oversight

Education Leaders Council's Subcontracting Activities.

Published by the Department of Education, Office of Inspector General on 2006-07-28.

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

                            UNITED STATES DEPARTMENT OF EDUCATION 

                                 OFFICE OF INSPECTOR GENERAL 

                                           THE WANAMAKER BUILDING

                                                                BUILDING
                                         100 PENN SQUARE EAST, SUITE 502 

                                              PHILADELPHIA, PA 19107

                                                                  19107
                                       PHONE (215) 656-6900 · FAX (215) 656-6397

                                                                        656-6397




                                                           July 28, 2006
                                                                                                    Control Number
                                                                                                    ED-OIG/A03F0003
Ms. Faye P. Taylor
Chief Executive Officer
Following the Leaders
200 5th Avenue East, Suite B
Springfield, TN 37172

Dear Ms. Taylor:

This Final Audit Report, entitled Education Leaders Council’s Subcontracting Activities,
presents the results of our audit. The objectives of the audit were to determine if (1) the
Education Leaders Council’s (ELC’s) subcontracting activities complied with the procurement
standards set forth in the Education Department General Administrative Regulations (EDGAR),
(2) the subcontract costs for Achievement Technologies, Incorporated (ATI) and the Princeton
Review (TPR) charged to the federal grants were reasonable and allocable, and (3) any conflict
of interest issues exist between ELC and its subcontractors. Our review covered the period July
1, 2002, through December 31, 2004.




                                                     BACKGROUND



ELC is a non-profit organization, founded in 1995, that was formerly located in Washington,
DC. According to its mission statement, ELC was committed to leading educational change
focused on improved academic achievement for all students. In November 2005, ELC planned
or implemented changes that included focusing exclusively on the Following the Leaders (FTL)
project, its school-based initiative. As a result, ELC changed its name to Following the Leaders,1
and relocated to Tennessee. According to the organization, its mission is to serve as a catalyst
for the application of technology to core instructional processes in order to raise student
achievement and fulfill the goals of the No Child Left Behind Act. To accomplish its mission,
the organization states that it will assist schools and districts in the selection and implementation
of technology-based resources and support services designed to help students achieve academic
proficiency in core subjects.


1
 In order to differentiate the FTL organization from the project, the report refers to the organization as ELC, its
former name.
            Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Final Report
ED-OIG/A03F0003                                                                                     Page 2 of 17

The Department of Education’s (the Department’s) Office of Innovation and Improvement (OII)
administers the Fund for the Improvement of Education (FIE). The FIE supports nationally
significant programs to improve the quality of elementary and secondary education at the state
and local levels. The FIE also supports grants to entities that have been earmarked by Congress
in appropriations legislation. During the period July 1, 2002, through December 31, 2004, ELC
received three FIE grants totaling $23,376,534 for the FTL project. In addition, for fiscal year
2005, Congress directed six grants, totaling $9,594,623 in awards, to ELC for FTL projects in
various states.

ELC described the FTL project as a package of tools to assist states and school districts in
meeting the requirements of the No Child Left Behind Act. As of December 31, 2004, the FTL
project provided technology resources and support to over 600 schools in 11 states. According
to ELC, the FTL project helps teachers and administrators incorporate standards-based
curriculum into their classrooms, and assists with the analysis and reporting of student
performance data. The FTL project’s primary service providers were ATI and TPR. During the
period July 1, 2002, through December 31, 2004, the grant expenses for these two service
providers accounted for 75 percent of total grant awards made to ELC during the period. The
grant expenses for ATI totaled $14,489,593 and the grant expenses for TPR totaled $3,048,427.
The FTL project’s primary software products were ATI’s SkillsTutor2 and TPR’s Homeroom.

Attachment 1 provides supplemental background information on the FIE grant awards, ELC’s
contracts with ATI and TPR, the SkillsTutor and Homeroom software products, and the states
participating in the FTL project.




                                           AUDIT RESULTS



The objectives of the audit were to determine if (1) ELC’s subcontracting activities complied
with the procurement standards set forth in EDGAR, (2) the subcontract costs for ATI and TPR
charged to the federal grants were reasonable and allocable, and (3) any conflict of interest issues
exist between ELC and its subcontractors. We found that ELC’s subcontracting activities did not
comply with the procurement standards set forth in EDGAR. Specifically, we found that ELC
did not have written procurement procedures and did not comply with procurement standards
when it awarded contracts to ATI and TPR. We also found that ELC did not perform and
document an adequate cost or price analysis. As a result, while the subcontracts’ costs were
allocable to the federal grants, we were unable to determine if the costs charged by ATI and TPR
were reasonable relative to other vendors’ prices. However, the prices paid by ELC in 2003 and
2004 for ATI’s SkillsTutor software, TPR’s Homeroom software, and training appeared
reasonable relative to the prices paid by other clients of ATI and TPR and the list prices for the
software and training. Additionally, while ATI and TPR made significant contributions3 to ELC

2
  ELC’s January 2003 contract defined SkillsTutor as ATI’s K-12 MegaSuite, which included modules of ATI’s 

SkillsTutor, Learning Milestones, and K-2 Learning Milestones software. 

3
  In 2003, ELC and its affiliate, the Education Leaders Action Council, reported $1,326,817 in revenue from non-

federal sources. In the same year, ELC and its affiliate received $325,000 from TPR and $147,000 from ATI. 

Final Report
ED-OIG/A03F0003                                                                                     Page 3 of 17

and its affiliate in 2003, we found no conflicts of interest issues between ELC and the
subcontractors. A draft of this report was provided to ELC for review and comment. In its
comments on the draft report, ELC concurred with our finding and did not disagree with the
recommendations. We have incorporated ELC’s comments, where appropriate, into the report
and provide ELC’s full response as an attachment to the report.

FINDING – ELC’s Subcontracting Activities Did Not Comply With the
          Procurement Standards Set Forth in EDGAR.

We found that ELC’s subcontracting activities did not comply with the procurement standards
set forth in EDGAR. Specifically, we found that ELC did not have written procurement
procedures and did not comply with procurement standards when it awarded contracts to ATI
and TPR. These instances of non-compliance appear to be the result of inadequate controls. For
example, ELC did not develop written procurement policies and procedures until early 2005,
even though the Department's first grant award was made to ELC in July 2002.

Recipients are required under EDGAR, to establish policies and procedures for procurement.
Regulations in 34 C.F.R. §§ 74.40 through 74.48 contain the Procurement Standards to be used
by grantees.4 These Procurement Standards include:

       • 	 The recipient shall maintain written standards of conduct governing the performance of
           its employees engaged in the award and administration of contracts. 34 C.F.R. § 74.42

       • 	 All procurement transactions shall be conducted in a manner to provide, to the maximum
           extent practical, open and free competition. 34 C.F.R. § 74.43

       • 	 All recipients shall establish written procurement procedures. 34 C.F.R. § 74.44(a)

       • 	 Recipients shall, on request, make available for the Secretary, procurement documents,
           such as request for proposals or invitations for bids, independent cost estimates, et cetera,
           when certain conditions apply. Examples of these conditions include (1) a recipient's
           procurement procedures fail to comply with the procurement standards, and (2) the
           procurement is expected to exceed $25,000 and is to be awarded without competition. 34
           C.F.R. § 74.44(e)

       • 	 Some form of cost or price analysis must be made and documented in the procurement
           files in connection with every procurement action. 34 C.F.R. § 74.45

       • 	 Procurement records for purchases in excess of $25,000 must include the following at a
           minimum: (a) basis for contractor selection, (b) justification for lack of competition when
           competitive bids or offers are not obtained, and (c) basis for award cost or price. 34
           C.F.R. § 74.46




4
    Unless otherwise noted, all references to 34 C.F.R. Part 74 are to the July 1, 2002, edition.
Final Report
ED-OIG/A03F0003                                                                       Page 4 of 17

In addition, regulations in 34 C.F.R. §74.53(b) require recipients to retain financial records,
supporting documents, statistical records, and all other records pertinent to an award for a period
of three years from the date of submission of the final expenditure report.

The management of ELC was responsible for establishing and maintaining effective internal
control over federal programs that provides reasonable assurance that the grantee is managing
federal awards in compliance with laws, regulations, and grant provisions. Additionally, the
management of ELC was responsible for complying with laws, regulations, and grant provisions
related to its federal programs.

ELC Did Not Have Written Procurement Procedures

During the period of our audit, July 1, 2002, through December 31, 2004, ELC did not have
written procurement policies and procedures in accordance with regulations. Regulations in 34
C.F.R. § 74.44(a) require that all grantees shall establish written procurement procedures. ELC
was notified of the requirement to have written procurement policies and procedures through a
calendar year 2002 single audit finding that recommended ELC implement written procedures to
comply with 34 C.F.R. § 74.44. In the schedule of prior audit findings that accompanied ELC's
calendar year 2003 financial statements and single audit report, ELC noted that written policies
were continuing to be updated and that completion was scheduled by the fourth quarter of 2004.

ELC’s procurement policies entitled Procurement Procedures for Following the Leaders, did not
address all the requirements set forth in EDGAR. These procurement policies were prepared in
January 2005, in advance of our audit. They consisted mainly of a statement that ELC would
follow the procedures laid out in 34 C.F.R. §§ 74.41 through 74.48 and a verbatim copy of
regulations in 34 C.F.R. § 74.44.

In early 2005, ELC adopted a Finance Protocol Manual that provided a summary of ELC’s
financial practices. ELC provided the Finance Protocol Manual to us in April 2005. The
procurement procedures established in ELC's Finance Protocol Manual did not address all the
requirements set forth in EDGAR. Specifically, competitive bids for contracts under $25,000
and professional service contracts were not required; whereas, regulations in 34 C.F.R. § 74.43
specify that all procurement should be conducted in a manner to provide, to the maximum extent
practical, open and free competition. The manual also did not specify the use of solicitations for
goods and services as required in 34 C.F.R. § 74.44(a)(3), the type of procurement instrument
used shall be determined to be appropriate for the particular procurement and for promoting the
best interest of the program or project as required in 34 C.F.R. § 74.44(c), and all the required
contract provisions contained in 34 C.F.R. § 74.48 and Appendix A.

Furthermore, despite receiving its first grant award in July 2002, ELC did not adopt a conflict of
interest policy until May 2004. ELC’s conflict of interest policy did not fully comply with the
requirements established in 34 C.F.R. § 74.42. Specifically, ELC’s conflict of interest policy (1)
allowed, with the approval of ELC’s board of directors, an officer or director to participate in
procurement decisions even if a real or apparent conflict of interest existed; (2) did not address
all individuals specified in 34 CF.R. § 74.42, such as employees or agents; (3) did not address
the solicitation or acceptance of gratuities, favors, or anything of monetary value that is not a
substantial amount; and (4) did not specify the disciplinary actions applied to violations, except
that, in certain circumstances, the board could require the resignation of the director or officer.
Final Report
ED-OIG/A03F0003                                                                          Page 5 of 17


We informed ELC that its procurement and conflict of interest policies did not comply with all
the requirements set forth in EDGAR. In March 2006, ELC adopted revised policies and
procedures covering procurement and conflicts of interest. ELC provided us with an opportunity
to review and comment on drafts of the policies.

ELC Did Not Comply With Procurement Standards

ELC did not comply with procurement standards set forth in regulations when it awarded
contracts to the primary FTL service providers. We found that ELC did not award the contracts
to ATI and TPR in a manner that provided open and free competition; did not perform and
document an adequate cost or price analysis; and did not document the basis for the selection of
the contractors, the justification for the lack of competition, and the basis for the award cost or
price.

ELC did not comply with regulations in 34 C.F.R. § 74.43 that require all procurement
transactions to be conducted in a manner to provide, to the maximum extent practical, open and
free competition. ELC's former Chief Executive Officer and former Chief of Staff, who were at
ELC when the contracts were awarded, noted that ELC did not hold a competition for the FTL
project’s vendors, because ATI and TPR were included in the FTL grant proposals as partners.
According to the ATI's Chief Executive Officer, while ATI provided special services to ELC,
ATI viewed ELC as a customer; ATI was not a partner or sub-grantee on the grants. Similarly,
according to TPR's Chief Executive Officer, while TPR treated ELC as a peer, TPR considered
itself a vendor for ELC.

ELC also did not comply with regulations in 34 C.F.R. § 74.46 that require that procurement
records for purchases in excess of $25,000 must include the basis for contractor selection, the
justification for lack of competition, and the basis for award cost or price. ELC's former Chief of
Staff noted that ELC performed an informal comparison of vendors and concluded that ATI had
the best product, and that the only documentation of this comparison was a vendor comparison
prepared in November 2002. The former Chief of Staff also added that there was no formal
written justification for the selection of TPR. Similarly, based upon our conversation with ELC's
former Chief Executive Officer, there was no formal written justification for ELC’s selection of
ATI and TPR. The former Chief Executive Officer stated that, at the time of the initial grant,
ATI was the only vendor providing the needed services and that ELC thought ATI’s costs were
reasonable. Additionally, the former Chief Executive Officer stated that ELC did not have a
formal process where it documented the different vendors’ prices in the marketplace, but claimed
ELC knew that ATI’s and TPR’s prices were competitive relative to other school-based products.

ELC provided us with a two-page matrix comparing nine vendors to nine criteria established by
ELC.5 This document was prepared in November 2002, which was after the Department
awarded the grant to ELC, and ELC awarded the initial contract to ATI (both of which occurred
in July 2002). The document was prepared in response to a Department request for ELC to
clarify the justification for selecting ATI in a non-competitive manner. Based upon the
information contained in the document, at least one other vendor in addition to ATI met all of the
criteria and seven vendors met at least seven of the nine criteria. It is possible that, in addition to

5
    Attachment 2 presents a summary of ELC’s comparison of the nine vendors.
Final Report
ED-OIG/A03F0003                                                                                    Page 6 of 17

ATI, some of the other vendors could have put together or modified their offerings to meet all of
ELC’s criteria. As a result, the document prepared by ELC did not adequately justify the lack of
competition for the procurement action and ELC’s basis for the selection of ATI for the FTL
project. TPR was not among the nine vendors included in the document.

ELC also did not comply with regulations in 34 C.F.R. § 74.45 that require that some form of
cost or price analysis to be made and documented in connection with every procurement action.
The November 2002 matrix presented pricing information for six of the nine vendors. However,
the pricing information was generally presented on a per student basis and is not comparable
among vendors (i.e., some specified a range of costs, training costs, and implementation costs,
whereas others did not). As a result, the information contained in the matrix was insufficient to
conduct a pricing analysis. Furthermore, ELC provided the audit team with no documentation of
a cost or price analysis for the subsequent contract that included TPR.

One of the rationales cited by ELC officials in their statements to us on selecting ATI and TPR
as service providers for the FTL project was a June 2004 Forrester Consulting report.6 ELC
commissioned the study that compared software company offerings that provided assessment,
diagnostic, and/or remedial solutions to help students improve test scores. According to ELC
officials, the Forrester Consulting report indicated that the integrated ATI and TPR products
provided a unique tool not found elsewhere in the marketplace. We reviewed the report and
interviewed the Project Director at Forrester Consulting. Forrester Consulting assessed the
products of ten companies, including ATI and TPR.7 Based upon information contained in the
report, it appears that in addition to the ATI and TPR combination, five other vendors met many
of the criteria specified by ELC. As a result, the study indicated that, in addition to ATI and
TPR, other vendors were capable of providing ELC with the software and services for the FTL
project. While we do not know the exact number of vendors that were capable of providing the
required software and services in 2002, when ELC contracted with ATI and later TPR, the report
indicated that ATI and TPR were most likely not the only vendors capable of providing the
software or services for FTL. According to the Project Director at Forrester Consulting, ELC’s
use of the ATI and TPR combination met all the criteria, and a combination of other vendors
could have met all the criteria. As a result, the Forrester Consulting report did not adequately
justify the lack of competition and basis for the selection of ATI and TPR.

ELC’s subcontracts with ATI and TPR represented the majority of the costs for the FTL project.
During the audit period, the grant expenses of $17,538,020 for ATI and TPR accounted for 75
percent of total grant awards made to ELC during the period. Had ELC issued a solicitation that
established all the requirements that bidders were to fulfill and conducted the procurement in a
manner to provide free and open competition, ELC may have been able to obtain the needed
services at a better value. In addition, because ELC did not comply with the procurement
standards set forth in regulations, ELC could not readily demonstrate that it was a prudent
steward of federal grant funds when contracting with FTL's service providers.




6
  Forrester Consulting report entitled Use of Technology to Improve Student Achievement, Review of Research and 

Software, dated June 28, 2004. 

7
  Attachment 3 presents a summary of the software comparison contained in the Forrester Consulting report. 

Final Report
ED-OIG/A03F0003                                                                     Page 7 of 17


Recommendations:

We recommend that the Department's Chief Financial Officer, in collaboration with the Assistant
Deputy Secretary for Innovation and Improvement, require ELC (renamed FTL) to:

1.1 	 Adopt procurement policies and procedures that comply with all the requirements set forth
      in regulations in 34 C.F.R. §§ 74.40 through 74.48. In addition, such policies and
      procedures should address the record retention requirements established in 34 C.F.R. §
      74.53.

1.2 	 Ensure that it complies with procurement and documentation standards set forth in
      Department regulations when renewing or awarding any federally funded contract.

ELC’s Comments:

ELC concurred that it did not have the required written procurement policies in place at the time
of our audit. ELC added that it has developed written procurement policies with input from the
OIG that comply with all EDGAR requirements. ELC also acknowledged that documentation of
its procurement process for the primary FTL service providers was deemed insufficient. ELC
noted that it had responded to the Department’s questions about its use of sole source
procurement, and the Department had approved the applications and budgets, which included
ATI and TPR. Additionally, ELC noted that ATI’s and TPR’s products were purchased at a
“steep discount.”

OIG’s Response:

When we provided comments on the drafts of ELC’s policies and procedures, we informed ELC
that our comments were for its benefit in drafting polices and procedures and should not be
considered as an approval of such policies and procedures. The procurement policies adopted by
ELC, incorporated many, but not all, of the comments and suggestions that we provided.
Additionally, the Department’s approval of ELC’s grant applications and knowledge of ELC’s
sole source contracts with ATI and TPR did not relieve ELC of its requirement to comply with
the procurement standards set forth in EDGAR. Furthermore, our comparison of the prices for
software and training paid by ELC to the prices paid by other clients of ATI and TPR found that
ELC was not the only client to which discounts were extended by ATI and TPR.

We have included Attachments 2 and 3 to present summary-level information on ELC’s and
Forrester Consulting’s comparison of software vendors’ offerings, both of which are discussed in
the finding.
Final Report
ED-OIG/A03F0003                                                                        Page 8 of 17




                                    OTHER MATTERS



Our January 2006 audit report entitled The Education Leaders Council’s Drawdown and
Expenditure of Federal Funds (control number ED-OIG/A03F0010), reviewed whether federal
funds drawndown by ELC for the FTL project were used for ELC’s operations, and whether
expenditures allocated to the federally funded FTL project were reasonable, allocable, and
allowable in accordance with regulations. In general, we found that ELC drew down grant funds
that could have been used to cover operating deficits in ELC’s non-FTL activities, charged
indirect costs to the federal grants even though it did not have an approved indirect costs plan,
and charged questioned and unsupported costs to the federal grants. A copy of the audit report,
including ELC’s comments on the report, may be obtained from the Department’s Office of
Inspector General website at http://www.ed.gov/about/offices/list/oig/auditreports/a03f0010.pdf.




                  OBJECTIVES, SCOPE, AND METHODOLOGY



The objectives of the audit were to determine if (1) the ELC’s subcontracting activities complied
with the procurement standards set forth in EDGAR, (2) the subcontract costs for ATI and TPR
charged to the federal grants were reasonable and allocable, and (3) any conflict of interest issues
exist between ELC and its subcontractors. Our review covered the period July 1, 2002, through
December 31, 2004.

To achieve the audit objectives, we performed the following. We reviewed applicable criteria
contained in EDGAR (34 C.F.R. Part 74); OMB Circular A-122, Cost Principles for Non-Profit
Organizations; and OMB Circular A-110, Uniform Administrative Requirements for Grants and
Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations. We reviewed ELC’s grant applications and the grant award notices for the fiscal
year 2002, 2003, and 2004 grant awards. We reviewed ELC’s single audit reports and
management letters for fiscal years 2002 and 2003. We also interviewed ELC’s current Chief
Executive Officer and Chief Financial Officer, and ELC’s former Chief Executive Officers,
Chief of Staff, Chief Operating Officer, Director of Federal Programs, Chief Policy Officer, and
Chairman of the Board of Directors.

To determine if ELC’s subcontracting activities complied with procurement standards, we
performed the following. We reviewed ELC’s policies and procedures covering procurement.
We reviewed ELC’s contracts and memorandum of understanding with ATI and TPR. We
reviewed documents provided by ELC regarding the selection of ATI and TPR. We also
reviewed the Forrester Consulting study entitled Use of Technology to Improve Student
Achievement and interviewed the Project Director at Forrester Consulting.
Final Report
ED-OIG/A03F0003                                                                        Page 9 of 17

To determine if the subcontract costs for ATI and TPR charged to the federal grants were
reasonable and allocable, we performed the following. We interviewed officials at ATI,
including the Chief Executive Officer, Chief Financial Officer, Director of Finance, and Director
of Project Management. We interviewed officials at TPR, including the Chief Executive Officer,
Executive Vice President for Strategic Development, Executive Vice President for the K-12
Division, Vice President for the K-12 Division, and Division Controller for Test Preparation.
We reviewed financial statements and reports for ATI and TPR covering calendar years 2002,
2003, and 2004. We reviewed all invoices submitted to ELC by ATI and TPR during the audit
period. We compared the prices paid by ELC for software and training to ATI’s and TPR’s list
prices. We compared ELC’s purchase prices for software and training to the prices paid by
ATI’s and TPR’s other clients. We judgmentally selected sales to ATI’s and TPR’s other clients
for review. The universe of ATI’s K-12 MegaSuite sales consisted of 13 sales in 2003 and 21
sales in 2004, excluding returns and sales to ELC. For each year, 2003 and 2004, the four largest
sales to unique clients were selected. The universe of ATI’s training sales was 51 sales in 2003
and 47 sales in 2004. Three training sales from 2003 and four training sales from 2004 were
selected based upon the amount of the sale and the sales amount relative to ATI’s list prices.
The universe of TPR’s Homeroom software sales consisted of 908 sales during the period
August 2000 through December 2004. We selected the 20 largest Homeroom sales to unique
clients and 10 smaller Homeroom sales; these selections were also used to review training sales.
In selecting sales for review, we excluded multiple sales to the same client (other than the largest
sale) and sales to ELC. Because there is no assurance that the judgmental samples were
representative of the respective universes, the results should not be projected to the unsampled
records.

To determine if any conflict of interest issues exist between ELC and its subcontractors, we
performed the following. We reviewed ELC’s Form 990, Return of Organization Exempt From
Income Tax, for calendar years 2001, 2002, 2003, and 2004. We compared listings of officers,
employees, and board members of ELC and its subcontractors. We reviewed ELC’s sources of
non-federal revenue for calendar years 2001, 2002, 2003, and 2004. We compared ELC’s
monthly bank account balances for calendar years 2002 through 2004 to estimates of ELC’s
monthly operating expenses. We reviewed documents pertaining to the significant contributions
that ELC and its affiliate received from ATI and TPR in 2003.

The audit team obtained electronic files from ELC's accounting systems of record of ELC's 2001
and 2002 non-federal revenue, 2002 federal grant expenses, and 2003 and 2004 general ledgers.
We conducted a preliminary assessment of the computer-processed data that was obtained from
ELC. The audit team assessed the completeness of the 2001, 2002, and 2003 electronic data by
comparing it to information contained in ELC's respective audited financial statements and, in
the case of grant expenses, to GAPS drawdown data. All of the data was considered fairly
complete. The audit team also assessed the accuracy of the data that was material to the audit's
objectives by verifying it to documentation or through discussions. Nothing came to our
attention in this limited review to indicate the data was not accurate. The audit team was unable
to assess the completeness of the 2004 electronic data because ELC had not issued audited
financial statements at the time our audit was performed. However, the data was obtained from
ELC's accounting system of record and represents the same data used by ELC's management for
decision-making and reporting purposes. Therefore, we considered the data sufficiently reliable
for the purposes of this review.
Final Report
ED-OIG/A03F0003                                                                     Page 10 of 17

As part of our audit, we assessed ELC's system of internal control, policies, procedures and
practices applicable to ELC's subcontracting activities. For purposes of the audit, we assessed
and classified the significant controls into the following category: procurement of goods and
services with federal funds. Because of inherent limitations, a study and evaluation made for the
limited purposes described above would not necessarily disclose all material weaknesses in
internal controls. However, our assessment disclosed significant internal control weaknesses that
adversely affected ELC's ability to administer the federal grant funds. These weaknesses
resulted in ELC's procurement activities not complying with regulations. These weaknesses and
their effects are fully discussed in the Audit Results section of this audit report.

We conducted on-site fieldwork at ELC’s offices in Washington, DC during the period January
25, 2005, through March 28, 2005; at ATI’s offices in Newton, MA during the period March 14,
2005, through March 18, 2005; and at TPR’s offices in New York City, NY during the period
May 24, 2005, through May 25, 2005. On March 31, 2006, we held an exit conference with
ELC’s management. Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review described above.




                            ADMINISTRATIVE MATTERS



This report incorporates comments you provided in response to the draft report. If you have any
additional comments or information that you believe may have a bearing on the resolution of this
audit, you should send them directly to the following Department of Education officials, who
will consider them before taking the final Departmental action on this audit:

                              William McCabe
                              Acting Chief Financial Officer
                              U.S. Department of Education
                              400 Maryland Avenue, SW
                              Washington, D.C. 20202-4300

                              Margo Anderson
                              Associate Assistant Deputy Secretary
                              Office of Innovation and Improvement
                              400 Maryland Avenue, SW
                              Washington, D.C. 20202-5900

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 herein. Therefore,
receipt of your comments within 30 days would be appreciated.

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.
Final Report
ED-OIGIA03F0003                                                                    Page 11 of17


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 ofthe press and general public to the extent
information contained therein is not subject to exemptions in the Act. .

We appreciate the cooperation and assistance extended by your staff during the audit. If you
have any questions, please contact me at (215) 656-6279.


                                     Sincerely,




                                     Regional Inspector General for Audit




cc.    James Home, Chairman, FTL

Attachments
Final Report
ED-OIG/A03F0003                                                                            Page 12 of 17

                Attachment 1: Supplemental Background Information


FIE Grants Awards: 


During the period July 1, 2002, through December 31, 2004, ELC received three FIE grants 

totaling $23,376,534 for the FTL project, as follows: 


        Award Date          Award Number            Award Amount              Award Type
         July 1, 2002        R215U020001              $3,501,000             Unsolicited grant
         May 1, 2003         U215K030213              $9,934,999          Congressionally directed
        June 25, 2004        U215K040252              $9,940,535          Congressionally directed

When the fiscal year 2005 grants, of $9,594,623, to ELC are included, ELC was awarded FIE
grants totaling $32,971,157.

ATI and TPR Contracts:

In July 2002, ELC and ATI entered into a contract for the license, support, and implementation
of ATI’s Achieve Resource Center, Project Achieve Software Suite, and SkillsTutor software in
up to 15 schools in one state. In October 2002, the contract was amended. The amendments
changed the contract’s term and authorized software licenses for six states. In January 2003, the
contract was amended and restated. In addition to ELC and ATI, TPR became a party to the
contract. The term of the amended and restated contract was January 1, 2003, through December
31, 2005. Under the contract, ELC guaranteed purchases from ATI and TPR equal to a
percentage (ranging from 75 percent to 77 percent) of the funding ELC received for the FTL
project during the term of the contract. ATI and TPR were to provide licenses, training and
support for their products.

ATI’s SkillsTutor and TPR’s Homeroom:

ELC describes these products as follows. SkillsTutor is a web-based tool designed to help
students master core subjects and skills. It focuses on four key areas, consisting of supplemental
instruction and tutoring; diagnostic and prescriptive lessons; research-based content; and
individualized instruction aligned to state and national standards. Homeroom is an online
formative assessment and benchmarking tool aligned to state standards and tests and designed to
increase student achievement. It allows the tracking of student performance to assess trends and
opportunities for remediation, and the use of data to develop individualized learning plans.

States Participating in the FTL Project:

    State          No. of Schools      State          No. of Schools         State         No. of Schools
   Alaska               135           Arizona                7              Florida               25
    Iowa                 80           Illinois              77          Massachusetts             42
  Mississippi            83            Ohio                 45           Pennsylvania             27
  Tennessee              51         West Virginia           61               Total               633
                                                                       Source: ATI’s 2004 Billing Summary
Final Report
ED-OIG/A03F0003                                                                                                                             Page 13 of 17

                                   Attachment 2: Summary of ELC’s Comparison of Software Vendors

                                                                            Criteria
                    Aligned With




                                                Curriculum




                                                                                                                              Component
                                                               Assessment



                                                                                 Training &




                                                                                              Web Based
                                   Prescribes
                                   Individual
                     Standards




                                                 Generates
                                                                                                                                            Pricing Information




                                                 & Lesson
                                    Learning




                                                                                                                               Tutoring
                                                                                                          Console




                                                                                                                    Console
                                    Student




                                                                                                                    Student
                                                                Creates




                                                                                  Service
   Company




                                                                                                          Parent
                                                  Plans




                                                                  Tests
                        State




                                      Path
                                                                                                                                               Presented Per



 Achievement
 Technologies,          √              √            √               √               √         √             √         √         √         Student, Teacher & School
 Incorporated

  Company 2             √              √            √               √               √         √            No         √         √             Grade & Subject

  Company 3             √              √            √               √               √         √             √        No        No              Not Available

  Company 4             √             No            √               √               √         √             √         √        No                 Student

                                                                                                                                          Student, Implementation,
  Company 5             √             No           No               √               √         √             √        No        No
                                                                                                                                                  Training

  Company 6             √             No            √               √           Limited       √            No        No         √                 Student

  Company 7             √              √            √               √               √         √             √         √        No               Not Available

  Company 8             √              √            √               √               √         √             √        No         √               Not Available

  Company 9             √              √            √               √               √         √             √         √         √            Module & Student

Note: √ indicates that the vendor met the criteria.

Source: ELC’s vendor comparison matrix, prepared November 2002. 

Final Report
ED-OIG/A03F0003                                                                                                                                                         Page 14 of 17

              Attachment 3: Summary of Forrester Consulting’s Comparison of Software Company Offerings
Forrester Consulting reviewed software that provided assessment, diagnostic and/or remedial solutions to help schools improve student test
scores. Forrester Consulting reviewed the software from 10 companies, which were identified by ELC, and noted which offerings met
specific criteria established by ELC. In the report’s Executive Summary, Forrester Consulting states, “In most cases the companies meet
many of the criteria. Some do not have alignment to textbooks or remedial content built into their application. Others are developing this
capability. Still others believe that teachers have access to many materials, and as long as teachers know the specific area of students
weakness, they can provide their own remedial materials.”




                                                    The Princeton




                                                                    Technologies,
                                                                    Incorporated
                                                                    Achievement




                                                                                                                                                                                     Company 10
                                                                                       Company 3



                                                                                                   Company 4



                                                                                                                  Company 5



                                                                                                                                Company 6




                                                                                                                                              Company 7




                                                                                                                                                          Company 8



                                                                                                                                                                         Company 9
                                                       Review
                     Criteria



Software Emphasis
      Analysis                                          √               -              √           √              √             √             √           √              √           √
      Assessment                                        √               -              √           √              √             √             √           √              √           √
      Remediation                                       -               √              -           √              √             √             -           -              -           -
Formative Assessments
      Aligned to State Standards                        √               √              √           √              √             √            √            √             √            √
      Linked to Specific Textbooks                      √               √              √           √           Pending        Custom         No           No            No           √
Remediation Strategies
      Aligned to State Standards                        √               √              √           √             No             √            No           No             √           √
      Linked to Specific Textbooks                      √               √              √           √             No           Custom         No           No           Some          √
Test Item Banks
                                                                                      Not
       Sufficient to Assess Grades 3-12                 √               √                          √              √             √             √           √              √           √
                                                                                    Available
       Same Idiom and Format of State Mandated                                        Not
                                                        -           Similar                         -          Possibly         √           Custom        √           Possibly       √
       Assessments                                                                  Available
Data
       Can be Disaggregated According to NCLB
                                                        √               √              √           √              √             √             √           √              √           √
       Specifications
       Reporting Capabilities for Administrators,
                                                        √               √              √           √              √             √             √           √              √           √
       Principals, Teachers & Parents
Final Report
ED-OIG/A03F0003                                                                                                                                                               Page 15 of 17




                                                   The Princeton




                                                                   Technologies,
                                                                   Incorporated
                                                                   Achievement




                                                                                                                                                                                             Company 10
                                                                                      Company 3



                                                                                                     Company 4



                                                                                                                    Company 5



                                                                                                                                  Company 6




                                                                                                                                                  Company 7




                                                                                                                                                                Company 8



                                                                                                                                                                               Company 9
                                                      Review
                   Criteria



Project Management
     Onsite Training – Initial                         √               √              √              √              √             √            Varies            √          Online            √
     Onsite Training - Ongoing                         -               √              √              √              √             √               √           Support         √            Support
     Follow-up School Visits                           -               √              √              √              √             √               √              √            √              √
     Consultant Services to District & School                                                                                                   Not
                                                       √               √              √              √              √             √                             √              √             √
     Leadership                                                                                                                               Applicable
Customization
     Downloading Student Information Into
                                                       √               √              √              √              √             √               √             √              √             √
     System
     Inputting Textbook Correlations                   √               √             √              √               √             √              No             No            No             √
     Inputting Alignment With State Standards          √               √             √              √               √             √              √              No            √              √
                                                                                   Hosted /       Hosted /       Hosted /                                                   Hosted /
     Hardware Compatibility                       Hosted           Hosted                                                       Hosted         Hosted         Hosted                       Hosted
                                                                                    LAN            LAN             PC                                                        LAN
Aggregation / Usage and Performance Data
     Student                                            √          √          √           √          √          √           √            √            √                                      √
     School                                             √          √          √           √          √          √           √            √            √                                      √
     District                                           √          √          √           √          √          √           √            √            √                                      √
     State                                              -          No         √           √          √          √           √            √            √                                      No
     National                                           -          No         √        Possibly Possibly        √           √         Possibly Possibly                                      No
Note: √ indicates that the vendor met the criteria.

Source: Forrester Consulting report entitled Use of Technology to Improve Student Achievement, Review of Research and Software, dated June 28, 2004. 

Mr. Bernard Tadley
Office of the Inspector General
U.S. Department of Education
The Wannamaker Building
100 Penn Square East, Suite 502
Philadelphia, PA 19107

June 6,2006

On behalf of Following the Leaders, Inc., we submit the following response to ED-OIG
audit number A03-F003, Education Leaders Council's Subcontracting Activities, dated
May 8, 2006 and prepared by the U.S. Department of Education's Office of the Inspector
General (OIG)

In December of2005, The Education Leaders Council (ELC) re-framed its organizational
mission and changed its name to Following the Leaders (FTL). A new Chief Executive
Officer, Dr. Faye P. Taylor, assumed leadership of the organization. Dr. Taylor replaced
Mr. Theodot Rebarber who was the CEO from October, 2004 until December 2005.
During their tenures, Dr. Taylor and Mr. Rebarber have worked diligently to correct
operational difficulties that ELC had encountered primarily during the first six months of
2004.

FTL is now re-organized and in full compliance with all federal regulations governing the
use offederal funds awarded by the United States Congress for the Following the Leaders
program. Thus, while we concur with the findings concerning certain procurement
protocols, we are pleased to report that we have corrected these problems.

The OIG's report identified one finding:

   1. 	 ELC's Subcontracting Activities Did Not Comply With the Procurement 

       Standards Set Forth in EDGAR. 


   ELC Did Not Have Written Procurement Records

   Auditee response: We concur that ELC did not have appropriate written procurement
   pDJicies in place during the period audited by the OIG. However, new management
   has since developed written procurement policies with input from the OIG that
   comply with all EDGAR requirements. In addition, procurement activities since June
   of2005 have been reviewed and approved by the Department of Education.

                                  Following the Leaders, Inc.
                                   200 5th Avenue Suite D
                                    Springfield, TN 37172
...*                                                           .
,.Following the Leaders 

   ELC Did Not Coniply With Procurement Standards

   Auditee Response: The OIG audit notes that no public bidding or similar open
   procurement process was used to enter into contracts with Achievement Technologies
   (AT!) and The Princeton Review (TPR). As the OIG audit also notes, however, ELC
   included AT! and TPR in its budget application to the Department of Education.
   ELC answered the Department's questions about sole source procurement to the
   satisfaction of the Department and the budget was approved. ELC subsequently
   included AT! and TPRby name in each budget application, each of which was also
   approved. ELC submitted program reports as required under the terms of the awards
   to the Department; these reports contained detailed updates on the objectives and
   projected outcomes of the grant activities. Again, the Department did not indicate
   any dissatisfaction with ELC's progress or with AT! and TPR's contribution. Finally,
   ATI and TPR's products were offered to Following the Leaders participants at a steep
   discount and neither EtC nor Department staffhad reason to question the value ofthe
   services received (nor have they challenged costs under current contracts).

In conclusion, while we do not disagree with the importance of clear and sound operating
protocols and acknowledge that procedures were not always written down as required, we
do believe that the value of services and the deliverables received met the program
objectives. Clearly, following certain steps prior to engaging a contractor's services can
help ensure the quality ofthe product received. ELC believed that they had taken such
steps, but documentation ofthe process was deemed insufficient. The organization has
added additional requirements to its procurement protocols which will ensure that
sufficient documentation exists to demonstrate that procurement decisions are consistent
with the letter as well as the spirit ofFederal regulations.

Sincerely,




Meave G. O'Marah, consulting Chief Financial Officer on behalf of Following the
Leaders (formerly Education Leaders Council)




                                 Following the Leaders, Inc.                             2
                                  200 5th Avenue Suite D
                                   Springfield, TN 37172