oversight

New York City Department of Education's Use of Computer Equipment to Support the E-Rate Program

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 

                                  Telephone (212) 264-8442 Fax (212) 264-5228



                                                   March 30, 2004


                                                                                     Control Number
                                                                                     ED-OIG/A02-D0016

Joel I. Klein, Chancellor
New York City Department of Education
Office of the Chancellor
52 Chambers Street, Room #320, B4
New York, NY 10007

Dear Chancellor Klein:

This Final Audit Report presents the results of our audit, entitled New York City
Department of Education’s Use of Computer Equipment to Support the E-Rate Program.
The objective of our audit was to determine if schools in the New York City Department
of Education (NYCDOE) used computers and related equipment purchased with U.S.
Department of Education (ED) funds to enable students to access the Internet using the E-
Rate (Schools and Libraries Universal Service Fund) contracted Internet Service
Provider, based on approved E-Rate applications with the Federal Communications
Commission (FCC). We also determined if ED and FCC incurred any duplication of
payments in the administration of this program.

We provided a draft of this report to NYCDOE. In its response dated March 15, 2004,
NYCDOE agreed with our recommendation. We have summarized NYCDOE’s
comments and included the response as Attachment 1.

                                                 BACKGROUND

The E-Rate program was created as part of the Telecommunications Act of 1996 to
provide schools and libraries with discounts of 20 to 90 percent for Internet access and
telecommunications infrastructure, and for internal connections. The E-Rate program is
funded by the telecommunications industry through taxes on individual telephone bills,
and is administered by a non-profit group called the Universal Service Administrative
Company (USAC), through a contractual agreement with FCC. Non-profit elementary
and secondary schools (public or private) may apply for E-Rate discounts through an




      Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Final Audit Report                                                             ED-OIG/A02-D0016


application process made to USAC. Once approved, the school is responsible for paying
the remainder of the costs for Internet Service Provider connections not paid with E-Rate
funds (matching provision). ED funds can be used to purchase computer equipment for
Internet access.

                                     AUDIT RESULTS

We found that NYCDOE schools utilized computers and related equipment purchased
with ED funds to enable students to access the Internet using the E-Rate contracted
Internet Service Provider (see Figure 1). We did not find any duplication of payments,
using ED and FCC funds, to purchase computers for this program. However, we found
that NYCDOE lacked adequate inventory controls over computers and related equipment
purchased with ED funds.




                        Figure 1: Wireless Computer Accessing the Internet 

                            Middle School 202, Ozone Park, New York


Finding —Lack of Adequate Controls Over Federally Funded Equipment

NYCDOE did not consistently maintain property records that identified the source of
property and percentage of Federal participation in the cost of the property, as required
by Federal regulations. We sampled 12 schools that had a combined $536,566 in ED
funded technological equipment. Of the 12 schools, 4, totaling $165,906, were not in
compliance with Federal regulations.

Per, 34 C.F.R. § 80.32, July 1, 2000, (d) Management requirements.

        Procedures for managing equipment (including replacement equipment),
        whether acquired in whole or in part with grant funds, until disposition
        takes place will, as a minimum, meet the following requirements:
        (1) Property records must be maintained that include a description of the
        property, a serial number or other identification number, the source of
        property, who holds title, the acquisition date, and cost of the property,
        percentage of Federal participation in the cost of the property, the location,
        use and condition of the property, and any ultimate disposition data
        including the date of disposal and sale price of the property.



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Final Audit Report                                                       ED-OIG/A02-D0016




NYCDOE’s Standard Operating Procedure Manual (SOPM), dated September 2001,
contained an inventory policy that was vague and lacked specific guidance for the
consistent recording of individual inventory records on a per school/district basis.
Specifically, in the SOPM, the funding field in the database was not marked as a
mandatory field for data entry. Other than the SOPM, NYCDOE did not provide
guidance for inventory recordkeeping.

Since NYCDOE lacked adequate controls over the inventory of computers and related
equipment purchased with ED funds, there is no assurance that these computers and
equipment were exclusively used for their intended purposes.

Recommendation

We recommend that the Assistant Secretary of Elementary and Secondary Education
require NYCDOE to:

1.1 Revise the SOPM to provide clear and comprehensive policies and procedures to
    ensure NYCDOE maintains adequate inventories of computers and related equipment
    purchased with Federal funds that comply with Federal property management
    requirements, including funding source and percentage of Federal participation in the
    cost of the property.

Auditee Comments

In its response, NYCDOE concurred with the recommendation, but did not discuss
implementation of the corrective action. NYCDOE stated that their SOPM chapter on
inventory defines clear and comprehensive policies and procedures that ensure that
adequate inventory records of computers and equipment are maintained. The inventory
list and cards in the SOPM include fields for identifying the funding source and all other
necessary identifiers of the item. Regardless, NYCDOE stated it will continue to
reinforce the procedures necessary for the management of equipment.

OIG Response

We continue to support our recommendation and maintain that the SOPM chapter was
vague and unless it has been updated, further guidance is needed to ensure proper
inventory recordkeeping. While there is a field identifying funding source on the
inventory list and cards in the SOPM, it was not marked, as it should have been, as a
mandatory field for data entry.

                                  OTHER MATTERS

During the audit, we found that NYCDOE recorded unallowable technological equipment
totaling $8,412 as charges to FCC’s E-Rate program in their accounting system. End-
user components are not allowable charges to FCC’s E-Rate Program. NYCDOE



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Final Audit Report                                                       ED-OIG/A02-D0016


provided invoices for two transactions indicating that Community School District 30
purchased five laser jet printers and improperly charged these transactions to the E-Rate
program accounting code. This problem occurred because NYCDOE had a decentralized
purchasing system, which allowed the Community School District 30 to purchase the
end-user equipment and incorrectly account for them as an eligible service for the E-Rate
program. NYCDOE did not seek reimbursement from FCC for this equipment.

                     OBJECTIVES, SCOPE, AND METHODOLOGY

The objective of our audit was to determine if schools in NYCDOE used computers and
related equipment purchased with ED funds to enable students to access the Internet
using the E-Rate contracted Internet Service Provider, based on approved E-Rate
applications with the FCC.

To accomplish our audit objective, we interviewed school principals, various school
personnel, and officials from NYCDOE, reviewed policy directives and supplemental
instructions. We also obtained the electronic data files extracted by NYCDOE from the
Financial Accounting Management Information System (FAMIS).

To achieve our audit objectives, we assessed the reliability of computer-processed data
extracted by NYCDOE from FAMIS and found that the data are sufficiently reliable for
meeting our audit objectives. We tested the accuracy and completeness of the data by
comparing the electronic FAMIS file that contained all approved E-Rate sites by location
code with an approved external file received from FCC. Based on these tests, we
conclude that the data are sufficiently reliable to support the findings, conclusions, and
recommendations and using the data would not lead to an incorrect or inaccurate
conclusion.

We obtained an extract from NYCDOE’s FAMIS for all purchases with ED funds for
technological equipment for July 1, 2001, through June 30, 2002. We made site visits to
a sample of these sites to determine if the purchases were related to the E-Rate program
and the equipment was located at the sites sampled. The population of E-Rate sites
chosen for sample selection purposes was generated using the fiscal year 2002 posting of
technological purchases per the FAMIS system that were associated with approved E-
Rate sites. The population was segregated into four strata, as follows:

                      Strata                                                Sites
                 $75,001 and higher                                            2
                 $30,001 through $75,000                                      11
                 $10,000 through $30,000                                      13
                 Volume less than $10,000                                     30

Both sites from the first strata were selected for review. Ten sites were randomly
selected from the next two strata. The population sites included in the smallest dollar
strata were deemed immaterial and were excluded from further sample consideration.




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Final Audit Report                                                        ED-OIG/A02-D0016


We conducted the fieldwork at NYCDOE offices and schools in June 2003 through
September 2003. Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review described above.

                     STATEMENT ON MANAGEMENT CONTROLS

As part of our review, we assessed the system of management controls, policies,
procedures, and practices applicable to NYCDOE’s administration of the E-Rate
program. Our assessment was performed to determine the level of control risk for
determining the nature, extent, and timing of our substantive tests to accomplish the audit
objectives.

For the purpose of this report, we assessed and classified the significant controls into the
following category:

    ƒ   Property management

Because of inherent limitations, a study and evaluation made for the limited purpose
described above would not necessarily disclose all material weaknesses in the
management controls. However, our assessment disclosed a significant management
control weakness, which adversely affected NYCDOE’s ability to maintain property
records; specifically inadequate controls over computers and related equipment
purchased with Federal funds. This weakness and its effect are fully discussed in the
AUDIT RESULTS section of this report.

                            ADMINISTRATIVE MATTERS

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.

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:

                       Raymond Joseph Simon
                       Assistant Secretary
                       Office of Elementary and Secondary Education
                       400 Maryland Avenue, SW
                       Washington, DC 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.



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Final Audit Report                                                     ED-OIG/A02-D0016




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 information contained therein is not subject to exemptions in the Act.


                                                    Sincerely,


                                                         /s/
                                                    Daniel P. Schultz
                                                    Regional Inspector General
                                                     for Audit




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      Final Au
            Audit Report                      ATTA
                                              ATTACHME
                                                   CHMENT
                                                       NT 1                           ED-OIG/A
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                                                                                                 D0016




            THE NEW YORK CITY DEPARTMENT OF EDUCATION
            JOE L I. K L E 1 N, Cfiance[[or
            OFFICE OF THE CHANCELLOR
            52 Chambers Street - New York, NY 10007



To:        Daniel P. Schultz
           Regional Inspector General for Audit
           U. S. Department of Education
           75 Park Place, Room 1207
           New York, N Y 10007

From: John Wall
      Finance Administrator
      NYC Department of Education
      65 Court Street, Room 1702
      Brooklyn, NY 11201

SUBJE CT: Draft Audit Report Comments

March 15,2004

Dear Inspector General Schultz:

I concur with the recommendation of this Draft Audit Report entitled New York City
Department of Education ' s Use of Computer Equipment to Support the E-Rate program and
have included my respon se in the Implementation Plan attached.

Regarding the 'Lack of Adequate Controls over Federally Funded Equipment' finding, we will
continue to reinforce the procedures necessary for the management of equipment. In addition, we
will confer with the newly fom1ed Regional Operational Centers of the Department and our
Auditor General on the need to enforce these guiding principles.


                                                             Sincerely,

                                                          ct:;:;:4
                                                             Finance Admini strator
                                                             NYC Department of Education



Cc:       Louis Benevento
          Vincent A. Giordano
          Bruce Feig
          Rick Stewart
          Nader Francis


                              N YC Department of Education Office of Fiscal Affairs
                                                       7 
- Room I S02
                                          65 Court Street
                                 Te lephone (71S) 935-2216, Fax (7IS) 935-5 329
Final Au
      Audit Report                       ATTA
                                         ATTACHME
                                              CHMENT
                                                  NT 1                            ED-OIG/A
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                                                        Audit Implementation Plan Form A

NEW YORK CITY DEPARTMENT OF EDUCATION                                                PAGE 1 OF 1
OFFICE OF AUDITOR GENERAL
External Audit Services


                                                                   RESPONSE DATE: 03/14/2004


AUDIT TITLE: NYC DOE Computer/E Rate Use/Protection

AUDITING AGENCY: US DOE

DIVISION: Inspector General

DRAFT REPORT DATE: 02/19/2004

AUDIT NUMBER: ED-OIG/A02·D0016


                       A . RECOMMENDATION WHICH THE AGENCY
                                     HAS IMPLEMENTED
Revise the SOPM to provide clear and comprehensive policies and procedures to ensure
NYCDOE maintains adequate inventories of computers and related equipment purchased with
Federal funds that comply with Federal property management requirements, including funding
source and percentage of Federal participation in the cost of the property.

               RESPONSE TO RECOMMENDATION -IMPLEMENTATION PLAN

 The SOPM chapter on Inventory does define clear and comprehensive policies and procedures
to ensure that adequate inventory of computers and other equipment are maintained. Each site
administrator is responsible for maintaining and updating the inventory records for his or her sile.
It states that this responsibility for proper inventory recording is mandated from New York State
Education Law. These records are subject to audit by the Office of Auditor General of the
Department, as well as the City Comptroller and other authorized state, and/or federal officials.
The SOPM states that the annual inventory of all supplies and equipment is to be completed by
November 1 of each year with a copy of the inventory statement and list going to the sites'
Financial Management Center. The inventory list and cards include fields for identifying the
funding source and all other necessary identifiers of the item.
The accounting system of the Department (FAMIS) can be used to identify the percentage of
Federal participation in the cost of the property.     "         '

                                                                  IMPLEMENTATION DATE


                                   RESPONSIBILITY CENTER
                                       Financial Operations

        Signature:   fl;t/~
                                                                                    03/14/2004
                pr~ John Wall
        Print Title: Administrator of Finance




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