oversight

Puerto Rico Department of Education's Title I Expenditures for the period, July 1, 2002 to December 31, 2002

Published by the Department of Education, Office of Inspector General on 2004-03-30.

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

                              U.S. DEPARTMENT OF EDUCATION

                                    OFFICE OF INSPECTOR GENERAL 

                                         75 Park Place, 12th Floor 

                                        New York, New York 10007 



                                                       March 30, 2004
                                                                                                     Control Number
                                                                                                     ED-OIG/A02-D0014

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

Dear Secretary Rey-Hernández:

This is our Final Audit Report entitled Puerto Rico Department of Education’s (PRDE) Title I
Expenditures for the period, July 1, 2002 to December 31, 2002. The objective of our audit was
to determine if the non-salary, Elementary and Secondary Education Act, Title I, Part A
expenditures reported by PRDE for the six-month period ending December 31, 2002, were
allowable and spent in accordance with Federal law and regulations. During the course of the
expenditure review, we found that PRDE had allowed approximately $109.8 million to lapse for
the grant award years 1997 through 2001. We also found that PRDE improperly expended
$49,536 in Title I funding.

We provided a draft of this report to PRDE. In its response dated March 12, 2004, PRDE stated
that it is working in cooperation with the U.S. Department of Education (ED) to ensure that
lapsed Title I funds can be reimbursed to PRDE as quickly as possible. PRDE also stated that
the questioned expenditures at the targeted assistance schools failed to establish harm to the
Federal interest. PRDE’s response did not cause us to change our findings or recommendations.
We have summarized PRDE’s comments after each finding and have included PRDE’s entire
response as an Attachment.

                                                     BACKGROUND

On May 29, 2002, ED designated PRDE as a “high-risk” grantee under 34 C.F.R. § 80.12
because of problems in PRDE’s fiscal and program accountability such as:

    ƒ   late submission of Single Audits,
    ƒ   failure to adhere to procurement regulations and procedures,
    ƒ   lack of proper internal controls, and
    ƒ   actions leading to the indictments of the former Secretary of Education and other
        associated individuals.




          Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Audit of PRDE’s Title I Expenditures                                                            Final Report
for the period July 1, 2002 to December 31, 2002                                           ED-OIG/A02-D0014

On June 27, 2002, PRDE submitted a Corrective Action Plan that outlined steps already taken
and those to be taken to address the problems and ensure compliance with all of the requirements
applicable to ED’s programs.

On August 28, 2002, ED informed PRDE that the Office of Elementary and Secondary
Education (OESE) had approved the issuance of fiscal year 2002 grant awards for 12 programs
with Special Conditions. The Special Conditions required quarterly reports for each program
with regard to expenditures and progress in implementing the grants, and a quarterly report of
PRDE’s progress in implementing the Corrective Action Plan. ED allowed PRDE to draw down
only up to half of the total funding on each of these grants until ED received the first quarterly
report and determined PRDE demonstrated substantial progress.

On January 31, 2003, PRDE submitted to ED the first quarterly report, which included the six-
month period, July 1, 2002 to December 31, 2002. The report covered $258 million in
expenditures incurred by PRDE from Federal education funds for this six-month period. Our
audit report covers non-salary related Title I expenditures that totaled $18,653,325, as reported
by PRDE.

                                                  AUDIT RESULTS

Finding 1           PRDE had approximately $109.8 million in Title I funds that have lapsed

PRDE did not effectively manage its Federal grant funds. As a result, PRDE will be unable to
use $109,805,677 in five Title I grants, awarded from October 1, 1997, through July 1, 2001.
These funds could have been used to benefit Title I students. Of that amount, $15,937,608 from
one of the grant awards was de-obligated and reverted to the U.S. Treasury on September 30,
2003. The remaining $93,868,069 from the other four grants lapsed and will revert to the U.S.
Treasury unless PRDE can provide evidence to ED of outstanding expenses obligated during the
grant periods.

According to 34 C.F.R. § 80.20(b)(2),1 “Accounting records . . . must contain information
pertaining to grant or subgrant awards and authorizations, obligations, unobligated balances,
assets, liabilities, outlays or expenditures, and income.”

The regulations at 34 C.F.R. § 80.20(b)(3) state, “Internal Control . . . Effective control and
accountability must be maintained for all grant and subgrant cash . . . .”

Pursuant to 34 C.F.R. § 80.23(a) and (b), “Where a funding period is specified, a grantee may
charge to the award only costs resulting from obligations of the funding period unless carryover
of unobligated balances is permitted, in which case the carryover balances may be charged for
costs resulting from obligations of the subsequent funding period. . . . A grantee must liquidate
all obligations incurred under the award not later than 90 days after the end of the funding
period. . . . The Federal agency may extend this deadline at the request of the grantee.”


1
    Unless otherwise specified, all regulatory citations are to the July 1, 2002 volume.


                                                             2
Audit of PRDE’s Title I Expenditures                                            Final Report
for the period July 1, 2002 to December 31, 2002                           ED-OIG/A02-D0014

Under the “Tydings Amendment,” Section 421(b) of the General Education Provisions Act, 20
U.S.C. 1225(b), any funds not obligated and expended during the period for which they were
awarded become carryover funds and may be obligated and expended during the succeeding
fiscal year.

ED’s Grant Administration and Payment System (GAPS) shows information on grant awards,
such as authorizations, confirmed deposits, draws, and available balances. As of March 12,
2004, GAPS reported the following Title I grant award funds as lapsed:

       Grant Award                   Authorization                  Lapsed Funds
       S010A970052                   $ 262,486,541                  $15,937,608
       S010A980052                      262,430,968                   1,306,037
       S010A990052                      262,430,237                  19,735,690
       S010A000052                      262,415,735                  31,409,119
       S010A010052                      267,301,457                  41,417,223
       Totals                        $1,317,064, 938              $ 109,805,677

Of the $109,805,677 in lapsed funds, $15,937,608 from award S010A970052 reverted to the
U.S. Treasury on September 30, 2003.

PRDE did not closely monitor available grant balances. According to PRDE officials, the
problem began when PRDE’s Budget Division did not open grant accounts timely in the Puerto
Rico Treasury Department’s Puerto Rico Integrated Financial Accounting System (PRIFAS).
PRDE officials stated that this forced them to charge payroll for the new grants to the previous
grant year or any other grant that had an available balance, resulting in untimely multiple
adjusting entries in GAPS.

Additionally, PRDE officials stated that their Accounting Division did not obtain the payroll
report, known as the GL 200, from the Puerto Rico Treasury Department until two to three
months after the payroll had been processed. Consequently, PRDE had to make multiple
adjusting entries months after the charges were made and, in some instances, after the grant had
been closed in GAPS.

PRDE officials stated that they allowed charges to be made to previous grant years because the
account codes in PRIFAS remained open for five years, as opposed to three years in GAPS. This
allowed charges to be made against the grants for funding periods already closed in GAPS.

We concluded that, had internal controls been in place to prevent lapsed funds, approximately
$109.8 million could have been better used to provide Title I services to Puerto Rico’s students.




                                                3

Audit of PRDE’s Title I Expenditures                                             Final Report
for the period July 1, 2002 to December 31, 2002                            ED-OIG/A02-D0014

Recommendations

We recommend that the Assistant Secretary for OESE require PRDE to:

1.1 	 Provide evidence to OESE of any valid obligations made within the authorized award
      periods so that grants, with funds that have not yet reverted to the U.S. Treasury, can be
      reopened and funds liquidated;

1.2 	 Access and use the data in GAPS to closely monitor available grant balances;

1.3 	 Implement a system that will require PRDE’s Budget Division to open new grant account
      codes upon the receipt of the Grant Award Notification;

1.4 	 Open the grant account codes in PRIFAS timely and make payroll charges to the
      corresponding grant year only;

1.5 	 Implement a system that will allow the receipt of the GL 200 payroll report from the
      Puerto Rico Treasury Department no more than two weeks after the payroll has been
      processed; and

1.6 	 Implement a system that will require PRDE’s Accounting Division to make timely
      reconciliations to the GL 200 payroll report and timely adjusting entries to GAPS, as
      appropriate.

PRDE’s response

PRDE stated that it is working in cooperation with ED to ensure that lapsed Title I funds can be
reimbursed as quickly as possible. During recent conversations with ED, PRDE explained that it
had properly obligated the funds in question during the authorized period, but ED had not
reimbursed the funds. PRDE indicated that once it provides evidence to ED of obligations that
were properly incurred, but not reimbursed, ED would reopen the grants and permit PRDE to
liquidate the funds.

OIG’s reply

We considered PRDE’s response, but did not change our finding or recommendations. Although
PRDE is working with ED to ensure that funds can be reimbursed, PRDE must provide evidence
that the obligations were incurred within the grant period. PRDE also made adjustments and
liquidations to grant award S010A010052, and we have adjusted the lapsed funds amounts
accordingly. No other adjustments or liquidations occurred to the remaining reported Title I
grant awards. As a result, PRDE had lapsed funds totaling $109,805,677, as of March 12, 2004.

Although PRDE reported it is in the process of implementing recommendation 1.1, it did not
present a corrective action plan addressing the remaining recommendations to avoid this
situation in the future. Specifically, PRDE did not address recommendations 1.2 through 1.6.



                                                4

Audit of PRDE’s Title I Expenditures                                              Final Report
for the period July 1, 2002 to December 31, 2002                             ED-OIG/A02-D0014

As a result, PRDE is unable to ensure that Title I funds will not continue to lapse and revert to
the U.S. Treasury.

Finding 2      PRDE improperly expended $49,536 in Title I funds

PRDE did not properly monitor Title I expenditures in the regions and at targeted assistance
schools. Also, PRDE officials lacked knowledge and training in the proper use of Title I funds at
targeted assistance schools. Our review of a sample of non-salary related Title I expenditures
reported by PRDE for the period July 1, 2002, through December 31, 2002, disclosed that PRDE
improperly expended $49,536 in Title I funds. As a result, PRDE could not assure ED that funds
were expended properly.

Appropriate use of Title I funds depends on whether the school is operating a schoolwide
program or a targeted assistance program. According to the Elementary and Secondary
Education Act of 1965, as amended by the No Child Left Behind Act of 2001,

       Sec. 1114. Schoolwide Programs. (a) Use of Funds for Schoolwide Programs –
       (1) In General - A local educational agency may consolidate and use funds under
       this part, together with other Federal, State, and local funds, in order to upgrade
       the entire educational program of a school that serves an eligible school
       attendance area in which not less than 40 percent of the children are from low-
       income families, or not less than 40 percent of the children enrolled in the school
       are from such families.

       Sec. 1115. Targeted Assistance Schools. (a) In General . . . all schools selected to
       receive funds . . . that are ineligible for a schoolwide program . . . or that choose
       not to operate such a schoolwide program . . . may use funds received under this
       part only for programs that provide services to eligible children . . . identified as
       having the greatest need for special assistance.

       [Sec. 1115(b)(3) states,] Funds received under this part may not be used to provide
       services that are otherwise required by law to be made available to children . . .
       but may be used to coordinate or supplement such services.

We found that PRDE expended $42,941 in Title I funds to supplant rather than supplement State
funds at a targeted assistance school. This school purchased a digital duplicator, supplies,
computer equipment, and computer licenses that were used by ineligible students. We also
found that at another targeted assistance school PRDE improperly expended $275 to purchase a
desk for a principal. PRDE expended $1,950 for catering services at training entitled “Nursing
Mothers” given to school nurses. In addition, a PRDE region improperly charged $4,370 to
Title I when the expense was actually for Title II, Class Size Reduction.




                                                 5

Audit of PRDE’s Title I Expenditures                                              Final Report
for the period July 1, 2002 to December 31, 2002                             ED-OIG/A02-D0014

Recommendations

We recommend that the Assistant Secretary for OESE require PRDE to:

2.1 	   Refund $49,536 for improper expenditures to the Title I account;

2.2 	   Institute monitoring controls to ensure targeted assistance schools properly expend Title I
        funds according to the regulations; and

2.3 	   Provide training to PRDE officials regarding the supplementing provisions of the Title I
        program.

PRDE’s response

PRDE stated that the questioned expenditures at the targeted assistance schools failed to
establish harm to the Federal interest. PRDE stated at least $43,216 ($42,941 and $275) of
questionable expenditures in two schools, Republica El Salvador and Sotero Figueroa, were used
to satisfy the requirements of a schoolwide program. PRDE also stated that although the draft
audit report treated the two schools as targeted assistance schools, both schools meet the
qualification for a schoolwide program under section 1114 of the Elementary and Secondary
Education Act.

OIG’s reply

We considered PRDE’s response, but did not change our finding or recommendations. Although
PRDE stated both Republica El Salvador and Sotero Figueroa meet the qualifications for a
schoolwide program, PRDE had designated both schools as targeted assistance schools. In fact,
PRDE provided OIG documentation during the audit that these two schools were targeted
assistance schools. As a result, expenditures must be treated as targeted assistance school
expenses. PRDE did not provide a response to the remaining questioned costs or
recommendations 2.2 and 2.3.

                                      OTHER MATTERS

During our audit work, we noticed significant lapsed funds in program areas that are in addition
to the scope of this audit. On December 9, 2003, we issued an Interim Audit Memorandum
(State and Local No. 04-02) to ED’s Chief Financial Officer identifying a total of approximately
$217.4 million in ED grant funds that would lapse by December 31, 2003. This amount included
the $96.3 million reported in the draft of this report, the $38.3 million reported in our concurrent
draft audit report on PRDE’s Special Education Expenditures (report No. ED-OIG/A02-D0020),
and $82.8 million we identified in grant funds that are from programs outside the scope of these
two audits. As of March 12, 2004, PRDE had lapsed funds totaling $109.8 million and $38.1
million for Title I and Special Education grants, respectively. Had internal controls been in place
to prevent lapsed funds, and pending evidence of any outstanding obligations, approximately
$230.7 million in ED grants could have been better used to provide services to Puerto Rico’s
students.


                                                 6
Audit of PRDE’s Title I Expenditures                                            Final Report
for the period July 1, 2002 to December 31, 2002                           ED-OIG/A02-D0014

                      OBJECTIVE, SCOPE, AND METHODOLOGY 


The objective of our audit was to determine if the non-salary, Title I expenditures reported by
PRDE for the six-month period ending December 31, 2002, were allowable and in accordance
with Federal law and regulations.

To accomplish our audit objective, we reviewed PRDE’s fiscal year 2002 Single Audit report
and documents supporting the expenditures selected for testing. In addition, we interviewed ED
program officials, PRDE’s Central Office officials, and PRDE’s regional and school officials.
We performed our fieldwork at PRDE’s offices in Hato Rey, Puerto Rico, from April 16, 2003,
through October 20, 2003, the date of our exit conference.

To test the expenditures, we made site visits, from August 26, 2003, through August 29, 2003, to
the following targeted assistance schools: SU Nemesio R. Canales II, República El Salvador,
Miguel Such, Dr. José N. Gandara, Dr. José Celso Barbosa, Luis Muñoz Rivera, Juan Antonio
Corretjer, Sotero Figueroa, Berwind Superior, and Jose F. Díaz.

To achieve our audit objective, we selected both random and judgmental samples from a
universe developed from the $139,608,705 of Title I expenditures reported by PRDE in its
January 31, 2003, report to ED. Of that amount, $18,653,325 represented non-salary related
expenditures. Included in this total were expenditures not covered by the Special Conditions
reporting requirement (2002/2003 expenditures). First, we selected random samples and found
that some transactions were grouped transactions that contained multiple (50 plus) expenditures.
We then judgmentally selected from within these grouped transactions for testing. We stratified
our sample between non-salary related expenditures covered by the Special Conditions and the
expenditures not covered by the Special Conditions. The universe of non-salary expenditures
covered by the Special Conditions was 558 expenses totaling $4,098,268. The universe of non-
salary expenditures not covered by the Special Conditions was 3,789 expenses totaling
$14,555,057, including numerous negative adjusting transactions.

We sampled 30 expenditures from the universe of expenditures covered by the Special
Conditions; 50 expenditures from the universe of expenditures not covered by the Special
Conditions; and 10 judgmentally selected negative expenditures from the universe of non-
Special Conditions expenditures.

The sample of 30 expenditures from the universe of expenditures covered by the Special
Conditions was stratified by dollar volume, omitting transactions under $1,000, and using the
following strata:

       $1,000 - $12,999              17 expenditures
       $13,000 - $159,999             5 expenditures
       $160,000 plus                  8 expenditures

The sample of 50 expenditures from the universe of positive expenditures not covered by the
Special Conditions was stratified by dollar volume, using the following strata:



                                                7
Audit of PRDE’s Title I Expenditures                                                Final Report
for the period July 1, 2002 to December 31, 2002                               ED-OIG/A02-D0014

       $2,000 - $9,999                 20 expenditures 

       $10,000 - $99,999               10 expenditures 

       $100,000 - $999,999             10 expenditures 

       $1,000,000 plus                 10 expenditures 


The judgmental sample of 10 negative expenditures not covered by the Special Conditions was
based on the highest dollar expenditure.

In total, our samples accounted for $7,123,033 (38 percent) of the total reported non-salary
related Title I expenditures. However, included in our samples were 19 “Petition of Funds”
transactions. These transactions represent the disbursement of funds to Community Schools and
were not actually 19 transactions, but multiple (50 plus) expenditures, supporting one
transaction. As a result, we selected a judgmental sample based on the schools receiving the
most funds. Using this basis, we judgmentally selected the targeted assistance schools in the San
Juan Region.

To achieve our objective, we relied on the computer-processed data provided by PRDE to ED in
its report dated January 31, 2003. To test the reliability and completeness of PRDE’s data, we
attempted to reconcile the expenditures reported by PRDE to drawdowns reported in GAPS.
While verifying PRDE’s GAPS reconciliations, we found five grants with closed funding periods
that had lapsed funds. Consequently, we incorporated this matter and its effects in the AUDIT
RESULTS section of this report.

To further test the reliability of the data, we tested three GAPS drawdowns. To accomplish this
analysis we requested PRDE to re-run its query of PRIFAS to determine if the query submitted
to ED was complete. Based upon these tests, we concluded that the data was not complete, but it
was sufficiently reliable for audit purposes.

We conducted the audit in accordance with generally accepted government auditing standards
appropriate to the scope of the review described above.

                      STATEMENT ON MANAGEMENT CONTROLS

As part of this audit we assessed the system of management controls applicable to PRDE’s
administration of Title I expenditures and Title I account balances. Our assessment was
performed to gain an understanding of PRDE’s system. Based on previous knowledge gained
through our prior audits (ED-OIG/A01-90006, ED-OIG/A01-90007, ED-OIG/A01-A0004, ED­
OIG/A02-B0012, ED-OIG/A02-B0025, and ED-OIG/A02-C00017) and ED’s designation of
PRDE as a “high-risk” grantee under 34 C.F.R. § 80.12, we determined the level of control risk,
that is the risk that material errors, or irregularities, or illegal actions may occur, to be high. We
found that PRDE lacked adequate controls for managing its Title I account balances and for
expending Title I funds. These weaknesses and their effects are fully disclosed in the AUDIT
RESULTS section of this report.




                                                   8

Audit of PRDE’s Title I Expenditures                                            Final Report
for the period July 1, 2002 to December 31, 2002                           ED-OIG/A02-D0014

                               ADMINISTRATIVE MATTERS 


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 this audit:

               Raymond J. Simon 

               Assistant Secretary       

               Office of Elementary and Secondary Education 

               Federal Building 6       

               400 Maryland Ave., SW, Room 3W315 

               Washington, D.C. 20202 


It is the policy of the U.S. Department of Education 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.

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 the Freedom of Information Act (5 U.S.C. § 552), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
the information contained therein is not subject to exemptions in the Act.

                                     Sincerely,


                                             /s/

                                     Daniel P. Schultz
                                     Regional Inspector General
                                       for Audit




                                                   9

Audit of PRDE’s Title I Expenditures                                                       Final Report
for the period July 1, 2002 to December 31, 2002                      Attachment     ED-OIG/A02-D0014




                                                    ra:3
                                        T RANSMITTAL MEMORANDUM


           TO :              Daniel P. Schultz
           FROM :            Ileana Fas Pacheco
           DA T E :          March 12, 2004

                             Response to DIG Draft Audit Reports


           Attached please find the Puerto Rico Department o f Education's response to Draft OIG
           Audit Reports: ED-OIG/A02-00014 and ED-OIG/A02-D0020.

           For the Special Education Response (Response to ED-O IG/A02-D0020), attached please
           also find a cover letter from PROE's Assistant Secretary for Special Education and
           Exhibits for the Special Education Response. If you would like a hard copy of any of
           these documents, please let us know and we will be happy to send them to you.

           J r you   have allY questions, please feci free to contact me.
Audit of PRDE’s Title I Expenditures                                                            Final Report
for the period July 1, 2002 to December 31, 2002                 Attachment               ED-OIG/A02-D0014




                                               r-:·3
                                    OIG DRAFT AUDIT REPORT
                                  PROE's TITLE 1 EXPENDITURES
                               AUDIT CONTROL NO. ED-OIG/A02-DOOI4

                 The Puerto Rico Department of Education (PRDE) appreciates the opportunity to
          respond to the Office of Inspector General's (DIG) findings outli ned in its January 26,
          2004 draft audit report. This response was originally due thirty days after the date of the
          letter (February 25, 2004). On February 17, 2004, the PRDE requested an extension to
          respond to the findings due to the ongoing negotiations with Ihe U.S. Department of
          Education on Finding One. DIG granted the extension and required that Ihis response be
          submitted no later than March 12,2004.

                 PRDE has the follow ing response to the findings contained in the audit report.

          Finding Olle    PRnE had approximately $96.3 million in Title I fund s that have
          lapsed

                  Finding One states that $96,314,200 of Title I grant money "will revert to the U.S.
          Treasury unless PRDE can provide evidence to ED of outstanding expenses obligated
          during the grant period."

                  PRDE is working in cooperation with the U.S. Department of Education (ED) to
          ensure that these funds can bc reimbursed to PRDE as quickly as possible. During recent
          conversations with ED, PRDE explained that it properly obligated the funds in question
          during the authorized award periods. Federal accounts were properly opened, and
          expenses incurred to the relevant accoums, but funds were not reimbursed to PRDE. It
          should be noted thai because these Title I grants exceed $10 million, PRDE is required to
          use the zero halance/reimbursement technique for these funds under the Treasury-State
          Agreement between the United States and Puerto Rico.

                  PRDE has developed a methodology, which has been accepted by ED in recent
          conversations, which will allow PRD E to demonstrate the timely obligation oflhe Title I
          grants. ED has stated that once PRDE provides evidence of obligations that wcre
          properly incurred, but n OI reimbursed, ED will reopen Ihese grants and permit PRDE to
          liquidate Ihe funds in question.




          Puerto Rico Department of Edueation
          March 12, 2004
Audit of PRDE’s Title I Expenditures                                                            Final Report
for the period July 1, 2002 to December 31, 2002                 Attachment               ED-OIG/A02-D0014




          Findine: Two - PROF. improperlv expended 549,536 in Title I funds

                 Finding Two states that PRDE improperly expended $49,536 worth of Title I
         funds . The vast majority of that total represents the questioned costs for expenditures at
         targeted assistance schoo ls (comprised of $42,941 in one targeted assistance school and
         $275 at another targeted assistance school).

                PRDE is committed to strengthening its federal grants management system and is
         working cooperatively with the U.S. Department of Education toward that goal.
         However, PRDE believes that the questioned expenditures at the targeted assistance
         schools fail to establish hann to the federal interest.

                 The Draft Audit Report concludes that expenditures made at two targeted
         assistance schools impermissibly supplanted state funds . Although the Draft Audit
         Report treats these two schools as targeted assistance schools, both schools meet the
         qualifications for schoolwidc program schools under section 1114 of the Elementary and
         Secondary Education Act (ESEA). They should be treated as such for purposes of
         determining whether the expenditures resulted in any harm to the federal interest.
         Because funds in a schoolwide program may be used to benefit all students in a school,
         and the funds lose their progranlmatic identity at the "schoolhouse door" so long as the
         underlying intent and purposes of each federal program arc met, the expenditures in this
         case would have been allowable had the two schools been treated as school wide program
         schools.

                 Under section 1114 of the ESEA, an eligible school may operate a schoolwide
         program by consolidating and using funds to upgrade the entire educational program of
         the school. In order to operate a school wide program, a school must serve an eligible
         attendance area. Further, for the initial year of the program at least forty percent of the
         children in the school's attcndance area, or forty percent of the children actually enrolled
         in the school, must be from low-income families. Schools that satisfy these eligibility
         requirements may operate schoolwide programs.

                A school wishing to operate such a program must comprehensively assess the
         needs of all children and develop a plan to improve academic achievement throughout the
         school. This planning process must ensure the school's program incorporates strategies
         to provide all students with opportunities to achicvc proficiency on state academic
         achievements, use effective methods to strengthen the core academic program, provide an
         enriched and accelerated cuniculum, increase the amount and quality of leaming time,
         meet the educational needs of historically underserved populations, and involve parents.

                Both schools discussed in the Draft Audit Report, the Republic de El Salvador
         School and Sotero Figueroa, are eligible schools running programs that satisfy the
         requirements of a schoolwide program. Both schools serve eligible attendancc areas and
         serve a sufficient percentage of children from low-income families. The Republic de EI
         Salvador school serves 172 students, 77.18 percent of which are from low-income


         Puerto Rico Department of Education                                                       2
         March 12, 2004
Audit of PRDE’s Title I Expenditures                                                            Final Report
for the period July 1, 2002 to December 31, 2002                 Attachment               ED-OIG/A02-D0014




            families. Sotero Figueroa serves 243 students, 41.27 percent of which are from low­
            income families.

                    In addition, both schools have undertaken activities to ensure that the academic
            achievement of all children is improved. Both the Republic de El Salvador school and
            Sotero Figueroa school devote resources to strengthening core academic programs,
            meeting the needs of historically underserve<l students, providing high-quali ty and
            ongoing professional development for school stafT, and increasing parental involvement.
            All of these elements arc included in section 1114 of ESEA and its accompanying
            regulations.

                    An eligible school operating a school wide program may consolidate federal, state,
            and local funds. The consolidated funds may be spent to benefit all children in the
            school. Therefore, schoolwide program schools arc not required to show that federal
            funds arc used only for specific target populations. While the Draft Audit Report
            questioned costs at the two schools because they were targeted assistance schools,
            because these schools meet the prerequisites for schoolwide status, PRDE believes they
            should be treated as such for purposes of detennining the hann to the federal interest in
            this ease.

                  Both the General Education Provisions Act (GEPA) and the Education
            Department General Administrative Regulations (EDGAR) require the U.S. Department
            of Education to use proportionality when requiring funds be returned to the federal
            government. In detennining proportionality, the USDE must follow the principle thai:

                   A recipient Ihat made an unallowable expenditure or otherwise failed to
                   account properly for funds shall return an llillount that is proportional to
                   the extent of the hann its violation caused to an identifiable Federal
                   interest associated with the program under which it received the grant or
                   cooperative agreement. 34 C.F.R. §81.32(a)(I).

                    The expenditures questioned in the Draft Audit Report would have been
            allowable had the schools been treated as sehoolwide program schools. Since both
            schools are eligible to operate school wide progranls and both have engaged in planning
            efforts that satisfy the components of such a program. there is no harm to the federal
            interest in this case. PRDE should not be required to return the questioned funds.




            Puerto Rico Department of Education                                                     3
            March 12,2004