun:s      and pron>durcs.
                                                                    ....S lmd  procedures. However. we would like 10    to
           notice thai th
                        thee currcnt
                             cllrrenl lcadership      ~dministratioo is lak
                                      leadership and administration             ing the oecessary
                                                                             taking     necessary steps tu
                                                                                                         to improve the
                  conlrols over all applicable
           PRDE controls               applic3ble fedem
                                                   fedcra ll
                                                          l laws,
                                                             aws, regulations and requrequirements.
                                                                                           irements.
PRDE did not administer properly three contracts with R V
Research - Final                                                                 Exhibit D              ACN: ED-OIG/A02-B00012




           Mr.Dl!llielP, Schultz
            P~ge.4

            It is evident thai the paDE J$ committed to rectifying the past imple!ncntlifioll of all federal
           'proaram~ in  nrd¢{ to ensure that we can prov'idc our children with an educati'Onlll sYstem that will
           'prqviclelhcm willI academic excellence, and high standards.

            We would Hke 1.0 meet with ydu as SbOll/fs ptissfblno discl1s~ and Tc;solye tl}i~ lllat~, and to
            csrublish aoeffii;i&l( process that '\vi1I. al10\\' ,tiutschoo!s tdimpietncl)t ,succesfulproWlID1sof
                                                                                                tv
            excdJence .fully compliant with all federal reguJajfpns. F\JrfQCl1JjoJc.we wish maintain this
            proc!l$s 1m: yel!~W COme in orcierto enSUJC, tI)ture educaliollal opportunities.

            COrdia:Ilyyours,



            C~Sl!fA..
            Se~rt:tary




           ~.
                                            REPORT DISTRIBUTION LIST
                                            AUDIT CONTROL NO. A02-B0025

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

Deputy Secretary........................................................................................................1 

Under Secretary .........................................................................................................1 

Chief of Staff, Office of the Secretary .......................................................................1 

Chief Financial Officer ..............................................................................................1 

Assistant Secretary for Intergovernmental and Interagency Affairs .........................1 

Assistant Secretary, Legislation and Congressional Affairs......................................1 

Director, Budget Services, Office of the Under Secretary ........................................1 

Director, Office of Public Affairs ..............................................................................1 

Director, Financial Improvement & Post Audit Operations ......................................1 

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

Office of General Counsel .........................................................................................1 

Audit Liaison Officer.................................................................................................1 

Press Secretary...........................................................................................................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 

General Operations Team ..........................................................................................1 

Director, Advisory and Assistance, Elementary and Secondary Education ..............1 

Regional Inspectors General for Audit ......................................................................1 

       Regions I through IX