oversight

Puerto Rico Department of Education, Salinas School District's Administration of Title I Funds

Published by the Department of Education, Office of Inspector General on 2006-07-25.

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

                   UNITED STATES DEPARTMENT OF EDUCATION 

                        OFFICE OF INSPECTOR GENERAL

                             32 OLD SLIP, 26th FLOOR

                               FINANCIAL SQUARE

                           NEW YORK, NEW YORK 10005 

                      PHONE (646) 428-3860 FAX (646) 428-3868 



                                                July 25, 2006

                                                                                      Control Number
                                                                                      ED-OIG/A02F0017

Honorable Rafael Aragunde
Secretary of Education
Puerto Rico Department of Education
P.O. Box 190759
San Juan, Puerto Rico 00919-0759

Dear Secretary Aragunde:

This Final Audit Report, entitled Puerto Rico Department of Education, Salinas School
District’s Administration of Title I Funds, presents the results of our audit. The objective
of the audit was to determine whether the Puerto Rico Department of Education (PRDE),
Salinas School District (Salinas), properly administered Elementary and Secondary
Education Act (ESEA), Title I, Part A (Title I), non-salary funds in accordance with grant
requirements, and Federal laws and regulations. Our review covered the grant period,
July 1, 2003, through June 30, 2004.

In its response to the draft report, dated June 15, 2006, PRDE generally concurred with
our findings and recommendations. Based on proper documentation PRDE provided
supporting certain expenditures, we adjusted Findings 1 and 2. Because of the
voluminous number of attachments included in PRDE’s comments to the draft report, we
have not included them in this report. Copies of the attachments are available on request.
We summarized PRDE’s comments at the end of each finding and included them as
Attachment B to the report.


                                             BACKGROUND 



The community schools are the functional units of the public educational system of
Puerto Rico. Puerto Rico Law Number 18 of June 16, 1993, created the community
schools and granted them academic, fiscal, and administrative autonomy. The
Community Schools Administration (CSA), a division of PRDE, acts as a pass-through
entity for the transfer of State and Federal funds to the community schools.


  Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Puerto Rico Department of Education,                                                      Final Report

Salinas School District’s Administration                                             ED-OIG/A02F0017

Of Title I Funds

In January 2002, the PRDE Secretary established the Fiscal Components of the
community schools, 1 and placed them in the school districts. 2 The Fiscal Components
included Purchasing, Payment, Bank Account Reconciliation, Receiving and Collecting
Officers, and Property Custodians.

For the grant period, July 1, 2003, through June 30, 2004, the CSA transferred $670,689
in Title I, non-salary funds to the PRDE-Salinas community schools bank accounts.
PRDE-Salinas had a total of 20 community schools.

All of the PRDE-Salinas schools received Title I funds. The Title I program is the largest
elementary and secondary education program, which supplements State and local funding
for low-achieving children, especially in high-poverty schools. 3 Title I provides financial
assistance to ensure that all children have a fair, equal, and significant opportunity to
obtain a high-quality education and reach, at a minimum, proficiency on challenging
State academic achievement standards and State academic assessments.

Title I funds may be used for schoolwide or for targeted assistance programs. Under a
schoolwide program, Title I funds can be consolidated with other Federal, State, and local
funds to upgrade the entire educational program of a school if not less than 40 percent of
the children enrolled in the school are from low-income families. Federal funds
consolidated in a schoolwide program lose their specific program identity and may be
used for any costs of a schoolwide program. All 20 PRDE-Salinas schools operated
schoolwide programs.


                                           AUDIT RESULTS 



In general, PRDE-Salinas properly administered Title I, non-salary funds in accordance
with grant requirements, and Federal laws and regulations. However, we found that
PRDE-Salinas failed to provide proper documentation to support disbursements totaling
$19,829, paid out $7,385 in program funds untimely, and lacked appropriate supervisory
oversight of its cash management activities.

FINDING 1 – PRDE-Salinas failed to provide proper documentation to support
            expenditures totaling $19,829.

We reviewed PRDE-Salinas’ support for all 365 purchase transactions, totaling $342,358,
and their related disbursements, for our sample of 7 of 20 PRDE-Salinas schools.


1
  The Fiscal Components were responsible for performing the fiscal activities of the schools. 

2
  PRDE-Salinas is one of nine districts that belong to the Caguas School Region. 

3
  Title I is authorized under the ESEA, as amended by the Improving America’s Schools Act of 1994, 

Public Law 103-382, and the No Child Left Behind Act of 2001, Public Law 107-110. 



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Puerto Rico Department of Education,                                           Final Report

Salinas School District’s Administration                                  ED-OIG/A02F0017

Of Title I Funds

We found 12 transactions, totaling $19,829, for which required documentation was not
available. The missing documentation included either purchase requisitions, receiving
reports, invoices, or cancelled checks. As a result, we determined that $19,829 of
expenditures was unsupported. A detail of the missing documentation is included as
Attachment A to the report.

According to 34 C.F.R. § 80.20(a), “Fiscal control and accounting procedures of the State
. . . must be sufficient to (2) Permit the tracing of funds to a level of expenditures
adequate to establish that such funds have not been used in violation of the restrictions
and prohibitions of applicable statutes.”

Pursuant to 34 C.F.R. § 80.20(b)(6), accounting records must be supported by such
source documentation as cancelled checks, paid bills, payrolls, time and attendance
records, contract and subgrant award documents, etc.

PRDE-Salinas lacked an adequate record-keeping system to effectively account for
Federal funds. The lack of available records is a problem that leaves funds awarded at
risk of mismanagement and misuse.

Recommendations:

We recommend that the Assistant Secretary for Elementary and Secondary Education
instruct PRDE-Salinas to:

1.1 	   Submit the required missing documentation to account for the Federal funds
        disbursed, or return the $19,829 in unsupported expenditures to ED; and

1.2 	   Establish an effective record-keeping system to provide an appropriate audit trail
        of Federal funds.

PRDE Comments

PRDE reviewed the files at PRDE-Salinas and found most of the documents requested.
PRDE provided supporting documentation for $17,120 of the $37,701 disbursements
questioned in the draft report. In addition, PRDE included a copy of a check made to the
Puerto Rico Treasury Department totaling $752, as evidence of the reimbursement of
funds received for two purchase orders that were cancelled.

OIG Response

We reviewed documentation submitted by PRDE to support disbursements made totaling
$17,872 ($17,120 + $752), and determined that the documentation accounted for the
Federal funds disbursed. As a result, we decreased the questioned costs to $19,829
($37,701 - $17,872).




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Puerto Rico Department of Education,                                            Final Report

Salinas School District’s Administration                                   ED-OIG/A02F0017

Of Title I Funds

FINDING 2 – PRDE-Salinas paid out $7,385 in program funds untimely.

We reviewed $342,358 in Title I, non-salary funds received by 7 of 20 schools in PRDE-
Salinas and found that $7,385 was disbursed untimely. The $342,358 represented the
universe of Title I, non-salary funds PRDE-Salinas requested from the CSA for our
sample of 7 of 20 District schools for the grant period, July 1, 2003, through June 30,
2004.

Of the $7,385 PRDE-Salinas disbursed untimely, $4,535 represented payments made as a
corrective action measure in February 2006, after the OIG auditor submitted to the
Payment Officers a list of unexpended Title I funds. This happened because PRDE-
Salinas did not have a structured cash management system to effectively manage the
receipt and ultimate disbursement of ED funds.

According to PRDE’s “Guide of Fiscal Procedures,” after purchases have been made or
services have been received, the Payment Officers must submit to the CSA a “Petition of
Funds,” detailed by purchase order number, vendor’s name, invoice number, and expense
account to disburse the funds. After the funds have been deposited in the schools’ bank
accounts, the Payment Officers should make the appropriate disbursements.

Pursuant to 34 C.F.R. § 76.702, a State and its sub-grantees must use fiscal control and
fund accounting procedures that ensure proper disbursement and accounting for Federal
funds.

The regulations at 31 C.F.R. § 205.15(a), establish that a State will incur an interest
liability to the Federal Government if Federal funds are in a State account prior to the day
the State pays out funds for program purposes. A State interest liability will accrue from
the day Federal funds are credited to the State account to the day the State pays out the
Federal funds for program purposes.

Failure to properly account for and disburse grant funds could place the funds at risk of
being misused and adversely affect PRDE-Salinas’ ability to properly administer ED
programs. In addition, PRDE-Salinas incurred an interest liability to ED.

Recommendations:

We recommend that the Assistant Secretary for Elementary and Secondary Education
instruct PRDE-Salinas to:

2.1 	   Return to ED the interest accrued between the time PRDE-Salinas received
        $7,385 in Title I funds, and the time the funds were paid out for program
        purposes; and

2.2 	   Establish a structured cash management system to ensure that ED funds are
        properly accounted for and disbursed timely.



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Puerto Rico Department of Education,                                                      Final Report

Salinas School District’s Administration                                             ED-OIG/A02F0017

Of Title I Funds

PRDE Comments

Regarding questioned costs of $2,850 included in the draft report, PRDE asserted that it
disbursed the funds, and provided supporting documentation. The funds were transferred
between August 2004 and April 2005; and paid out in August 2005 and April 2006.
PRDE calculated the accrued interest, which amounted to $88. PRDE also calculated
interest of $154 accrued for untimely payments of $4,535 included in the draft report.

OIG Response

We reviewed documentation submitted by PRDE to support the disbursements made for
$2,850 and determined that the documentation accounted for the Federal funds disbursed.
As a result, we removed the $2,850 in questioned costs. PRDE must return to Ed the
accrued interest resulting from the untimely disbursement of the $7,385 in Title I funds.

FINDING 3 – PRDE-Salinas lacked appropriate supervisory oversight of its cash
            management activities.

According to the Fiscal Component officials interviewed, the Regional Supervisor 4 did
not exert a constant and effective supervision over fiscal activities at PRDE-Salinas.
Some Fiscal Component officials stated that the Regional Supervisor only visited them a
few times during the year, and did not review any type of documentation. Other Fiscal
Component officials stated that the Supervisor did not visit them at all. The only direct
supervision they stated they had, came from the Director of the school where their office
was located, who was responsible for approving their time and attendance. They also
stated that they had basically no communication with personnel from the Caguas School
Region.

According to 34 C.F.R. § 80.40(a), “Grantees are responsible for managing the day-to-
day operations of grant and subgrant supported activities. Grantees must monitor grant
and subgrant supported activities to assure compliance with applicable Federal
requirements and that performance goals are being achieved. Grantee monitoring must
cover each program, function or activity.”

PRDE lacked internal controls to properly supervise and monitor cash management
practices at the district level. Failure to supervise and monitor cash management
practices leaves ED funds vulnerable to misuse.

Recommendation:

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



4
    The Caguas School Region was responsible for supervising the Fiscal Components of PRDE-Salinas.


                                                    5

Puerto Rico Department of Education,                                            Final Report

Salinas School District’s Administration                                   ED-OIG/A02F0017

Of Title I Funds

3.1 	   Establish internal controls to ensure that all the Fiscal Components receive proper
        and constant supervision and monitoring.

PRDE Comments

PRDE concurred with the finding and recommendation and will implement the following
corrective actions:

• 	 The Executive or Auxiliary Director will visit the Fiscal Components of the District
    at least four times during the year to review the accuracy of accounting records,
    timeliness of disbursements, and cash management, and prepare a report with the
    results of the visit. Any finding or deficiency should then be corrected by the fiscal
    component; and
• 	 PRDE will develop a guide of Supervision Procedures to be used by the Supervisor
    during the visits.

OIG Response

PRDE’s corrective actions described in its response may be considered by ED’s Assistant
Secretary for Elementary and Secondary Education as part of the audit resolution process.
If fully implemented, the corrective actions should help PRDE improve its current
procedures to ensure that Title I funds are spent in accordance with Federal requirements.


                      OBJECTIVE, SCOPE, AND METHODOLOGY 



The objective of our audit was to determine whether PRDE-Salinas properly
administered Title I, non-salary funds in accordance with grant requirements, and Federal
laws and regulations. Our review covered the grant period, July 1, 2003, through June
30, 2004.

To accomplish the audit objective, we evaluated the fiscal procedures and practices
followed by PRDE-Salinas to administer Federal funds. We also reviewed data obtained
from the PRDE’s CSA, and the Fiscal Components of the district. We interviewed the
CSA Director, the Director of PRDE’s Finance Department, the Salinas District
Superintendent, School Directors, and the Fiscal Components of the district.

We reviewed the Puerto Rico Law that created the Community Schools System, PRDE’s
Guide of Fiscal Procedures, PRDE’s Single Audit Report for the year ended June 30,
2003, and various audit reports from the Puerto Rico Comptroller’s Office.

As part of our audit procedures, we obtained from the CSA, a list of all the ED non-salary
funds PRDE-Salinas requested for the grant period, July 1, 2003, through June 30, 2004,



                                             6

Puerto Rico Department of Education,                                                       Final Report

Salinas School District’s Administration                                              ED-OIG/A02F0017

Of Title I Funds

and segregated Title I from non-Title I funds. The list included all the 20 schools of
PRDE-Salinas, detailed by school code. We identified the Purchasing and Payment
Officers assigned to each school and judgmentally selected for review the seven schools
where the combinations of Purchasing/Payment officers appeared first on the list.5

The matrix shown below identifies the selection criteria used. The numbers in bold
identify the schools selected).

                  Matrix of the Criteria Used to Select the Schools Reviewed

                                                          Purchasing Officers
                                             (1)              (2)           (3)                (4)
                                     1, 3, 8, 12, 14,
                    (1)              16                        5               4, 7
    Payment
    Officers




                    (2)                      19         2, 6, 9, 13, 17 10, 11, 15, 20

                     (3)                                                                       18

We reviewed 365 purchase transactions totaling $342,358, representing the universe of
Title I, non-salary funds PRDE-Salinas requested from the CSA for the seven selected
schools, to determine whether the funds were spent in accordance with ED grant
requirements, and Federal laws and regulations.

We conducted our fieldwork at the Fiscal Components’ office, located at the PRDE-
Salinas’ Santiago R. Palmer School, and the CSA.

To achieve our audit objective, we relied, in part, on computer-processed data related to
Title I, non-salary funds that we obtained from the CSA. To test the reliability and
completeness of the data, we compared the CSA data with source records obtained from
PRDE-Salinas. Based upon this test, we concluded that the data was complete and
sufficiently reliable to be used in meeting the audit’s objective.

Our audit was performed in accordance with generally accepted government auditing
standards appropriate to the scope of the review described above.




5
 There were four Purchasing Officers and three Payment Officers assigned to the 20 schools of PRDE-
Salinas.



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Puerto Rico Department of Education,                                            Final Report

Salinas School District’s Administration                                   ED-OIG/A02F0017

Of Title I Funds



                                ADMINISTRATIVE MATTERS



Statement 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
this audit:

                                   Dr. Henry L. Johnson
                                   Assistant Secretary
                                   Office of Elementary and Secondary Education
                                   U.S. Department of Education
                                   FOB 6, Room 3W315
                                   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 appreciated.

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


Attachments




                                                8

Puerto Rico Department of Education,                                             Final Report

Salinas School District’s Administration                                    ED-OIG/A02F0017

Of Title I Funds

                                           Attachment A


                                Detail of Missing Documentation




                         Purchase Order
     School ID              Number             Amount          Missing Documentation
        52753                2004-012                   $169     Purchase Requisition
        52753                2004-017                  2,237     Purchase Requisition
        52753                2004-030                   272      Purchase Requisition
                                                               Receiving Report, Invoice,
        52753                2004-064                    240       Cancelled Check
        52795                2004-011                  6,560     Purchase Requisition
        52795                2004-017                     60     Purchase Requisition
                                                               Receiving Report, Invoice,
        52795                2004-030                  2,166       Cancelled Check
        52795                2004-307                  5,495     Purchase Requisition
                                                               Receiving Report, Invoice,
        52795                2004-234                   350        Cancelled Check
                                                               Receiving Report, Invoice,
        52795                2004-292                  1,045       Cancelled Check
                                                               Receiving Report, Invoice,
        52795                2004-293                   736        Cancelled Check
                                                               Receiving Report, Invoice,
        52795                2004-295                    499       Cancelled Check
        Total                                        $19,829




                                                9

Puerto Rico Department of Education,                                                                            Final Report
Salinas School District's Administration                                                                   ED-OIG/A02F0017
Of Title I Funds
                                                     Attachment B



                                                          [!t3 

                                 Commonwealth of Puerto Rico
                                   DEPARTMENT OF EDUCATION

 OFFICE OF FEDERAL AFFAIRS



          June 15, 2006



          Mr. Daniel Schultz
          Regional Inspector General for Audit
          L1.S. Department of Education
          Office of Inspector General
          32 Old Slip, 26th Floor
          New York. NY 10005

          Dear Mr. Schultz:

           This letter is in response to the Preliminary Audit Report entitled: Puerto Rico
           Department of Education, Salinas Scbool District's Adminjst~tion of Title I Funds,
           (ED-OIG/A02FOOI7). We have thoroughly reviewed the findings and recommendations
           contained in the preliminary report, in order to take the necessary actions to ensure the
           compliance with 1ederallaws and regulations.

           Finding #1 

           Amount of questioned costs: $37,701 


           PROE-Salinas failed to provide proper documentation to support expenditures totaling
           $37,701.

           Management Response:

          The Preliminary Audit Report stated that missing documentation included either purchao;e
          requisitions, receiving reports. invoices or cancelled checks. PROE revised the files at
          PRDE-Salinas Schools District and found most of the documents requested by your
          office.

               ,. 	 We are including a summary table, which details the documentation provided.
                    (See Attachment A.)

               -,.. In addition, we are providing a table (See Attachment B) that details the missing
                    documentation.



 P.o   sox   190759. SAN     JIJA:>l.   PIJE!<TO   RICO   00919·0759~.~_.P.~g:\".E..::.f782.1_~5_9-B_~.lO.· ."-~)(_:.(?~7) ..2.~ 1~6J9~

 The Department of Edu~ati()n does nor discrimin.<'Hc in its ~\C'fivities. educational stfviccg or employmerlt QPportur1jtic~ on
 the basis of race. color. sex~ age. birth. national origin. ~odal tondirkm" pohtlCal ideas, religious beliefs or any handicap.




                                                               10 

Puerto Rico Department of Education,                                                       Final Report
Salinas School District's Administration                                             ED-OIG/A02FOOI7
Of Title I Funds


                    Mr. Daniel Schultz
                    Page 2
                    June 15,2006


                        >-   Also, for purchase orders that make reference to enclosure no. 39 (PO's 2004-30,
                             2004-234, 2004-292, 2004-293, and 2004-295), we provided copy of the bank
                             statement that shows the check number 01446 for the amount expended of
                             $4,796.70. We requested the copy of the cancelled check to the bank and will
                             send it to OIG as soon as we receive it.

                    Finding #2
                    Amount of questioned costs: $2,850 plus applicable interest

                    PRDE-Salinas did not disburse $2,850 in Title I funds received and paid out $4,535 in
                    program funds untimely.

                    Management Response:

                    Regarding the questioned costs of $2,850, PRDE did disburse and spend the funds. The
                    funds were transferred between April and August of 2005, and paid out in April of 2006.
                    We calculated the interest accrued between the drawdown of funds and when the actual
                    expenditure occurred.

                        };- We are providing supporting documentation of the expenditures for the amowlt of
                            $2,850 that was paid in April 2006. (See enclosures 1-4 and 8-10.)

                        )- Also, we are including a table with the calculation of the accrued interest. (See
                           Attachment C.)

                    At the same time. we calculated the interest accrued for expenditures of $4,535 that were
                    paid out untimely. (See Attachment C.)

                        };- We are including supporting documentation of the expenditures for the amount of
                            $4,535 that was paid in February 2006. (See enclosures 5-7 and 11-14.)

                    Finding #3
                    Amount of questioned costs: None

                    PRDE-Salinas lacked appropriate supervisory oversight of its casll management
                    activities.

                    Management Response:

                    We concurred with the tinding and the following actions will be implemented in order to
                    avoid this finding in the future.

                        )- The Executive Director or Auxiliary Director will schedule a quarterly plan of
                           visits that will allow the fiscal component of the correspondent district to receive




                                                    11 

Puerto Rico Department of Education,                                                Final Report
Salinas School District's Administration                                       ED-OIG/A02FOO 17
Of Title I Funds

     Mr. Daniel Schultz
     Page 3
     June 15, 2006


              at least four monitoring visits during the year. These monitoring visits will cover
              the review of the financial aspects of the fiscal components such as accounting
              records accuracy, timeliness of disbursements, and cash management.

          ~ 	 We  will develop a guide of Supervision Procedures to be used by the Supervisor
              in the visits. This guide will be part of the Guide of Fiscal Procedures and
              Monitory.

          ~ 	 The  Supervisor will prepare a report with the visit results, which will be sent to
              the Finance Division and the Monitory Division. Any finding or deficiency
              should be corrected by the fiscal component and the Executive Director or
              Auxiliary Director will verify the corrections or actions taken to resolve the
              situation.

     The PRDE is constantly working on taking the necessary steps to make sure that we
     comply with all the federal laws, regulations and requirements for each program. Weare
     committed to            our children an education of academic excellence and high
     standards.




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