oversight

State of Wisconsin American Recovery and Reinvestment Act of 2009 Use of Funds and Reporting.

Published by the Department of Education, Office of Inspector General on 2010-09-29.

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

              U.S. Department of Education
               Office of Inspector General


     American Recovery and
     Reinvestment Act of 2009
State of Wisconsin American Recovery and Reinvestment Act of 2009
                    Use of Funds and Reporting

                          Final Audit Report




                          Wisconsin State Capitol
      www.wisconsin.gov

ED-OIG/A02K0005                                     September 2010
                                      UNITED STATES DEPARTMENT OF EDUCATION
                                           OFFICE OF INSPECTOR GENERAL

                                                                                                       AUDIT SERVICES
                                                                                                             REGION II

                                                       September 29, 2010
Tony Evers, Ph.D.
State Superintendent
Wisconsin Department of Public Instruction
125 South Webster Street
Madison, WI 53703

Christopher Patton
Recovery and Reinvestment Director
Special Assistant to the Governor
Office of Recovery and Reinvestment
P.O. Box 7863
Madison, WI 53707

Dear Dr. Evers and Mr. Patton:

This final audit report presents the results of our review of the State of Wisconsin American
Recovery and Reinvestment Act of 2009 Use of Funds and Reporting.

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
officials, who will consider them before taking final Departmental action on this audit:

                                       Thelma Meléndez de Santa Ana, Ph.D.
                                                 Assistant Secretary
                                   Office of Elementary and Secondary Education
                                           U.S. Department of Education
                                              400 Maryland Ave., S.W.
                                                   LBJ, 3W315
                                               Washington, DC 20202

                                                 Alexa E. Posny
                                               Assistant Secretary
                             Office of Special Education and Rehabilitative Services
                                         U.S. Department of Education
                                              550 12th Street, S.W.
                                                   PCP, 5107
                                             Washington, DC 20202
 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
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




                                                 2
     Abbreviations and Acronyms Used in this Report
___________________________________________________
AEFLA           Adult Education and Family Literacy Act

ARRA            American Recovery and Reinvestment Act of 2009

CFDA            Catalog of Federal Domestic Assistance

C.F.R.          Code of Federal Regulations

DOC             Wisconsin’s Department of Corrections

DOR             Wisconsin’s Department of Revenue

DPI             Wisconsin’s Department of Public Instruction

DUNS            Data Universal Numbering System

ED              U.S. Department of Education

ESEA            Elementary and Secondary Education Act of 1965

ES              Education Stabilization

GS              Government Services

IDEA            Individuals with Disabilities Education Act Part B Grants to States

IPA             Independent Public Accountant

LEA             Local Educational Agency

OIG             Office of Inspector General

OMB             Office of Management and Budget

ORR             Wisconsin Governor’s Office of Recovery and Reinvestment
SFSF      State Fiscal Stabilization Fund

Title I   Title I, Part A of the Elementary and Secondary Education Act of
          1965

WI        State of Wisconsin

WiSMART   Wisconsin’s State Financial System

WUFAR     Wisconsin Uniform Financial Accounting Requirement
Final Report
ED-OIG/A02K0005                                                                                     Page 1 of 15
              State of Wisconsin American Recovery and Reinvestment Act of 2009
                                  Use of Funds and Reporting

                                    Control Number ED-OIG/A02K0005

                                                    PURPOSE
The American Recovery and Reinvestment Act of 2009 (ARRA) places a heavy emphasis on
accountability and transparency, and in doing so, increases the responsibilities of the agencies
that are impacted by ARRA. Overall, the U.S. Department of Education (ED) is responsible for
ensuring that education-related ARRA funds reach intended recipients and achieve intended
results. This includes effectively implementing and controlling funds at the Federal level,
effectively ensuring that recipients understand requirements and have proper controls in place
over the administration and reporting of ARRA funds, and promptly identifying and mitigating
instances of fraud, waste, and abuse of the funds.

The purpose of our audit was to determine whether the State of Wisconsin (WI): (1) used ARRA
funds in accordance with applicable laws, regulations, and guidance; and (2) reported data that
were accurate, reliable, complete, and in compliance with ARRA reporting requirements. This
report provides the results of the audit we conducted at the WI Department of Public Instruction
(DPI) and the WI Governor’s Office. We focused our audit on State-level use of funds, and data
quality related to Title I, Part A of the Elementary and Secondary Education Act of 1965
(Title I); Individuals with Disabilities Education Act, Part B, Special Education Grants to States
(IDEA); and State Fiscal Stabilization Fund (SFSF) funds received through ARRA.

                                                    RESULTS

DPI made a proactive effort to ensure compliance with ARRA requirements for Title I and
IDEA, such as distributing timely information to assist local educational agencies (LEAs) in
understanding their ARRA responsibilities. However, we determined that DPI and the WI
Governor’s Office did not perform sufficient procedures to provide reasonable assurance that
ARRA funds were used in accordance with applicable laws, regulations, and guidance.

Specifically, SFSF funds for Education Stabilization (ES) and Government Services (GS) were
not adequately tracked at the State and LEA level. This was due to the Legislative directives
approved by the WI Governor leading up to the distribution of SFSF funds and inadequate
instructions from DPI to LEAs in accounting for and tracking SFSF funds. The WI Legislature
and the WI Governor’s Office instructed DPI to distribute SFSF funds to LEAs expeditiously to
fill the shortage in State General Aid to LEAs. 1 In doing so, DPI did not properly account for
the two components of the SFSF program, 2 and it reimbursed LEAs for expenditures based only

1
  On May 11, 2009, the WI Legislative Fiscal Bureau reduced fiscal year (FY) 2008-2009 income tax collection
estimates by $408 million. As a result, there was a shortage of funds for State General Aid. WI needed to apply its
SFSF funds to offset the reductions in State General Aid resulting from the large FY 2008-2009 shortfall. It was not
until June 11, 2009, that SFSF GS funds were appropriated to offset reductions in State General Aid.
2
  The two components of the SFSF program are ES with a Catalog of Federal Domestic Assistance (CFDA) number
of 84.394 and GS with a CFDA number of 84.397.
Final Report
ED-OIG/A02K0005                                                                               Page 2 of 15
on pools of cost categories without advising LEAs that the SFSF ES and GS funds included in
the payment must be tracked separately. Therefore, the WI Governor’s Office and DPI did not
properly account for and track the use of SFSF funds at both the State and LEA level in
accordance with ARRA requirements.

In addition, DPI needs to improve its monitoring over Title I, IDEA, and SFSF ARRA funds.
We found that DPI needs to improve its current procedures to incorporate risk-based fiscal
monitoring for Title I and IDEA. DPI also should implement comprehensive subrecipient
monitoring procedures for the SFSF program based on risk.

Finally, we found that WI generally reported data for its Title I, IDEA, and SFSF programs that
were accurate, reliable, complete, and in compliance with ARRA reporting requirements except
for the issues identified in Finding No. 3 related to jobs data. We determined that DPI and the
WI Governor’s Office need to improve their procedures to ensure certain ARRA § 1512 (§ 1512)
data are accurate, reliable, and complete. We also identified certain isolated issues related to
§ 1512 data. Although these issues did not warrant inclusion in the Finding sections, we
included them in the “Other Matters” section of this report.

We provided a copy of our draft audit report to DPI and the WI Governor’s Office of Recovery
and Reinvestment (ORR) 3 for review and comment on July 19, 2010. In DPI’s and ORR’s
comments dated July 30, 2010, DPI and ORR did not fully agree or disagree with our findings
and recommendations. Based on their comments, we modified Finding No. 1 to clarify language
used to describe DPI’s role in the process of allocating and distributing SFSF funds. DPI’s and
ORR’s comments are summarized at the end of each finding. The entire narrative of DPI’s and
ORR’s comments is included as Attachment 1 to this report.

                                            BACKGROUND

ARRA was signed into law on February 17, 2009, in an unprecedented effort to jumpstart the
American economy. ARRA has three immediate goals: (1) create new jobs and save existing
ones, (2) spur economic activity and invest in long-term growth, and (3) foster unprecedented
levels of accountability and transparency in government spending. To ensure transparency and
accountability of ARRA spending, recipients are required under § 1512 to submit quarterly
reports on ARRA awards, spending, and jobs impact. According to the Office of Management
and Budget (OMB), the reports, which contain specific detailed information on the projects and
activities funded by ARRA, will provide the public with an unprecedented level of transparency
into how Federal dollars are being spent. They will also help drive accountability for the timely,
prudent, and effective spending of the ARRA funds.

WI is expected to receive more than $1.2 billion in Title I, IDEA, and SFSF ARRA funds. As of
December 31, 2009, WI had drawn down more than $662 million of these ARRA funds. Table 1
below shows the amount of funds awarded and drawn down by DPI and the WI Governor’s
Office as of December 31, 2009. Data are restricted to funds related to the Title I, IDEA, and
SFSF programs as the audit scope is limited to the review of these programs.

3
 On January 23, 2009, the Governor of WI created ORR in Executive Order 274. ORR is responsible for
administering and ensuring compliance with ARRA.
Final Report
ED-OIG/A02K0005                                                                                       Page 3 of 15
        Table 1: ARRA Funding for Selected Programs in WI, as of December 31, 2009
                                                                          PERCENT
             PROGRAM
                                      AWARDED        DRAWDOWNS           OF AWARD
                                                                        DRAWN (%)
SFSF Education Stabilization           $717,336,999     $480,615,789          67.0
SFSF Government Services               $159,603,097     $159,602,311          99.9
            SFSF Subtotal              $876,940,096     $640,218,100          73.0
Title I                                $147,729,443        $3,158,326          2.1
IDEA                                   $208,200,108      $19,076,305           9.2
TOTAL                                $1,232,869,647     $662,452,731          53.7

The WI Governor’s Office was allocated about $877 million in SFSF funds, of which 73 percent
or approximately $640 million was drawn down (see Table 1). About $481 million and $160
million in SFSF ES funds and SFSF GS funds were drawn down, respectively. The WI
Governor’s Office disbursed the SFSF GS funds to three WI State agencies: WI Department of
Revenue (DOR), WI Department of Corrections (DOC), and DPI (see Table 2). DPI disbursed
$71,662,211 of the SFSF GS funds to its 426 LEAs. 4

     Table 2: WI Governor’s Office Total of SFSF Government Services Drawdowns
 WI AGENCY RECEIVING SFSF-GS FUNDS                    AMOUNT DRAWN DOWN
Department of Revenue                                         $76,139,100
Department of Correction                                      $11,801,000
Department of Public Instruction                              $71,662,211
TOTAL                                                        $159,602,311
ULTS
                                                   FINDINGS

FINDING NO. 1 − SFSF ES and GS Funds Were Not Adequately Tracked

SFSF funds were not adequately tracked at both the State and LEA levels. This was caused by
the timing of WI Legislative decisions leading up to the distribution of SFSF ES and GS funds to
LEAs, which were approved by WI’s Governor, and lack of instructions from DPI to LEAs on
how to account for SFSF funds with specific expenditures. The WI Legislature and the WI
Governor’s Office instructed DPI to award and to distribute both SFSF ES and GS funds within a
short time frame using the general equalization aid formula 5 to fill the shortage in State General
Aid for LEAs. 6 DPI was directed on May 15, 2009, to use its SFSF ES allocation to fill the
shortage in State General Aid for LEAs. 7 However, the appropriation for GS and additional ES
funds occurred on June 11, 2009, just one business day prior to the June 15, 2009, State General


4
  Our audit focused on SFSF funds that went to LEAs through DPI because they totaled approximately 86 percent of
all SFSF funds.
5
  The general equalization formula is WI’s primary elementary and secondary education funding formula.
6
  State General Aid is State aid that is not limited to any specific program, purpose, or target population but may be
used in financing the general educational program as desired by the recipient district.
7
  On May 15, 2009, WI Legislation appropriated $291,000,000 of SFSF ES to be used in the June 15, 2009 State
General Aid payment to LEAs. DPI created account code 810, on May 20, 2009, to track SFSF ES expenditures.
Final Report
ED-OIG/A02K0005                                                                                     Page 4 of 15
Aid payment, which was statutorily required by the WI Legislature. 8 As a result, although DPI
recorded combined SFSF allocations for LEAs in WiSMART (WI State Financial System), DPI
indicated that it did not have sufficient time to record allocations for ES and GS funds separately
for each LEA. In addition, DPI did not notify LEAs that the June 15, 2009, State General Aid
payment, included both ES and GS until September 2009. Therefore, LEAs may not be able to
trace ES and GS funds to specific actual expenditures.

According to ED’s Guidance on the State Fiscal Stabilization Fund Program dated April 2009,
(Part VII-4), “For each year of the Stabilization program, the State must submit to the
Department a report that describes: The uses of funds within the State . . . .” In addition, it states
that (Part III-D-15):

         An LEA may use its Education Stabilization funds for any activities authorized under
         [Elementary and Secondary Education Act of 1965] ESEA, the IDEA, the [Adult
         Education and Family Literacy Act] AEFLA, or the Perkins Act . . . . The LEA must
         maintain records that track separately the specific uses of the funds.

State-level Tracking
DPI did not adequately track SFSF ES and GS funds. DPI awarded and disbursed the SFSF ES
and GS funds to LEAs under one account code on June 15, 2009. On June 12, 2009, DPI made
only one adjusting entry in WiSMART to transfer the total SFSF GS funds for all LEAs from the
account that recorded the initial combined SFSF payment. To account for the amounts awarded
to each LEA for SFSF ES and GS under two separate CFDA numbers, DPI divided the total
SFSF funds awarded to each LEA—87 percent was attributed to ES funds and 13 percent was
attributed to GS funds. DPI recorded these amounts outside of the WiSMART system in a
Microsoft Excel spreadsheet. However, we noted for 29 LEAs that the June 15th payments
recorded in WiSMART did not match the combined SFSF award amount recorded in the
Microsoft Excel spreadsheet. The award amounts recorded on the Microsoft Excel spreadsheet
were the amounts reported to FederalReporting.gov. DPI’s senior accountant stated the
difference in the payments to these 29 LEAs was due to adjustments related to the State
equalization aid, special aid, and open enrollment aid. 9 Therefore, DPI was not able to
adequately track the disbursement of SFSF ES and GS funds separately.

LEA-level Tracking
LEAs may not be able to trace ES and GS funds to specific actual expenditures. When LEAs
received SFSF funds in the June 2009 State General Aid payment, LEAs had already incurred
expenses that they expected to be reimbursed with State General Aid. DPI did not require LEAs
to account for SFSF to specific expenditures and did not notify LEAs about how much of their

8
  On June 11, 2009, WI Legislation appropriated $261,278,000, of which $71,662,211 was for SFSF GS funds and
$189,615,689 was for SFSF ES funds. Both SFSF ES and GS were used in the June 15, 2009 State General Aid
payments to LEAs. Although DPI created account code 811 on June 12, 2009 to track total SFSF GS expenditures,
it did not record specific LEA allocations and payments for GS to this code.
9
  WI’s public school open enrollment program allows students to attend school districts other than the one in which
they live. Open enrollment aid is calculated based on the number of students in the open enrollment program. State
equalization aid is also calculated using the number of students in the district. The State equalization aid, special
aid, and open enrollment aid are included in the payments for State General Aid. Therefore, changes in the student
population within a district resulted in adjustments impacting the June 15, 2009, State General Aid payment.
Final Report
ED-OIG/A02K0005                                                                                   Page 5 of 15
SFSF funds were ES and how much were GS until September 2009. However, this notification
was based on the award amounts recorded outside WiSMART and not the actual payment
amount recorded in WiSMART. According to DPI officials, it was not the normal course of
business for DPI to notify the LEAs to separately track funds in the State General Aid payments.
DPI’s acting director of School Financial Services Team stated that DPI did not know exactly
when LEAs incurred the expenditures but that the expenditures were incurred during State
FY 2008-2009 (July 1, 2008, through June 30, 2009). As a result, LEAs, in particular the 29
LEAs mentioned under State-level Tracking, may not be able to track ES and GS funds to actual
expenditures.

DPI’s School Financial Services Team performed an analysis to provide assurance that each
LEA had sufficient expenditures to account for SFSF funds in accordance with ARRA
requirements. The acting director stated that most of the expenditures were for salaries and
benefits. However, LEAs applied blocks of expenditures to SFSF based only on pools of cost
categories, instead of separately accounting for specific expenditures. Therefore, LEAs may not
be able to trace SFSF ES and GS funds to actual expenditures. 10 This could significantly impact
the reliability of the sub-vendor information reported by LEAs for SFSF funds. If LEAs cannot
trace SFSF funds to actual expenditures, the LEAs will not be able to identify associated vendor
information as required by § 1512.

According to DPI officials, DPI originally was not aware that it needed to account for and track
the two components of SFSF (ES and GS) funds separately. LEAs were going to experience a
severe shortfall in State General Aid for the FY 2008-2009. DPI was directed by WI Legislature
and the WI Governor’s Office to work quickly to include the SFSF funds in the June 15, 2009,
State General Aid payment to offset the budgetary shortfall for the LEAs. However, because of
time constraints, they did so without verifying whether the LEAs had enough actual expenditures
allowable under the SFSF program.

DPI did perform an after-the-fact analysis in February 2010 based on pools of cost categories to
try to estimate whether each LEA had enough allowable expenditures to which SFSF funds could
be applied. The analysis consisted of a calculation that started with each LEA’s expenditures for
FY 2008-2009 and then deducted pools of cost categories that were unallowable under the SFSF
program, such as maintenance and vehicle acquisition, to arrive at the “General Fund
Expenditures with Adjustments” for each LEA. The “General Fund Expenditures with
Adjustments” was prorated for the period of availability11 under the assumption that expenses
were incurred by the LEAs at a uniform daily average over the entire year. DPI’s monitoring
strategy relied on the expectation that the Independent Public Accountant (IPA) would audit
SFSF funds when single audits were performed. We note that this expectation is not reasonable,
because at certain LEAs the IPAs did not review SFSF funds because they either did not have the
audit guide in time or did not document the work that they performed.

However, DPI’s analysis was not adequate to ensure LEAs had incurred enough allowable
expenditures within the period of availability for its SFSF funds because the calculation (1) was

10
   We currently are reviewing expenditures in more detail at one LEA, Milwaukee Public Schools, and plan to report
the results in a separate report.
11
   The period of availability for SFSF funds began March 23, 2009.
Final Report
ED-OIG/A02K0005                                                                       Page 6 of 15
based on categories of expenditures that were not always verified by the IPA 12 and (2) used a
prorated amount based on a daily uniform average instead of actual expenditures incurred during
the period of availability. At the time DPI performed the analysis, information about the actual
expenditures charged to SFSF was available through the LEAs. Had DPI used actual
expenditure data during its after-the-fact analysis instead of a uniform daily average over the
entire year, it may have obtained reasonable assurance that ARRA funds were used in
accordance with applicable laws, regulations, and guidance.

For the remainder of its SFSF funds, DPI plans to require the submission of grant applications
and claim forms from LEAs. However, as a result of circumstances described above surrounding
the distribution of SFSF funds, the WI Governor’s Office and DPI did not comply with
requirements regarding transparency, reporting, and accountability expected for ARRA funds.
Because the WI Governor’s Office and DPI did not properly account for and track SFSF ES and
GS funds, there is insufficient assurance that the SFSF funds were used for allowable purposes
and incurred within the period of availability.

Recommendations
We recommend the Assistant Secretary for Elementary and Secondary Education require the WI
Governor’s Office and DPI to —

1.1         Implement procedures to ensure its remaining SFSF ES and GS funds are properly and
            separately accounted for and tracked.

1.2         Conduct reviews based on risk associated with LEAs that received SFSF funds in
            FY 2008-2009 to determine whether the funds were used for allowable activities and
            incurred within the period of availability, and return to ED any unallowable costs.

1.3         Reconcile, for the 29 LEAs mentioned in this finding, the difference between the
            payments amounts recorded in WiSMART and the award amounts recorded in the
            Microsoft Excel spreadsheet.

DPI and ORR Comments

DPI and ORR stated that it did not believe the report accurately depicted DPI’s role in the
allocation and distribution of SFSF and could lead the reader to inaccurate conclusions. DPI
stated that many of the decisions relating to the administration of the SFSF program were outside
DPI’s control. According to DPI and ORR, the Wisconsin Legislature passed the 2009
Wisconsin Act 23, which appropriated SFSF ES and GS funds on June 11, 2009. Enactment of
this legislation occurred one business day prior to the release of $1.6 billion in State general aid,
which was statutorily required by the State. The 2009 Wisconsin Act 23, combined with the
2009 Wisconsin Act 11 enacted on May 15, allocated $552.3 million in SFSF to replace an
equivalent amount of State funding.

DPI and ORR stated that because of this timing, DPI had to conduct an after-the-fact analysis on
LEA expenditures. According to DPI and ORR, approximately 30 percent of the school year
12
     For more information on this, see Finding No. 2.
Final Report
ED-OIG/A02K0005                                                                      Page 7 of 15
remained between March 23 and the end of the school year. In addition, the $552.3 million in
SFSF distributed to LEAs in FY 2008-2009 accounted for approximately 5.8 percent of total
non-Federal LEA expenditures for that fiscal year. Based on this, DPI is confident that enough
allowable expenditures existed within the period of eligibility.

Furthermore, on May 21, 2009, ED informed DPI and the WI Budget Office that they could
apply SFSF funds to expenditures dating back to March 23, 2009, as long as assurances were
signed by LEAs. DPI understood this to mean that ED did not require the claim process to
proactively track funds to specific expenditures.

DPI and ORR concurred with Recommendation 1.1 and stated that they had implemented
appropriate procedures to ensure its remaining SFSF ES and GS funds are properly and
separately accounted for and tracked. However, DPI did not agree with Recommendation 1.2
because they believe it suggests that DPI’s review process was not sufficient. DPI and ORR
stated that performing a review now would be unnecessary because no new information is
available and there is no evidence of unallowable costs.

Office of Inspector General (OIG) Response

Based on DPI’s and ORR’s comments, we modified Finding No. 1 and Recommendation 1.2.
We also added Recommendation 1.3. We acknowledge that the circumstances under which
SFSF funds were appropriated for FY 2008-2009 created difficulties in the administration of the
funds. However, our conclusion that the administration of SFSF for FY 2008-2009 did not allow
for proper tracking remains unchanged.

With ARRA’s heavy emphasis on accountability and transparency, we maintain that DPI did not
adequately track SFSF ES and GS funds at the State level. Specifically, we noted that for 29
LEAs, the amounts awarded did not match the actual payment amounts.

We also maintain that DPI’s after-the-fact analysis was not adequate to ensure LEAs had
incurred enough allowable expenditures within the period of availability for its SFSF funds. The
analysis was inadequate because the calculation: (1) was based on categories of expenditures that
were not always verified by the IPA and (2) used a prorated amount based on a daily uniform
average instead of actual expenditures incurred during the period of availability. In addition, this
analysis was based on the amounts awarded to LEAs instead of the actual payments made to
LEAs using SFSF ES and GS funds. Further, based on the nature of the analysis, and the fact
that DPI did not inform LEAs that the ES and GS needed to be tracked separately, DPI could not
be reasonably assured that LEAs properly accounted for SFSF ES funds separately from SFSF
GS funds. As a result, the WI Governor’s Office and DPI did not have reasonable assurance that
the SFSF funds were used for allowable purposes and incurred within the period of availability
or adequately tracked by LEAs. Although DPI and WI’s Budget Office obtained approval from
ED to apply SFSF funds to expenditures dating back to March 23, 2009; our finding remains
unchanged as the WI Governor’s Office and DPI did not comply with requirements regarding
transparency, reporting, and accountability expected for ARRA funds.
Final Report
ED-OIG/A02K0005                                                                                      Page 8 of 15
FINDING NO. 2 − DPI Needs to Improve its Fiscal Monitoring Over ARRA Funds

DPI’s program officials provided extensive ARRA guidance and technical assistance to LEAs
through webinars and “frequently asked questions” and “late breaking information” posted to
DPI’s Economic Recovery and Reinvestment Web site. 13 However, DPI did not perform
sufficient monitoring of expenditures to ensure LEAs complied with Federal fiscal requirements
related to use of and accounting for ARRA Title I and IDEA funds. In addition, DPI had not
established subrecipient monitoring procedures for SFSF funds disbursed to LEAs.

34 Code of Federal Regulations (C.F.R.) Part 80 addresses the State educational agency role in
monitoring subrecipients. According to 34 C.F.R. § 80.40(a), 14

         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.

Furthermore, ED issued additional guidance on December 24, 2009, in response to questions
received from some auditors performing single audits. It is specifically geared to clarifying
matters in light of the auditors’ questions on recordkeeping, documentation, and reporting. ED’s
Guidance for Grantees and Auditors on State Fiscal Stabilization Fund Program dated
December 24, 2009, stated:

         Because of the unique characteristics of this program . . . while the specific requirements
         in the OMB Circulars that apply cost principles, such as, OMB Circulars A-21 and A-87,
         do not apply to SFSF funds, expenditures attributed to the SFSF program must still be
         “reasonable and necessary,” and consistent with applicable State and local requirements.

DPI’s monitoring of LEA expenditures included reliance on the single audits conducted by IPAs.
DPI’s School Finance and Management Services Team provided oversight to 35 audit firms
hired by LEAs to perform single audits. 15 However, single audits are not performed until well
after the funds are expended. DPI required the IPAs to complete the audits by the first of
December each year; and DPI’s Financial Services Team officials reviewed the audits in January
and February. We also determined that not all IPAs performed testing on LEA SFSF
expenditures for the FY 2008-2009 single audits.

DPI did not have sufficient policies and procedures for fiscal monitoring, such as risk-based
monitoring, to ensure LEAs complied with Federal fiscal requirements related to use of and
accounting for ARRA Title I and IDEA funds. According to the DPI’s School Management
Services Team accountants for the Federal Aids and Audit Section, DPI did not conduct
monitoring of actual expenditures claimed for reimbursement on Form PI-1086 to determine

13
   There were “frequently asked questions” on DPI’s Web site for the Title I and IDEA programs that explain the
guidelines for ARRA use of funds and data reporting in a question and answer format.
14
   This regulatory citation is to the July 1, 2009, volume.
15
   DPI’s oversight includes continuous correspondence (phone calls, e-mails, updates to the Web site, and list serve
messages), as well as a conference for the IPAs where DPI provides coverage of single audits of Federal programs
and updates on WI programs.
Final Report
ED-OIG/A02K0005                                                                                         Page 9 of 15
whether expenditures were supported and allowable under Title I and IDEA. 16 In addition, DPI
did not conduct sufficient onsite fiscal monitoring that included adequate procedures to ensure
LEAs complied with Federal fiscal requirements related to LEAs’ use of and accounting for
ARRA Title I and IDEA funds. Although DPI’s onsite monitoring protocol included a section
covering fiduciary responsibility for Title I, it required only one example documenting how
expenditures for Title I were directly related to the approved budget and the ESEA Consolidated
Program Plan. This may not be sufficient fiscal monitoring to provide reasonable assurance that
ARRA expenditures were allowable. Using a risk-based strategy to identify LEAs for fiscal
monitoring would allow DPI to concentrate its time and effort on verifying and ensuring that
expenditures were allowable and supported at those LEAs it designates as higher risk. 17

Furthermore, DPI did not require LEAs to submit claim forms for more than $552 million in
SFSF funds that it distributed to them. 18 SFSF funds were distributed to LEAs as part of their
June 15, 2009, payment for State General Aid. These funds were not subject to the same internal
controls as other Federal funds administered by DPI. This may further increase the risk of funds
being spent inappropriately. Because some IPAs did not include the SFSF program in their LEA
single audits for FY 2008-2009, some of these funds remain unaudited.

As a result of DPI’s insufficient fiscal monitoring, coupled with the current economic climate
and resulting budget constraints, the risk may increase that LEAs will charge unallowed or
unsupported expenditures to ARRA grants and retain cash advances by requesting payment for
expenditures that have not been incurred. Without proper fiscal monitoring, payments for
unallowable LEA expenditures may go unnoticed. Audits that occur well after payments are
disbursed to the LEAs are performed too late to ensure early detection of the inappropriate use of
funds.

DPI officials stated that DPI had begun to implement OIG’s recommendations by identifying a
number of high-risk school districts and requiring expenditure documentations from these school
districts prior to payment.

Recommendations
We recommend the Assistant Secretary for Elementary and Secondary Education in conjunction
with the Assistant Secretary for Special Education and Rehabilitative Services require DPI
to —

2.1      Incorporate into its current procedures risk-based fiscal monitoring and timely oversight
         of LEA compliance with fiscal requirements related to the appropriate use of and
         accounting for Title I and IDEA ARRA funds.



16
   DPI required LEAs to prepare and submit Form PI-1086 to receive reimbursement for grants. The Form PI-1086
contained a specific grant number, the approved budget, total disbursements, unencumbered balances, and amount
requested for the particular claim.
17
   A risk-based monitoring strategy is a process that uses indicators to assess the relative risk that an LEA will fail to
properly carry out administrative requirements and programmatic activities.
18
   As stated in Finding No. 1, the LEAs already incurred expenses that they expected to be reimbursed with the SFSF
funds.
Final Report
ED-OIG/A02K0005                                                                                     Page 10 of 15
We recommend the Assistant Secretary for Elementary and Secondary Education require the WI
Governor’s Office to require DPI to —

2.2     Implement comprehensive subrecipient monitoring procedures based on risk to ensure
        timely and adequate oversight of LEAs’ administration and use of SFSF funds consistent
        with ED guidance.

DPI and ORR Comments

DPI and ORR did not concur with this finding in its entirety but did indicate that it concurred
with and implemented the two associated recommendations. DPI stated that it had well
established fiscal monitoring procedures in place prior to the awarding of ARRA funds. DPI’s
fiscal monitoring procedure consisted of: (1) on-site monitoring visits conducted annually for
Title I; (2) the Wisconsin Uniform Financial Accounting Requirement (WUFAR) system, which
allows DPI and LEAs to track funding sources and identify expenditures associated with funding
sources; (3) approved grant applications, which were required before ARRA funds were
distributed to an LEA; and (4) site visits to the LEA’s IPAs.

OIG Response

We acknowledge that DPI had fiscal monitoring procedures in place prior to ARRA. In response
to DPI’s and ORR’s comments, we revised language in the report to clarify that DPI had fiscal
monitoring procedures, but we do not believe they were sufficient to provide adequate fiscal
monitoring over actual ARRA expenditures. To help ensure that DPI complies with Federal
fiscal requirements related to use of and accounting for ARRA Title I, IDEA, and SFSF funds
disbursed to LEAs, DPI could use a risk-based strategy that would allow it to concentrate its time
and effort on verifying and ensuring that expenditures were allowable and supported at those
LEAs it designates as higher risk. Possible indicators to use in assessing the LEAs risk level
could include certain factors related to each LEA’s fiscal condition, timeliness of reporting,
results of external audits, and results of OMB Circular A-133 single audits.

FINDING NO. 3 − DPI and ORR Need to Improve Procedures to Ensure ARRA § 1512
                Data Are Accurate and Complete

DPI and the WI Governor’s Office developed and implemented many proactive steps to meet
§ 1512 data reporting requirements. DPI developed surveys and spreadsheets to collect jobs data
from LEAs and procedures to review the jobs data it collected. DPI also effectively used its Web
site to update LEAs on ARRA matters. The WI Governor’s Office established ORR to
coordinate the State’s data collection efforts and meet the data reporting requirements. 19 ORR
adopted specific software and developed checklists to collect and review data from State
agencies before submitting it to FederalReporting.gov. However, the jobs data reported were not
always accurate and complete. DPI and ORR were very responsive during our audit in taking
steps to rectify the issues relating to the quality of the § 1512 data.

19
 One of ORR’s roles is to coordinate WI’s compliance with the reporting and accountability requirements in
ARRA. Its responsibilities include (1) collecting § 1512 data from all WI State agencies, (2) performing certain
procedures to evaluate the reasonableness of the data, and (3) submitting data to FederalReporting.gov.
Final Report
ED-OIG/A02K0005                                                                                     Page 11 of 15
OMB Implementing Guidance for the Reports on Use of Funds Pursuant to the American
Recovery and Reinvestment Act of 2009, dated June 22, 2009, states prime recipients, as owners
of the data submitted, have the principal responsibility for the quality of the information
submitted. Also, the prime recipient should implement internal control measures as appropriate
to ensure accurate and complete information and perform data quality reviews for material
omissions and/or significant reporting errors, make appropriate and timely corrections to prime
recipient data, and work with the designated subrecipient to address any data quality issues.

According to OMB Implementing Guidance for the Reports on Use of Funds Pursuant to the
American Recovery and Reinvestment Act of 2009, material omissions include instances where
missing required data result in significant risk that the public is not fully informed as to the status
of the project or activity. The significant reporting errors include instances where inaccurate
data results in a significant risk that the public will be misled or confused.

Based on supporting documentation, DPI and ORR underreported the “number of jobs”
attributable to the SFSF program, because DPI and ORR did not have adequate procedures to
ensure subrecipients’ submission of data was timely and accurate. Further, the jobs data DPI
reported for Title I and IDEA were not calculated using the methods from OMB Updated
Guidance on the American Recovery and Reinvestment Act – Data Quality, Non-Reporting
Recipients, and Reporting of Job Estimates, because the guidance came out 4 days after DPI
received the jobs data from LEAs. This guidance was issued on December 18, 2009, which is
too late for DPI to re-create the survey using the new guidance. In March 2010, DPI revised the
jobs data for Title I and IDEA to reflect the job numbers calculated under the new guidance.

Jobs Data for SFSF Program Underreported
DPI and ORR underreported the number of jobs created or retained using SFSF funds.
Specifically, we found that DPI did not include the jobs data from 24 LEAs for SFSF GS and
from 22 LEAs for SFSF ES. According to DPI’s senior accountant of the School Financial
Services Team, the jobs data for SFSF from the above LEAs were not reported because the
LEAs did not respond timely to the online survey.

For the LEAs that did report data, we found that (1) the number of jobs reported for SFSF GS
was underreported by 152.26 (75.06 from DPI and 77.20 from ORR); 20 and (2) the number of
jobs for SFSF ES was underreported by 5.8. 21 The senior accountant of DPI’s School Financial
Services Team indicated the missing jobs were from an LEA that provided the job information
late to DPI. In addition, ORR’s recovery compliance coordinator stated the DOC jobs data were
underreported because DOC did not report the right job number to ORR. As a result, DPI did
not include complete jobs data in the second § 1512 quarterly report and did not report the errors
to ED as advised by ED’s Clarifying Guidance on American Recovery and Reinvestment Act of
2009 Section 1512 Quarterly Reporting, dated October 5, 2009. 22


20
   The total number of jobs reported for SFSF GS was 2,221, which was composed of 1,570.96 from DOR, 572.90
from DPI, and 77.20 from DOC.
21
   The total number of jobs reported for SFSF ES was 3,931.6.
22
   The second § 1512 quarterly report referred to in this audit report was the December 31, 2009, § 1512 quarterly
report which we obtained on February 1, 2010.
Final Report
ED-OIG/A02K0005                                                                        Page 12 of 15
Both DPI and ORR officials stated that they had intended to make corrections to the jobs data by
March 31, 2010. However, ORR missed the opportunity to correct the SFSF program jobs data
for the second quarterly report ended December 31, 2009. According to ORR’s recovery
compliance coordinator, ORR did not correct the SFSF program jobs data because
FederalReporting.gov was closed on March 15, 2010, two weeks earlier than the
March 31, 2010, date stated in the OMB December 18, 2009, guidance. ORR’s recovery
compliance coordinator further stated that because he did not receive any communication on the
early closing of the Web site, he thought recipients had until March 31, 2010, to make
corrections. In addition, ORR’s recovery compliance coordinator stated that the number of jobs
reported for the SFSF program has been corrected. However, OIG could not verify the corrected
job numbers because no supporting documentation was provided.

Timing of OMB’s Guidance Affected Compliance with the Second § 1512 Quarterly Report
Jobs Data
The number of jobs reported for Title I and IDEA for the second § 1512 quarterly report were
calculated using OMB guidance dated June 22, 2009, and not the updated December 18, 2009,
guidance. DPI officials stated that the jobs data it collected from the LEAs were calculated on a
cumulative basis. Therefore, jobs were overstated in the jobs data included in the second § 1512
quarterly report jobs. DPI officials also stated that they included jobs created as a result of, but
not directly funded by, ARRA programs. Per OMB Updated Guidance on the American
Recovery and Reinvestment Act – Data Quality, Non-Reporting Recipients, and Reporting of Job
Estimates, dated December 18, 2009, recipients should report jobs created or saved in that
quarter and not on a cumulative basis. It also states that recipients should report a job only if the
job was funded by ARRA. DPI did not follow the updated guidance because the guidance came
out 4 days after DPI received the jobs data from LEAs through the surveys. DPI officials further
stated that they planned to correct the jobs data by March 31, 2010, by sending another online
survey based on the new guidance to LEAs to collect jobs data for the second § 1512 quarterly
report. After notifying ED of the overstatement, DPI revised the jobs data for Title I and IDEA
for the second § 1512 quarterly report using the jobs data collected in March 2010 from LEAs.

Recommendations
We recommend the Assistant Secretary for Elementary and Secondary Education in conjunction
with the Assistant Secretary for Special Education and Rehabilitative Services require the WI
Governor’s Office and DPI to —

3.1    Notify and work with ED to resolve data errors or omissions to ensure the data are
       accurate and complete.

3.2    Develop and implement additional control measures to ensure that:
       (1) the subrecipients’ data are accurate and submitted timely, and
       (2) any material omissions and/or significant reporting errors detected are corrected in a
           timely manner, or develop alternative methods, with the approval of ED, to obtain the
           needed LEAs data to ensure compliance with the §1512 reporting requirements.
Final Report
ED-OIG/A02K0005                                                                                  Page 13 of 15
DPI and ORR Comments

DPI and ORR did not state whether they agreed or disagreed with this finding, but they agreed
with the associated recommendations. DPI and ORR stated that it did not use the
December 18, 2009, guidance for the jobs data because (1) DPI did not have sufficient time to
reissue a new survey to its LEAs and (2) the LEAs would not have been available to respond
even if a new survey had been available.

For Recommendation 3.1, DPI concurred with this recommendation and will work with ORR
and ED to resolve data errors or omissions to ensure the data are accurate and complete. DPI
and ORR stated that there is no guidance for correction of errors once the data have been posted
to Recovery.gov. Accordingly, DPI has submitted emails to ED program officers identifying
corrections and stating that when OMB gives DPI and ORR the opportunity to submit
corrections, they will do so.

For Recommendation 3.2, DPI and ORR stated that they have and will continue to refine their
internal controls and procedures to ensure subrecipients’ data are accurate and reported timely.
This includes improvements to the data collection surveys, confirming month end balances,
working with ORR on data control sheets for the § 1512 reports, and conducting grant data
validation.

OIG Response

Although OIG acknowledges that DPI’s and ORR’s receipt of the December 18, 2009 guidance
was untimely, we also agree that they should improve the data collection procedures and work
with ED program officers to identify and correct any material errors or omissions to ensure the
completeness and accuracy of the § 1512 data.

                                          OTHER MATTERS

During the audit, we identified certain isolated issues related to the § 1512 data. In particular, we
found that (1) DPI incorrectly reported the “total federal ARRA received” 23 for Title I in its
second § 1512 quarterly report, and (2) DPI and ORR did not always report award information
with the correct subrecipient Data Universal Numbering System’s (DUNS) numbers or names.
These issues were not reported to ED as advised by ED’s Clarifying Guidance on American
Recovery and Reinvestment Act of 2009 Section 1512 Quarterly Reporting.

We found that DPI reported the amount that it disbursed to the LEAs instead of the amount it
drew down as the “total federal ARRA received” in its second § 1512 quarterly report. DPI
reported that it had received $3,152,842 in Title I funds, but ED’s record showed that DPI had
drawn down $3,158,326. DPI also did not have procedures in place to reconcile the amount
disbursed based on information from DPI’s general ledger to the amount drawn down based on
information from the WI Department of Administration’s Cash Management System. As a


23
 The Federal Register Vol. 74, No 61, 14825, states the “total federal ARRA received” is the cumulative amount of
actual cash received from the Federal agency as of the reporting period end date.
Final Report
ED-OIG/A02K0005                                                                        Page 14 of 15
result, DPI underreported the “total federal ARRA received” for Title I and increased the risk of
reporting inaccurate and incomplete data.

DPI did not always report award information with the correct subrecipient DUNS numbers or
names in its § 1512 quarterly report. Based on the second § 1512 quarterly report posted on
Recovery.gov and the payment information from DPI, we determined that of the more than 425
LEAs in WI, DPI reported (1) four awards for one LEA under another LEA’s DUNS number and
name, (2) two awards under an incorrect LEA name and DUNS number, and (3) five awards for
one LEA with two different DUNS numbers. According to OMB Implementing Guidance for
the Reports on Use of Funds Pursuant to the American Recovery and Reinvestment Act of 2009,
significant reporting errors include instances where inaccurate data result in a significant risk that
the public will be misled or confused. Without the correct DUNS numbers and names, the public
would not be able to identify the correct subrecipients of the ARRA funds.

                              SCOPE AND METHODOLOGY

The purpose of our audit was to determine, for the reporting period ending December 31, 2009,
whether WI (1) used ARRA funds in accordance with applicable laws, regulations, and
guidance; and (2) reported data were accurate, reliable, complete, and in compliance with ARRA
reporting requirements. We performed this audit at the WI Governor’s Office and DPI located in
Madison, Wisconsin. Our audit covered DPI’s and the WI Governor’s Office’s use of funds,
which included cash management, and the quality of data submitted to FederalReporting.gov to
comply with § 1512 reporting requirements for the second quarterly reporting ending
December 31, 2009. Our audit work focused on ARRA Title I, IDEA, and SFSF grants. For the
SFSF program, our work focused on SFSF funds that were administered by DPI and disbursed to
LEAs.

We obtained background information about the program, activities, and organizations being
audited. To gain an understanding of the requirements applicable to use of funds and data
reporting requirements for Federal grant programs at State agencies receiving ARRA funds, we
reviewed Federal laws, regulations, OMB Circulars, and ARRA-specific guidance issued by
OMB and ED. We also reviewed grant applications from WI to ED.

We interviewed DPI’s Title I Program and School Support Team, assistant director, grant
specialists, consultant, and accountants. We also interviewed DPI’s Special Education Team,
director of Special Education, grant specialist, consultants, special education data coordinator,
and accountant. In addition, for the SFSF program, we interviewed DPI’s director and acting
director of the School Financial Services Team, accountant, and auditor. We also met with the
WI assistant State superintendent – Division for Finance and Management, and officials from the
WI Governor’s Office, including representatives from the Budget Office and ORR. We
performed audit steps to provide reasonable assurance of compliance with Federal requirements
by the prime recipients in the following areas:

Use of Funds: We reviewed DPI’s controls for receiving, managing, and disbursing ARRA
funds. We also determined whether DPI had policies and procedures in place for correctly
calculating and timely remitting interest earned on Federal cash balances. In addition, we
Final Report
ED-OIG/A02K0005                                                                    Page 15 of 15
determined whether the WI Governor’s Office and DPI had adequate controls in place to
minimize the time between receipt of Federal funds and disbursement. We determined this
through interviews and observation performed at DPI’s School Management Services Team and
the WI Treasury Division. We evaluated DPI’s allocation and distribution of ARRA Title I,
IDEA, and SFSF funds for cash drawdowns and reimbursement requests.

We reviewed DPI’s procedures for approving and accounting for ARRA expenditures, including
the ability to separately account for ARRA funds. We obtained information regarding the
control structure and environment through observation of the claim process and interviews with
DPI’s School Management Services Team. We discussed with officials of DPI’s School Finance
and Management Division it’s monitoring of LEAs and reviewed the various documents
including checklists it used to review the work of IPAs. We reviewed guidance posted on DPI’s
Web site on the proper expenditure of funds. We will review expenditures in more detail during
our LEA review and report the results in a separate report.

Data Quality: We reviewed (1) DPI’s and ORR’s procedures to collect and report “number of
jobs” and (2) DPI’s procedures to collect and report “award amount,” “total federal ARRA
received,” and “total federal ARRA expended” for the quarterly information required by § 1512.
We performed an assessment of the reliability of computer-processed data by comparing the
payment data from WiSMART to “total federal ARRA expended” and “total federal ARRA
received” in the § 1512 quarterly report. To determine whether the data were accurate, reliable,
complete, and in compliance with ARRA reporting requirements, we analyzed supporting
documents provided by DPI and ORR for the above elements for more than 425 subrecipients.
We then compared the information provided by DPI and ORR with what was posted to
Recovery.gov. Based on our testing, the data were deemed appropriate for the intended purpose
of the audit.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.
Attachment 1




     1
Attachment 1




     2
                                          Attachment 1


Responses to Results Section
The concern that DPI and ORR share regarding the tone of the draft audit report begins on page
1 of 12 [Final Report page 1 of 15] in the Results section of the OIG Draft Audit Report. Here,
OIG makes the following statements:
• "Specifically, the distribution of SFSF funds did not allow for proper tracking of
    expenditures at the State and LEA levels and DPI needs to improve its monitoring over
    ARRA funds."; and
• "…DPI did not properly account for the two components of SFSF the program…."

We believe that both of these statements are somewhat misleading. The “distribution” of SFSF
funds didn’t cause improper tracking and DPI did properly account for the Education Services
(ES) and Government Services (GS) components of the SFSF funds.

It might be more appropriate to describe that action by the Wisconsin Legislature on May 15,
2009 and on June 11, 2009 that included the substitution of SFSF GS funds and SFSF ES funds
to replace $552.3 million of reductions in state financial support for elementary and secondary
education caused or led to an insufficient tracking of the ARRA SFSF funds. Other relevant
supporting information follows:
a.             The two State bills that required DPI to allocate $552.3 million of SFSF to replace
    equivalent reductions in state support for elementary and secondary education were enacted
    on May 15, 2009 ($291 million under 2009 Wisconsin Act 11) and June 11, 2009 ($261.3
    million under Wisconsin Act 23).
b.             It was not until the passage of Act 23 on June 11, 2009 that GS funds were
    appropriated to offset reductions in state K-12 support.

DPI did properly account for the two components of the SFSF program as described in more
detail below.

Responses to Finding #1
Our next area of concern is within Finding One, on page 3 of 12 [Final Report page 3 of 15]
which describes how the method used in distributing SFSF funds did not allow for proper
tracking. OIG also notes here that DPI used its SFSF allocation to fill the shortage in State
General Aid for LEAs rather than identifying that DPI had been directed by the State Legislature
to use SFSF funds for this purpose. The specific OIG references are included below:
•               "However, the method used in distributing SFSF funds did not allow for proper
    tracking of specific SFSF Program expenditures at the State and LEA levels.
•               “In addition, DPI's method of distributing SFSF funds could prevent LEAs from
    being able to trace ES and GS funds to specific actual expenditures."
•               “DPI used its SFSF allocation to fill the shortage in State General Aid for LEAs."

We believe that these statements are misleading and do not accurately depict DPI's role in the
allocation and distribution of SFSF. Together, these statements imply that (a) DPI chose how to
use the SFSF funds and how to distribute them; (b) SFSF funds were not properly tracked; and
(c) ES and GS funds could not be tracked separately and properly. We feel that each of these
statements is partially inaccurate and as such could lead the reader to inaccurate conclusions.


                                                3
                                           Attachment 1


With respect to DPI’s role and distribution methodology: As will be noted several times in this
response, it is not the distribution method that impacts the ability to track SFSF monies or
expenditures. The distribution method is the state’s equalization aid formula. Rather, the
circumstances under which the funds were appropriated are responsible for creating difficulties –
specifically, these circumstances made it impossible to construct a system that required LEAs to
identify specific allowable expenditures prior to receiving SFSF monies and using those monies
to fund those allowable expenditures. The state’s rapidly deteriorating fiscal climate necessitated
action by the Legislature, which included expending SFSF monies unexpectedly in late fiscal
year 2008-09. In fact, as explained in our cover letter, appropriation of GS funds for State
General Aid occurred just one business day prior to the required June 15, 2009 aid payment.
DPI was statutorily required to implement the Legislature’s directive to use the SFSF allocation
to fill the shortage in the State General Aid for LEAs in fiscal year 2008-09. We suggest that it
was the state’s fiscal condition and the resulting statutory requirements that created difficulty in
tracking funds and expenditures, not DPI’s distribution methodology.

Further, DPI strongly believes that the method used to distribute SFSF funds was required under
ARRA s. 14002 (a)(2)(A), "The Governor shall first use the funds … to provide the amount of
funds, through the State's primary elementary and secondary funding formulae" needed to restore
the levels of state support in fiscal years 2009, 2010 and 2011 to the greater of the fiscal year
2008 or 2009 level." To comply with the ARRA requirement, 2009 Wisconsin Acts 11 and 23
allocated the SFSF to the State's General Equalization Aid appropriation. In addition, the fact
that SFSF funds were distributed using the State equalization aid formula did not result in
districts being unable to track the specific expenditures. The method of payment combined the
two funds for cash distribution, but LEAs were able to identify SFSF allocations separately from
the general aid using a separate account code provided by DPI.

With respect to tracking SFSF funds generally: By enacting 2009 Wisconsin Act 11 on May 15,
2009, the Legislature required DPI to use SFSF funds in fiscal year 2008-09, which had been
unanticipated previously. DPI immediately sought assistance from the U. S. Department of
Education (ED). During its May 21, 2009 teleconference, ED informed DPI and the State
Budget Office that LEAs could apply SFSF funds to expenditures dating back to March 23, 2009
so long as assurances were signed. By permitting LEAs to apply SFSF funds to past
expenditures, DPI understood that ED sanctioned the use of SFSF monies to reimburse LEAs for
funds already spent, thereby precluding a claims process that proactively tracks a specific dollar
to a specific expenditure. DPI was confident that enough allowable expenditures existed within
the period of eligibility (after March 23, 2009) to absorb the $552.3 million in SFSF distributed
to LEAs on June 15, 2009.

With respect to tracing ES and GS funds separately: We also believe that DPI provided LEAs
with the tools necessary to assign ES and GS funds to specific and actual expenditures. It is true
that extreme circumstances prevented this from happening in advance of expenditures, or
through a claims- or application-type process. The Legislature did not appropriate GS SFSF
funds until one business day prior to the June 15, 2009 State General Aid payment. We believe
that the short time frame between the Legislature’s directive in Act 23 and the June 15 payment
was the cause of difficulty in separately tracking ES and GS funding and was not within DPI’s
control. Due to the short turn-around time to provide districts with the ability to track their

                                                 4
                                          Attachment 1


expenditures for the SFSF – ES and GS, DPI calculated each LEA's SFSF payment portion as 87
percent ES and 13 percent GS. These percentages were proportionate to the amounts drawn
from the Federal Cash Management system under the ES and GS codes.

Of note is that it is standard procedure for the School Financial Services team to provide LEAs,
via DPI’s School Financial Services team website, with a list of coding for federal and state
programs administered by DPI. This document is continually updated for newly created account
codes and was updated on May 20, 2009 with the new SFSF project code number 810 to be used
in tracking or identifying SFSF expenditures. In a DPI list serve dated June 16, 2009, districts
were notified that the ARRA funds would not be treated as low-risk programs for federal single
audit purposes and that many districts would be required to have a federal single audit as a result
of the SFSF funds. Based on that notification, LEAs were aware of the need to be able to
identify the expenditures funded by ARRA for audit purposes. We believe the short time frame
between the Legislature's directive in Act 23 and the June 15 payment was the cause of difficulty
in separately tracking ES and GS funding prior to payment and was not within DPI’s control.
Further, SFSF monies used in the June 15, 2009 payment functioned as a reimbursement for
costs already incurred. Under Acts 11 and 23, DPI was statutorily required to pay the funds only
two weeks before the close of fiscal year 2008-09, at which time most school years had
concluded and most expenses had been paid. Therefore, our method of distribution – the state
equalization aid formula – does not contribute to tracking difficulties.

Our next area of concern regarding tone is within Finding One in the LEA-level Tracking
section, on pages 4 and 5 of 12 [Final Report pages 4 and 5 of 15] and is focused on how the
method used in distributing SFSF funds did not allow for proper tracking. OIG also notes here
that DPI used its SFSF allocation to fill the shortage in State General Aid for LEAs rather than
identifying that DPI had been directed by the State Legislature to use SFSF funds for this
purpose. The specific OIG references are included below:
•           "However, as a result of DPI’s process for distributing SFSF funds, LEAs applied
    blocks of expenditures to SFSF based only on pools of cost categories, instead of separately
    accounting for specific expenditures." (p.4 of 12) [Final Report page 5 of 15]
•           “However, DPI’s analysis was not adequate to ensure LEAs had incurred enough
    allowable expenditures within the period of availability for its SFSF funds because the
    calculation (1) was based on cost categories that were not verified and (2) used a prorated
    amount based on a daily uniform average instead of actual expenditures incurred during the
    period of availability.” (p.4 of 12) [Final Report pages 5 and 6 of 15]
•           “As a result of DPI's methodology for disbursing its SFSF funds, DPI did not comply
    with ARRA's requirement regarding transparency, reporting, and accountability." (p. 5 of 12)
    [Final Report page 6 of 15]
•           “Because DPI did not properly account for and track SFSF ES and GS funds, there is
    insufficient assurance that the SFSF funds were used for allowable purposes and accrued
    within the period of availability.” (p.5 of 12) [Final Report page 6 of 15]

Since the amount of the SFSF needed to restore the fiscal year 2008-09 level of state support was
not determined until June 11, 2009, DPI had little choice but to conduct an after-the-fact analysis
of the amount of expenditures that occurred within the period of availability, which began on
March 23, 2009. Approximately 30% of the school year remained between March 23 and June

                                                 5
                                          Attachment 1


12 (the end of the school year for virtually all Wisconsin school districts). The $552.3 million in
SFSF distributed to LEAs in fiscal year 2008-09 accounted for approximately 5.8% of total non-
federal school district expenditures in fiscal year 2008-09, DPI is confident that enough
allowable expenditures existed within the period of eligibility.

The financial information that was used in the calculation was based on audited FY 2009 data
received from the LEAs. When the LEA submitted their annual data for calculation of the State
Equalization Aid, the data had been audited by an independent auditor. Therefore, the
information used in this financial analysis would have been verified at the district level through
audit procedures performed by the independent auditor. This financial analysis, as noted in the
draft audit report, was done by DPI at the state level. However, at the LEA level, districts were
provided with a mechanism to track and identify the expenditures and were informed to have the
information available to their independent auditors.

Procedures are in place to perform on-site visits of the independent audit firms. During the
2008-09 visits, DPI auditors reviewed the audits of the SFSF funds and cited several audit firms
for not properly auditing these funds per the OMB Circular A-133 compliance supplement. LEA
independent auditors are required to perform their audit work during the months of July and
August so that audited data required for the State Equalization Aid calculation is provided to DPI
by the first week of September. The addendum to OMB Circular A-133 compliance
supplement, which addresses the audit of the SFSF, was not available until August 2009. As a
result, auditors were forced to design audit procedures based on professional judgment in order
to provide data to DPI by the first week of September 2009.

As noted above, the methodology of disbursement is not the cause of difficulties in transparency,
reporting and accountability. DPI and ORR timely submit ARRA 1512 reports, work closely
with sub-recipients and the ED to ensure the accuracy and reliability of data, and post ARRA
information to the State websites and to the federalreporting.gov website.

Finally, with regard to this Finding, the report should note that DPI implemented procedures for
the allocation of SFSF for the 2009-10 fiscal year. To receive their fiscal year 2009-10 SFSF
allocations, all school districts filed an application form which was due April 16, 2010. The
form contained an authorized signature attesting to the assurances in the form. Included in the
application form was a detail of the expenditures by account code, description and amount. A
final claim was then submitted by all districts and was due to DPI by May 24, 2010. The final
claim form reflected any changes the district made regarding the use of the funds from the
original application. All applications and claims were reviewed by DPI staff and procedures
were established to assist in the review. A sample of 15 districts was selected based on risk
criteria determined by the DPI school finance auditors. The 15 districts provided supporting
documentation for the expenditures they claimed for reimbursement. All 15 districts provided
the documentation prior to the June 21 payment of the funds. All districts then filed a survey
online with DPI by June 23rd reporting the FTE and vendor information directly funded.
Districts were provided with various resources during the process of filing the application, claim
and survey.




                                                 6
                                          Attachment 1


Response to Recommendation 1.1
DPI concurs with this recommendation as written and believes that it has implemented
appropriate procedures to ensure its remaining SFSF ES and GS funds which were disbursed to
sub-recipients on June 21, 2010 are properly and separately accounted for and tracked.

Response to Recommendation 1.2
DPI does not agree with the recommendation as written as it suggests that the review process
was not sufficient. DPI strongly believes that the LEAs used the FY 2008-2009 funds for
allowable activities and that those expenditures were accrued within the period of availability.
To perform a review at this time would appear unnecessary and duplicative because (a) no new
information is available that would change or augment the audits, and (b) there is no evidence of
unallowable costs.

Response to Finding #2
DPI does not concur with Finding Number 2 in its entirety. We feel that the audit report
dismissed the comprehensive fiscal monitoring system that DPI had in place at the time of the
OIG audit. These well-established fiscal monitoring procedures were in place prior to the
awarding of ARRA, which facilitated the expediency of awarding the ARRA funds while
guaranteeing measures of accountability. In addition, extensive efforts have been carried out to
ensure that the LEA’s use of the ARRA funds are in alignment with the Act and in accordance
with applicable laws, regulations, and guidance.

In particular, DPI does not agree with the statement that DPI does not have any policies and
procedures in place requiring fiscal monitoring to ensure LEAs comply with Federal fiscal
requirements related to use of and accounting for ARRA Title I and IDEA funds. Well-
established fiscal monitoring processes were adapted to include the specific requirements of
ARRA.

•   On-site monitoring visits are conducted for Title I annually in the spring, in accordance with
    the state’s plan for monitoring Elementary and Secondary Education Act (ESEA)
    consolidated programs. When OIG visited in February 2010, the Title I site visits had not yet
    occurred. When the spring site visits were conducted in 2010, as planned, the fiduciary
    responsibility checklist was conducted for both Title I and Title I-ARRA funds. LEAs are
    required to respond to any fiscal findings and submit a corrective action plan within 30 days
    of the receipt of the monitoring report.
•   One of the foundations for DPI’s fiscal monitoring is Wisconsin’s Uniform Financial
    Accounting Requirement (WUFAR) system. All LEAs are required to use this accounting
    system when reporting financial data to the DPI. This system has been developed so that the
    DPI and the LEA can easily track funding sources and identify the expenditures associated
    with the funding source. For example, special education costs have their own government
    fund number (27) and each federal program is assigned its own unique project code. At an
    even more detailed level, special education uses unique account codes to differentiate
    between allowed costs – so detailed that contracted transportation is accounted for separately
    from non-contracted transportation. This is what enables the independent school auditors to
    easily identify the costs associated with that program.


                                                7
                                          Attachment 1


•   An additional foundation for DPI fiscal monitoring is each program’s well-established grant
    project budget and review process. No regular program or ARRA funds were distributed
    prior to an LEA having an approved grant application, which includes budget detail. In
    accordance with ARRA guidance, both the Individuals with Disabilities Education Act
    (IDEA) and Title I programs required LEAs to apply for ARRA funds separately.
•   DPI has well-established monitoring procedures which include site visits of audit firms. It
    was determined during DPI’s 2008-09 visits that in some cases ARRA funds were not
    appropriately audited. This information was provided to OIG during their audit here in
    February. The audit firms that did not review the ARRA funds were cited as not auditing the
    program in accordance with Office of Management and Budget (OMB) Circular A-133.
    However, DPI wishes to point out that the OMB Circular A-133 addendum addressing
    ARRA funds was not released until August 2009. This date is important because
    independent school auditors were performing their audits in July and August. Without this
    guidance, the audit procedures were based on an auditor’s professional judgment.

Response to Recommendation 2.1
Prior to OIG’s visit and the awarding of ARRA, DPI was developing a risk-based strategies for
fiscal monitoring of federal grant programs to even further strengthen its monitoring of these
funds. We concur with the OIG that DPI will continue to incorporate risk-based strategies into
our existing system for fiscal monitoring to verify and ensure that expenditures are allowable and
supported at those LEAs it designates as high risk.

Response to Recommendation 2.2
DPI concurs with this recommendation and implemented it for the 2009-2010 fiscal year. All
districts filed an application form which was due April 16, 2010. The form contained an
authorized signature attesting to the assurances in the form. Included in the application form was
a detail of the expenditures by account code, description and amount. A final claim was then
submitted by all districts and was due to DPI by May 24, 2010. The final claim form reflected
any changes the district made regarding the use of the funds from the original application. All
applications and claims were reviewed by DPI staff for allowable costs. A sample of 15 LEAs
was selected, based on risk criteria determined by the school finance auditors. The 15 districts
provided supporting documentation for the expenditures they claimed for reimbursement. All 15
districts provided the documentation prior to the June 21 payment of the funds. The
documentation verified that all 15 LEAs expended the ARRA funds within the required
timeframe and for allowable costs. All districts then filed a survey online with DPI by June 23rd
reporting the FTE and vendor information directly funded. Districts were provided with various
resources during the process of filing the application, claim and survey.

Response to Finding #3
As reported by the OIG, DPI had sent out its quarter two survey in early December knowing that
many of the school district offices would be closed and staff unavailable from December 21,
2009 through January 3, 2010. The reporting deadline for the school districts to report their job
and vendor information was December 16, 2009. When OMB issued new guidance on how to
calculate job data on Friday, December 18, 2009 there was insufficient time for DPI to reissue a
new quarter two survey and the sub-recipients would not have been available to respond if a new
survey had been available. Also to alleviate the burden on school districts, DPI combined the

                                                8
                                          Attachment 1


quarter two corrections with the quarter three survey as the December 18 guidance and webinars
indicated that changes could occur through March 31, 2010.

Response to Recommendation 3.1
DPI concurs with this recommendation and we will continue to work diligently with ORR and
with ED to resolve data errors or omissions to ensure the data are accurate and complete. As
noted by OIG, ED’s Clarifying Guidance on American Recovery and Reinvestment Act of 2009
Section 1512 Quarterly Reporting, dated October 5, 2009, allows for the correction of errors
identified in days 11- 29 following a reporting quarter. DPI and ORR are aware of this window
of opportunity and have used it when corrections are identified in this time frame. However,
once the data has posted to recovery.gov there is no guidance on how to update information
posted to this web site. Accordingly, DPI has submitted emails to ED program officers
identifying corrections and stating that when OMB gives DPI and ORR the opportunity to submit
corrections we will do so.

Response to Recommendation 3.2
As noted by the OIG, “DPI and the Governor’s Office developed and implemented many
proactive steps to meet ARRA §1512 data reporting requirements.” ORR and DPI believe that
we have submitted sub-recipient data that is accurate and timely and that material omissions or
significant reporting errors, if any, were corrected in a timely manner. With each quarterly
collection and submission process we identify improvements to our processes and incorporate
them into the next reporting cycle. This has included improvements to the data collection
surveys, confirming month end cash balances with the State Controller’s Office, working with
ORR on data control sheets for the §1512 reports that DPI submits to ORR, and conducting
individual grant data validation to ensure data accuracy.

We support the recommendation of the OIG. As work continues in all ARRA programs, DPI
and the ORR have and will continue to refine its internal controls and procedures such that sub-
recipient data continues to be accurate and timely submitted.

While the DPI believes its internal controls for this program are strong, we also believe they can
be enhanced. This is especially important with a program that is as visible as the ARRA grant
programs.




                                                9
        Anyone knowing of fraud, waste, or abuse involving
         U.S. Department of Education funds or programs
     should call, write, or e-mail the Office of Inspector General.

                             Call toll-free:
                      The Inspector General Hotline
                   1-800-MISUSED (1-800-647-8733)

                                Or write:
                        Inspector General Hotline
                      U.S. Department of Education
                       Office of Inspector General
                        400 Maryland Ave., S.W.
                         Washington, DC 20202

                                Or e-mail:
                            oig.hotline@ed.gov

      Your report may be made anonymously or in confidence.

For information on identity theft prevention for students and schools, visit
        the Office of Inspector General Identity Theft Web site at:
                           www.ed.gov/misused




             The Department of Education’s mission is to promote
       student achievement and preparation for global competitiveness
        by fostering educational excellence and ensuring equal access.

                                www.ed.gov