oversight

Commonwealth of Pennsylvania's Local Educational Agencies' Systems of Internal Controls over American Recovery and Reinvestment Act Funds

Published by the Department of Education, Office of Inspector General on 2010-12-21.

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
Commonwealth of Pennsylvania’s Local Educational Agencies’
           Systems of Internal Controls over
    American Recovery and Reinvestment Act Funds

                                 Audit Report




                             Pennsylvania State Capitol

Source: www.thecapitol.com




 ED-OIG/A03K0003                                          December 2010
                       UNITED STATES DEPARTMENT OF EDUCATION
                            OFFICE OF INSPECTOR GENERAL

                                                                      AUDIT SERVICES
                                                                Philadelphia Audit Region


                                                                 December 21, 2010


Thomas E. Gluck, Acting Secretary of Education
Commonwealth of Pennsylvania
Department of Education
333 Market Street
Harrisburg, PA 17126-0333

Dear Mr. Gluck:

This final audit report presents the results of our review entitled, Commonwealth of
Pennsylvania’s Local Educational Agencies’ Systems of Internal Controls over American
Recovery and Reinvestment Act Funds, Control Number ED-OIG/A03K0003. We
reviewed the designed systems of local educational agency (LEA) level internal control
over American Recovery and Reinvestment Act of 2009 (ARRA) funds in the
Commonwealth of Pennsylvania (Commonwealth). A signed hardcopy of the report will
be provided upon request.

This report incorporates the comments you and officials at three Commonwealth LEAs
provided us in response to our preliminary final audit 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 Education Department officials,
who will consider them before taking final Departmental action on this audit.

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

                                   Alexa E. Posny, Ph.D.
                                    Assistant Secretary
                              U.S. Department of Education
                  Office of Special Education and Rehabilitative Services
                               400 Maryland Avenue, S.W.
                                  Washington, DC 20202
                                      Phil Maestri
                                        Director
                              U.S. Department of Education
                               Risk Management Service
                              400 Maryland Avenue, S.W.
                                 Washington, DC 20202

                                      Thomas Skelly
                             Acting Chief Financial Officer
                             U.S. Department of Education
                           Office of the Chief Financial Officer
                              400 Maryland Avenue, S.W.
                                 Washington, DC 20202

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, including recovery of funds,
will be made by the appropriate Department of Education officials in accordance with the
General Education Provisions Act.

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/

                                              Bernard E. Tadley
                                              Regional Inspector General for Audit



Enclosure


cc:    Mark Roosevelt, Board Secretary, Pittsburgh Public Schools
       Larry Sperling, Chief Executive Office, Philadelphia Academy Charter School
       Joyce A. Wells, Acting Superintendent, Chester-Upland School District
       Beth Olanoff, Director, Office of Policy, Pennsylvania Department of Education
       Michael Walsh, Deputy Secretary, Office of Administration, Pennsylvania
        Department of Education
                 Abbreviations/Acronyms Used in this Report
ARRA                        American Recovery and Reinvestment Act of 2009
BBFM                        Bureau of Budget and Fiscal Management
BSE                         Bureau of Special Education
CBO                         Chief Business Officer
CEO                         Chief Executive Officer
Certifications              Semiannual Time and Effort Certifications
CFO                         Chief Financial Officer
C.F.R.                      Code of Federal Regulations
Commonwealth                Commonwealth of Pennsylvania
Comptroller‘s Office        Office of the Comptroller
CUSD                        Chester-Upland School District
Department                  U.S. Department of Education
DSA                         Deputy Secretary for Administration
EDGAR                       Education Department General Administrative Regulations
ED-OIG                      U.S. Department of Education, Office of Inspector General
ESF                         Education Stabilization Fund
FTE                         Full-time Equivalents
FY                          Fiscal Year
GSF                         Government Services Fund
IDEA                        Individuals with Disabilities Education Act, Part B
IU                          Intermediate Unit
IPA                         Independent Public Accountant
JV                          Journal Voucher
LEA                         Local Educational Agency
OESE                        Office of Elementary and Secondary Education
OMB                         Office of Management and Budget
OMB Circular A-87           OMB Cost Principles for State, Local, and Indian Tribal
                            Governments
OSERS                       Office of Special Education and Rehabilitative Services
PACS                        Philadelphia Academy Charter School
PDE                         Pennsylvania Department of Education
PPS                         Pittsburgh Public Schools
PSD                         Philadelphia School District
SFSF                        State Fiscal Stabilization Fund
Title I                     Title I, Part A of the Elementary and Secondary Education Act
Audit Report
ED-OIG/A03K0003                                                                      Page 1 of 28

                                          PURPOSE

The American Recovery and Reinvestment Act of 2009 (ARRA) emphasizes
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
(Department) 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 agencies charged with responsibility
for administering ARRA funds have designed systems of internal control that are
sufficient to provide reasonable assurance of compliance with applicable laws,
regulations, and guidance. Proper internal controls are essential for ensuring that ARRA
funds are administered properly and used in ways that are consistent with the intent of
ARRA.

This report provides the results of the limited review we conducted at three
Commonwealth of Pennsylvania (Commonwealth) local educational agencies (LEAs):
Pittsburgh Public Schools (PPS), Chester-Upland School District (CUSD), and
Philadelphia Academy Charter School (PACS). Our audit focused on the design of
controls over data quality, cash management, and use of funds at each selected LEA.
These controls are key to the proper administration of ARRA funds for Title I, Part A of
the Elementary and Secondary Education Act (Title I); the Individuals with Disabilities
Education Act, Part B (IDEA);1 and the State Fiscal Stabilization Fund (SFSF).


                                          RESULTS

The Pennsylvania Department of Education (PDE), the Office of the Comptroller
(Comptroller‘s Office),2 and the LEAs we reviewed had systems of internal control in
place to provide for the administration and use of education-related ARRA funds. These
systems consisted of controls established prior to the passage of ARRA and modifications
to existing controls in response to ARRA. Based on our assessment of the designed
systems of internal control for ARRA funds, we identified several areas in which controls
need to be strengthened or established, at the Commonwealth and LEA level, to provide
reasonable assurance of subrecipient compliance with applicable laws, regulations, and
guidance.



1
 IDEA includes only grants to States.
2
 We reported on the Commonwealth‘s internal controls over ARRA funds in our report entitled
―Commonwealth of Pennsylvania Recovery Act Audit of Internal Controls over Selected ARRA Funds,‖
Control Number A03J0010, issued March 15, 2010.
Audit Report
ED-OIG/A03K0003                                                                          Page 2 of 28
We concluded that:
   PDE and the Comptroller‘s Office3 need to provide clearer guidance to LEAs
      regarding excess cash and excess interest earned on Federal funds. One LEA
      maintained excess cash and two of the LEAs earned excess interest on ARRA
      funds.
   PDE needs to provide LEAs additional guidance to ensure that ARRA job
      creation and retention data are accurate and complete. Two LEAs had job
      reporting data quality issues.
   PDE needs to conduct additional monitoring and provide LEAs additional
      guidance to ensure that semiannual time and effort certifications are completed.
      Two LEAs were not properly completing the semiannual time and effort
      certifications.
   PDE needs to conduct additional monitoring and provide LEAs guidance to
      ensure fiscal controls are adequate. Two LEAs‘ fiscal controls need
      improvement.
   PDE needs to conduct additional monitoring and provide LEAs guidance to
      ensure their policies and procedures are adequate. Two LEAs did not have
      written policies and procedures for several fiscal areas.

We provided a preliminary version of this final audit report to PDE and the three LEAs
we reviewed on September 23, 2010. PDE, PACS, and CUSD provided comments on
October 8, 2010. PPS provided comments on October 7, 2010. PDE did not concur with
our findings and recommendations, because PDE believes it has provided ongoing
training and guidance to its subrecipients and that its existing monitoring efforts, along
with its updated guidance and supplemental monitoring efforts, address our findings and
recommendations.

PPS concurred with Finding No. 1. CUSD did not specifically concur or nonconcur with
the findings and recommendations relevant to it. PACS did not fully concur with the
findings and recommendations relevant to it because it believed that its policies and
procedures are adequate.

PDE‘s and each LEA‘s comments are summarized at the end of each finding. A
summary of PDE‘s supplemental monitoring process is included in the Background
section of this report. The entire narrative of PDE‘s and each LEA‘s comments are
included as an Enclosure 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

3
 The Comptroller‘s Office is the Commonwealth agency responsible for disbursing Federal funds to the
LEAs.
Audit Report
ED-OIG/A03K0003                                                                             Page 3 of 28
unprecedented levels of accountability and transparency in government spending. ARRA
places a heavy emphasis on accountability and transparency, including reporting
requirements related to the award and use of funds. Section 1512 of ARRA requires
recipients of ARRA funding to submit a report to the FederalReporting.gov Web site no
later than 10 days after the end of the calendar quarter. This report is to include (1) the
total amount of ARRA funds received from the Department; (2) the amount of ARRA
funds received that were expended or obligated to projects or activities; and (3) a detailed
list of all projects or activities for which ARRA funds were expended or obligated,
including an estimate of the number of jobs created and the number of jobs retained by
the project or activity. According to the Office of Management and Budget (OMB), these
reports 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 ARRA funds.

PDE collected LEA ARRA Title I, IDEA, and SFSF § 1512 data for the Commonwealth.
The Commonwealth‘s Office of Administration reported these data to the Department.

On April 1, 2009, the Department awarded 50 percent of the Commonwealth‘s ARRA
Title I and IDEA funds. According to its Grant Award Notifications, PDE was the prime
recipient of the Commonwealth‘s ARRA Title I and IDEA funds. PDE administered all
Title I and IDEA grant funds for the Commonwealth. PDE was allocated a total of
$858.4 million in funding for both programs (see Table 1).

On August 5, 2009, the Governor authorized the use and distribution of the Title I and
IDEA funds that the Department made available on April 1, 2009.4 The Commonwealth
appropriated its ARRA funding over the 2009-2010 and 2010-2011 school years.

                                Table 1 – PDE ARRA Allocations
         Federal                      Catalog of Federal     Total Amount Allocated
      ARRA Program                 Domestic Assistance No.         (in millions)5
          Title I                           84.389                     $400.6
          IDEA                              84.391                     $457.8
          Total                                                        $858.4

The Department approved the Commonwealth‘s Application for Initial Funding of SFSF
funds on October 27, 2009.6 The Governor‘s Office was awarded approximately
$1.9 billion. Of that amount, 81.8 percent of its allocation was awarded under the
Education Stabilization Fund (ESF) and the remaining 18.2 percent was awarded under

4
  The Commonwealth‘s budget was approved on October 9, 2009. Prior to the budget being approved,
however, the Governor signed a ―bridge budget‖ that authorized the expenditure of the April 2009 Title I
and IDEA funds.
5
  These data were obtained from the Department‘s Web site
http://www.ed.gov/policy/gen/leg/recovery/state-fact-sheets/pennsylvania.doc. The total allocated funds
for the IDEA grant include Parts B and C. We could not break out the amount allocated per Part.
6
  The Commonwealth initially submitted its SFSF application on April 24, 2009, submitted a revised
application on June 26, 2009, and submitted the final approved application on October 20, 2009.
        Audit Report
        ED-OIG/A03K0003                                                                        Page 4 of 28
        the Government Services Fund (GSF) (see Table 2). PDE also administered the ESF
        funds. The ESF funds were to be used to restore the level of State support for elementary
        and secondary education in fiscal year (FY) 2010 to the greater of the FY 2008 or
        FY 2009 levels of such support.

                             Table 2 - Governor’s Office ARRA Allocations
                                          Catalog of Federal     Total Amount Allocated
                    SFSF Fund           Domestic Assistance No.        (in millions)
                       ESF                      84.394                     $1,559.0
                       GSF                      84.397                       $346.8
                      Total                                                $1,905.8

        PPS, CUSD, and PACS were subrecipients of the ARRA Title I and IDEA funds. PPS
        and CUSD were also subrecipients of the ESF portion of the SFSF funds. In order to
        receive the Title I, IDEA, and ESF funds, the LEAs were required to submit grant
        applications to PDE. Upon approval of the LEA applications, PDE made Title I, IDEA,
        and ESF funds available for disbursement to the LEAs for the 2009-2010 school year.
        Table 3 identifies the ARRA award and expenditure amounts for each LEA, as of
        April 30, 2010.

                              Table 3 – LEA ARRA Awards and Expenditures
                      Title I                     IDEA                                          ESF
        Amount         Amount                Amount       Amount                   Amount       Amount
        Awarded       Expended     Percent   Awarded     Expended      Percent     Awarded     Expended     Percent
LEA
           (in           (in      Expended      (in          (in      Expended        (in         (in      Expended
        millions)     millions)              millions)   millions)                 millions)   millions)
 PPS     $16.2          $1.6        10%        $7.6         $3.6        47%         $18.7        $14.9       80%
CUSD      $2.6        Unknown7    Unknown7     $1.2      Unknown7     Unknown7       $5.1      Unknown7    Unknown7
PACS      $0.8          $0.2        22%        $0.7        $0.04        6%
Total       $19.7       $1.8                   $9.5        $3.64                    $23.8        $14.9


        PPS is the second largest school district in the Commonwealth (based on student
        enrollment). It serves approximately 26,000 students in kindergarten through grade 12 in
        64 schools.

        CUSD serves approximately 4,195 students in pre-kindergarten through grade 12 in 7
        schools. It was designated an empowerment district under the Education Empowerment
        Act of Pennsylvania in 2000.8 CUSD hired a private management company to oversee
        curriculum and school administration in 2001. A State-appointed board of control that
        had been overseeing the LEA‘s finances since 1994 resumed total control of the LEA in
        2005 following the management company‘s departure. PDE sued the State-appointed
        board that same year for mismanagement, resulting in the LEA being placed under the

        7
          As discussed in Finding No. 2, CUSD‘s Chief Business Officer (CBO) charged all ARRA expenditures to
        its general operating fund during the year and backed them out at year-end.
        8
          The Education Empowerment Act put the Commonwealth in charge of managing school-level reforms at
        LEAs struggling both educationally and financially.
Audit Report
ED-OIG/A03K0003                                                                              Page 5 of 28
temporary financial receivership of the Commonwealth‘s Secretary of Education.9 In
2007, the Commonwealth‘s Secretary of Education announced that CUSD was on sound
financial footing and installed CUSD‘s current empowerment board.10 As a condition of
its receivership, the Commonwealth required the Agent for the Receiver11 to review all of
CUSD‘s non-payroll expenditures greater than $5,000 prior to payment.

PACS, a charter school,12 serves approximately 1,186 students in kindergarten through
grade 12. PACS‘ financial processes are performed by Santilli and Thomson, an
independent management company that was hired in June 2009 under a 3-year contract.
The management company provided comprehensive financial business services.
Its contract was approved by the school‘s Board of Trustees, which is responsible for
approving all contracts and employee salaries.

Commonwealth intermediate units (IU) are PDE‘s statutory LEAs under IDEA and are
the direct recipients of IDEA, Part B § 611 funds from PDE. According to PDE, IUs
exercise due diligence on behalf of PDE for the proper administration, oversight, and
management of the local regional IDEA funding allocations. IUs also perform the
day-to-day management of IDEA, Part B § 611 fiscal program requirements, including
disbursement of pass-through funding to eligible LEAs. Table 4 identifies each LEA‘s
IU.

                                   Table 4 – Identification of IUs

        Name of LEA                      Name of LEA’s IU                         IU Number
           PPS                                Mt. Oliver                               2
          CUSD                            Delaware County                             25
                                          Intermediate Unit
             PACS                        Philadelphia School                            26
                                               District


General Summary of PDE’s Supplemental Monitoring Process

In PDE‘s response and additional information provided,13 PDE stated that it has enhanced
its monitoring efforts and guidance provided to subrecipients over the use and reporting
of ARRA funds. To enhance its monitoring efforts, PDE developed and currently uses

9
  Under a receivership, a person (Receiver) is appointed to receive and hold in trust, money or other
property which is the subject of litigation, pending the suit. CUSD was placed in receivership on
November 28, 2006.
10
   The information about CUSD‘s fiscal status was obtained from a Daily Times news article published on
June 14, 2010. The Web site was
http://www.delcotimes.com/articles/2010/06/14/news/doc4c158f5dd7221592640241.txt.
11
   An Agent for the Receiver is an individual that is authorized to act on the behalf of the Receiver.
12
   A charter school is an independent public school established and operated under a charter from the local
board of school directors. The Philadelphia School District (PSD) issued PACS its charter.
13
   In response to questions we asked PDE about its response, it provided us with additional clarifying
information. This information is not included with PDE‘s formal response in the Enclosure.
Audit Report
ED-OIG/A03K0003                                                                           Page 6 of 28
three monitoring tools--a Funding Verification Survey (Funding Survey); a Desk
Monitoring Instrument; and an On-site Monitoring Instrument (On-site Instrument). The
Funding Survey is a self-evaluation document that high-risk subrecipients must complete
and submit to PDE. The Funding Survey is reviewed during a desk review using the
Desk Monitoring Instrument. According to PDE‘s response, PDE is first monitoring
subrecipients it designates as high-risk. All high-risk subrecipients are scheduled to
receive on-site monitoring visits. As PDE moves toward monitoring lower-risk
subrecipients, it will generally only perform a desk review.

Desk reviews include a review of subrecipient quarterly ARRA § 1512 data reports and
Funding Surveys. The Desk Monitoring Instrument is a checklist that primarily includes
a multitude of questions relevant to a subrecipient‘s reporting of its ARRA § 1512 data.
A contractor performs most of the desk reviews and on-site visits.

The On-site Instrument is used during on-site monitoring visits. According to PDE‘s
response, on-site visits began in June 2010, are occurring weekly, and are planned to
continue at least through the end of September 2011 (the end of ARRA funding). In
addition to these visits, two-thirds of the LEAs will receive an on-site programmatic
review from PDE‘s Division of Federal Programs before the end of September 2011.
These reviews are to include both programmatic and fiscal matters using the new
supplemental monitoring tools.

The Funding Survey and On-site Instrument both include fiscal and programmatic
elements, including elements specific to ARRA, such as compliance with ARRA § 1512
data reporting requirements. The Desk Monitoring and On-site Instruments include
questions on a subrecipient‘s controls over areas such as time and effort certifications;
and policies and procedures for credit and debit card usage, travel, and supplement not
supplant14 requirements. The instruments also address cash management controls,
including earning interest, ensuring that the time between the transfer of funds and the
disbursement of those funds is minimized, segregation of duties, preparing bank
reconciliations, authorizing expenditures, maintaining cash receipts, safeguarding checks,
and using and reconciling petty cash.


FINDING NO. 1:            PDE and the Comptroller’s Office Need to Ensure that LEAs
                          Minimize Excess Cash and Properly Remit Interest Earned on
                          Federal Funds

In our previous report on the Commonwealth‘s internal controls over selected funds, we
reported several cash management internal control issues related to ARRA and non-ARRA
funds at PDE and the Comptroller‘s Office. In particular, we were concerned about the
adequacy of the controls at PDE and the Comptroller‘s Office to prevent and detect whether



14
  Supplanting occurs when a State or LEA uses Federal funds to provide services they provided with State
or local funds in the prior year.
Audit Report
ED-OIG/A03K0003                                                                             Page 7 of 28
LEAs were: (1) expending all the Federal cash advanced to them on a monthly basis (prior to
receiving their next month‘s advance);15 (2) maintaining excess Federal cash balances;
(3) earning interest on Federal funds; and (4) returning interest earned (in excess of $100) to
the Department. Our ARRA work at three LEAs found that PDE and the Comptroller‘s
Office made some progress in addressing some of these issues but confirmed that the issues
still existed with respect to both offices‘ controls over LEAs maintaining excess cash and
earning and remitting interest earned on Federal funds. PDE and the Comptroller‘s Office
need to ensure that LEAs minimize excess cash and properly remit interest earned on Federal
funds.

The applicable cash management requirements are addressed in the ―Education Department
General Administrative Regulations (EDGAR), Uniform Administrative Requirements for
Grants and Cooperative Agreements to State and Local Governments‖
(34 Code of Federal Regulations (C.F.R.) Part 80). These regulations provide that:

        ―[M]ethods and procedures for payments shall minimize the time elapsing between
         the transfer of funds and disbursement by the grantee or subgrantee …‖ and
         ―Grantees and subgrantees shall be paid in advance, provided they maintain or
         demonstrate the willingness and ability to maintain procedures to minimize the time
         elapsing between the transfer of the funds and their disbursement by the grantee or
         subgrantee.‖ 34 C.F.R. § 80.21(b) and (c)

        ―[G]rantees and subgrantees shall promptly, but at least quarterly, remit interest
         earned on advances to the Federal agency. The grantee or subgrantee may keep
         interest amounts up to $100 per year for administrative expenses.‖
         34 C.F.R. § 80.21(i)

The Department reinforced the above cash management requirements in the
ARRA-specific guidance it issued in April 2009.16 In particular, the guidance addresses
funds made available under ARRA for three programs: (1) Title I; (2) IDEA; and
(3) Title XIV of Division A of the ARRA (SFSF).

Excess Cash

PACS maintained excess ARRA IDEA funds. On February 17, 2010, PSD, the IU tasked
with disbursing PAC‘s ARRA IDEA funds, disbursed to PACS its total 2009-2010
ARRA IDEA allotment of $710,355 in one lump sum. PACS did not start expending
these funds until March 25, 2010, and consequently maintained excess cash for at least a
month. PACS‘ Business Manager notified PSD officials that the disbursement was a
significant amount to expend at one time. PSD‘s method for disbursing the ARRA IDEA

15
  PDE advanced Title I funds to LEAs on a monthly basis.
16
   Department guidance for the three programs are titled:(1) ―Funds Under Title I, Part A of the Elementary
and Secondary Education Act of 1965 Made Available under The American Recovery and Reinvestment
Act of 2009‖; (2) ―Funds for Part B of the Individuals with Disabilities Education Act Made Available
under The American Recovery and Reinvestment Act of 2009‖; and (3) ―Guidance on the State Fiscal
Stabilization Fund Program‖.
Audit Report
ED-OIG/A03K0003                                                                            Page 8 of 28
funds did not minimize the time elapsing between the transfer of the funds advanced and
the disbursement of funds by its subgrantee PACS. Not minimizing the time elapsing
between the transfer of funds advanced to and then disbursed by the LEAs, caused PSD,
and consequently PDE,17 to not be in compliance with Federal requirements. Although
our audit did not involve a review of IUs‘ controls over cash management, it is possible
that IUs may be disbursing funds too far in advance to other LEAs.18 PDE needs to
ensure that IUs are not transferring funds too far in advance to its subgrantees.

PACS also maintained excess ARRA Title I funds. As of April 30, 2010, PDE advanced
a total of $348,150 to PACS. PDE continued to disburse funds to PACS without PACS
having expended all the funds it had received. According to PACS' records, it had
expended approximately 53 percent ($184,428) of the ARRA Title I funds it received
from August 2009 through April 30, 2010. As a result, PACS had $163,722
cash-on-hand that it had not expended. The Comptroller‘s Office method for disbursing
the ARRA Title I funds did not minimize the time elapsing between the transfer of the
funds and the disbursement of these funds by PACS.

The U.S. Treasury incurs additional borrowing costs when Federal funds are drawn and
disbursed to LEAs in advance of their immediate cash needs. Because of the Federal
deficit, the U.S. Treasury must borrow the cash needed to fund Federal programs and, as
a result, incurs interest costs. In addition, by disbursing funds to LEAs too far in advance
of an LEA‘s immediate cash needs, there is an increased risk that ARRA funds might be
misused. Funds provided too early may be more susceptible to misuse when held in local
accounts for extended periods of time.

Calculating and Remitting Excess Interest

In our previously issued Commonwealth ARRA related report, we reported that the
Comptroller‘s Office relied on LEAs to self-report and remit interest earned on their
Federal cash balances. The Comptroller‘s Office did not have adequate procedures in
place to ensure that LEAs properly calculated and remitted the interest earned on Federal
funds in excess of $100, at least quarterly, to the Department. Our LEA ARRA work
further substantiated our conclusions. We found earned interest issues at two of the three
LEAs we reviewed (PPS and PACS).

In its response to our report, PDE stated that it had given guidance to LEAs to refrain
from accumulating excess cash and earning interest. PDE also provided to LEAs
procedures for returning interest earned. PDE further stated that it, along with the
Comptroller‘s Office, planned to establish a policy that strongly encouraged LEAs to use
non-interest bearing accounts for Federal funds.19 Based on the results of the work we
conducted at the LEAs, PDE needs to conduct additional monitoring and provide
additional guidance to its LEAs.

17
   PDE disbursed the funds to PSD to disburse to its LEA subgrantees.
18
   PSD is the IU for about 62 LEAs.
19
   As stated in our previous Commonwealth report, this policy may not be the best policy for managing
Federal funds.
Audit Report
ED-OIG/A03K0003                                                                         Page 9 of 28
Both PPS and PACS earned interest on the Federal funds (ARRA and non-ARRA) they
received but did not return the interest to the Department as required. PPS earned $3,274
in interest on its ARRA Title I ($2,167) and IDEA ($1,108) funds between
October 1, 2009, and February 28, 2010. PACS earned $9,264 in interest on all its funds
between July 1, 2009, and April 14, 2010. It could not readily identify how much of that
interest was earned on Federal funds because it combined its Federal and non-Federal
funds into one interest bearing account.

None of the three LEAs we reviewed had developed its own interest policies and
procedures to instruct employees on calculating and remitting excess interest. At least
one LEA (PPS) did not know where to return the excess interest prior to our initial site
visit in July 2009. PPS‘ Financial Reporting Supervisor mistakenly believed such funds
should have been returned to PDE.

Although PDE‘s Bureau of Special Education (BSE), the office responsible for
monitoring subgrantees‘ use and administration of IDEA funds, held an ARRA-related
training session for LEAs in July 2009, the training material only cited where in EDGAR
[34 C.F.R. § 80.21(i)] the Department‘s regulation on interest earned could be found.
Therefore, the training material did not instruct LEAs specifically on how to calculate
and remit interest to the Department. Furthermore, the training was not mandatory. The
BSE provided additional training to LEAs on April 16, 2010, that included information
on earning interest and an address where it should be sent. According to PPS‘ Executive
Director for Budget Development and Operations, attendance at the April 2010 training
session was only strongly recommended.

PDE‘s Deputy Secretary for Administration (DSA) informed us that PDE‘s Bureau of
Budget and Fiscal Management (BBFM) also issued administrative and fiscal guidance to
IDEA grant applicants in April 2009 and June 2010.20 The April 2009 guidance
identified the administrative rules for Federal grants to State and local governments found
in EDGAR (34 C.F.R. Part 80). However, merely citing a regulation and offering no
explanation or clarification of the requirements does not provide adequate guidance. The
June 2010 guidance also identified the interest earned quarterly remittance requirement.
The guidance also included an address for remitting interest payments.

Although the June 2010 guidance included additional interest remittance information, all
LEAs still may not be aware of it since it was directed only to IDEA grant subrecipients
and not to all subrecipients of ARRA funds. Also, none of the guidance issued by PDE
included information on how to properly calculate interest.




20
  The documents were entitled ―The American Recovery and Reinvestment Act of 2009 (ARRA)
Individuals with Disabilities Education Act (IDEA) Part B Recovery Funds Section 611, Administrative
and Fiscal Guidelines, Rider H – Program Application of LEA‖ and ―Individuals with Disabilities
Education Improvement Act Part B (IDEA-B), Administrative and Fiscal Guidelines, Rider H – Program
Application of LEA, Rider I – Support Services, Rider J – Direct Services,‖ respectively.
Audit Report
ED-OIG/A03K0003                                                                Page 10 of 28
PDE‘s DSA also informed us that PDE would be issuing a special reminder and
clarifying guidance to all grant recipients of Federal funds on the excess interest
procedures to ensure grantee compliance.

Recommendations

We recommend that the Chief Financial Officer (CFO) require PDE to:

1.1    Conduct monitoring and provide additional guidance to ensure that IUs have
       adequate policies and procedures to minimize the time lapsing between the
       transfer of funds advanced to its LEAs and the disbursement of those funds by the
       LEAs;

1.2    Expedite the dissemination of the special reminder and clarifying guidance to all
       LEAs, including those that receive SFSF funds, on the excess cash and interest
       remittance requirements. The guidance should instruct LEAs how to accurately
       calculate and timely remit interest earned on Federal funds;

1.3    Develop a process to monitor IU and LEA compliance with the excess cash and
       interest requirements; and

1.4    Work with PPS and PACS to ensure that the LEAs return to the Department
       excess interest earned on ARRA and non-ARRA Federal funds (excluding the
       $100 per year for administrative expenses that is permitted to be kept).

PDE and LEA Responses

PDE did not specifically concur or nonconcur with the finding and recommendations.
PDE reiterated that it provided ongoing monitoring and guidance that address the
requirements stated in the finding through program office desk reviews and tri-annual site
visits. Guidance is also provided through the grant contract agreements with the LEAs,
training sessions and presentations, and the posting of information on PDE‘s Web site.
PDE updated its IDEA program monitoring instrument to include ARRA specific areas,
and updated its Title I program monitoring instrument to include additional ARRA
related review areas. In addition to its existing monitoring efforts, PDE informed us that
it has increased its monitoring efforts. As previously stated, PDE developed three new
monitoring tools. These tools specifically address the issue of LEAs minimizing excess
cash and the earning of interest.

In the additional information PDE provided to us, it reiterated that the Comptroller‘s
Office requires all ARRA subrecipients to complete quarterly Reconciliation of Cash on
Hand reports. The online Reconciliation of Cash on Hand report screen includes
information about interest remittance requirements. The report screen also includes a
link to PDE‘s updated Federal interest remittance policy. According to PDE, every
recipient on a quarterly basis must click through this screen to complete the
Reconciliation of Cash on Hand report. Guidance covered in the policy includes how and
Audit Report
ED-OIG/A03K0003                                                                Page 11 of 28
when to remit interest; the amount and uses of what can be retained; exceptions to the
requirement; coordination of effort between LEAs and IUs in developing internal
controls and interest calculation methodologies; and interest calculation. An email
address is also provided for additional assistance.

PDE stated that it received confirmation from PPS that the excess interest was remitted to
the Department ($4,568 total; $3,515 in Title I and $1,053 in IDEA funds). PPS
confirmed this in its response. PDE stated that it will work with PACS to ensure the
same result. PACS‘ response to the report did not include comments on this finding.

OIG Comments

We commend PDE for enhancing its monitoring efforts and providing additional
guidance to its subrecipients. During the time of our review, these procedures were not
in place and none of the three LEAs we reviewed appeared to know about them. Based
on our review of PDE‘s response, its supplemental monitoring instruments, and its
Federal interest policy, we concluded that the additional steps PDE has taken should
adequately address our recommendations. However, PDE should expedite working with
PACS to ensure that it correctly calculates and timely remits the excess interest it earned
to the Department. We suggest PDE update its current Title I and IDEA program
monitoring instruments to include a step to address subrecipients‘ compliance with
excess cash and interest regulations, especially if PDE does not continue its supplemental
monitoring process after September 2011.


FINDING NO. 2:              PDE Needs to Ensure LEAs Have Adequate Guidance for
                            ARRA § 1512 Data Reporting

A principle of ARRA is to ensure transparency in government spending. To ensure
transparency, ARRA § 1512 requires recipients to report data to the
FederalReporting.gov Web site on a quarterly basis. PDE did not adequately ensure that
LEA data reported to it were accurate and complete (reliable). We identified data quality
issues related to two of the three LEAs we reviewed (CUSD and PACS). In its response
to our report on the Commonwealth‘s ARRA internal controls over selected funds, PDE
informed us that it had awarded a contract to assist in ensuring accurate and complete ARRA
data collection and reporting by its LEAs.21 However, we are concerned that PDE did not
have adequate processes and controls in place to ensure that the required data submitted
by an LEA are accurate and complete. Improved guidance and oversight by PDE should
reduce the risk of the issues noted below from occurring in the future.

The applicable ARRA § 1512 data reporting requirements are addressed within OMB‘s
guidance, ―Implementing Guidance for the Reports on Use of Funds Pursuant to the
American Recovery and Reinvestment Act of 2009,‖ issued on June 22, 2009. Prime
recipients are to (1) initiate appropriate data collection and reporting procedures to ensure
that § 1512 reporting requirements are met in a timely and effective manner;
21
     We did not perform any work related to the ARRA contract.
Audit Report
ED-OIG/A03K0003                                                               Page 12 of 28
(2) implement internal control measures as appropriate to ensure accurate and complete
information; and (3) review subrecipient information for material omissions and/or
significant reporting errors, and make appropriate and timely corrections to prime
recipient data and work with the designated subrecipient to address any data quality
issues.

The implementing guidance also states that ―Prime recipients are required to report an
estimate of jobs directly created or retained by project and activity or contract.
Recipients will be required to report an aggregate number for the cumulative jobs created
or retained for the quarter . . . .‖ It further states that ―a job created is a new position
created and filled . . .‖ and that ―the estimate of the number of jobs required by the
Recovery Act should be expressed as ‗full-time equivalents (FTE)‘ . . . . The FTE
estimates must be reported cumulatively each calendar quarter.‖

The OMB issued an update to the implementing guidance on December 18, 2009, entitled
―Updated Guidance on the American Recovery and Reinvestment Act – Data Quality,
Non-Reporting Recipients, and Reporting of Job Estimates‖ (OMB M-10-8). It states
―under the revised guidance, recipients should not cumulate hours worked across several
quarters‖ and ―once a job is reported by a recipient as created or retained by the Recovery
Act, the recipient shall continue to report this job as created or retained in subsequent
quarters as long as the job continues to be funded by the Recovery Act.‖

As the prime recipient within the Commonwealth, PDE is responsible for establishing
controls to ensure that LEAs within the Commonwealth are submitting accurate and
complete ARRA data that meet the reporting requirements. To obtain data from its
LEAs, PDE required each LEA to complete a quarterly survey using PDE‘s e-Grants
system. The survey asked several questions designed to gather information about LEA
quarterly ARRA activities.

Inaccurate Reporting of Job Creation Data

In its first quarterly data report to PDE (September 30, 2009), CUSD reported that it
created six new Title I Leader Coach jobs with ARRA Title I funds. However, according
to CUSD‘s Chief Business Officer (CBO), CUSD did not create any of its Title I Leader
Coach jobs until December 2009. CUSD‘s Title I Coordinator told us that the six Title I
Leader Coach jobs reported in September 2009 were not newly created. Rather, the jobs
were for six current employees who worked in other full-time positions but performed the
work of the two Leader Coach positions until two employees were hired as full-time
Leader Coaches. In its second quarterly data report (December 31, 2009), CUSD did not
report the two new Leader Coach jobs or even the six temporary Leader Coach jobs.
CUSD should have reported the two new ARRA Title I Leader Coach jobs, hired in
December 2009, in the December 2009 data report.

CUSD also did not report the correct number of Classroom Support Teachers it hired
with ARRA Title I funds in its December 31, 2009, data report. CUSD reported that it
Audit Report
ED-OIG/A03K0003                                                                             Page 13 of 28
created 34 new Classroom Support Teacher jobs, when in fact only 10 jobs were created.
The remaining 24 positions were created using non-ARRA funds.

In addition, CUSD did not report the five Behavioral Health Specialist jobs it created
with its ARRA IDEA funds in either of the two quarterly reporting periods. According to
the CBO, he did not believe it was his responsibility to report CUSD‘s ARRA IDEA job
reporting data to PDE. He believed CUSD‘s IU would report the five Behavioral Health
Specialist positions when he reported CUSD‘s annual IDEA fund expenditure
information to the IU in June 2010. He also stated that he did not have access to PDE‘s
e-Grants IDEA data reporting system. According to PDE‘s Education Administration
Supervisor, CUSD was responsible for reporting its own ARRA IDEA job activity. PDE
did not make the system available to CUSD because CUSD reported to its IU that it did
not expend any ARRA IDEA grant funds as of December 31, 2009.

CUSD did not expend any of its ARRA IDEA funds because it was not charging any of
its ARRA IDEA (or Title I) payroll costs to its ARRA accounts. CUSD charged payroll
to its general operating fund. According to the CBO, this was the practice for all the
programs CUSD administered. He stated that later in the year, he would back out the
ARRA payroll expenses with correcting journal voucher (JV) entries22 and assign the
expenses to CUSD‘s ARRA funds as applicable. Using its own funds for the entire year
could result in CUSD experiencing economic shortfalls and financial difficulties,
especially during difficult economic times. Also, not accurately tracking its ARRA costs
may have contributed to CUSD misreporting its job data to PDE.

Clear Guidance Needed

Title I Guidance

The Title I Coordinator‘s confusion relating to PDE‘s revised job reporting instructions
contributed to some of CUSD‘s ARRA Title I data reporting errors. PDE issued job
reporting instructions to its LEAs via email on December 28, 2009, and January 6, 2010.
Both emails referenced OMB M-10-8, which states that jobs reported as created or
retained in a previous quarter, should continue to be reported in subsequent quarters as
long as the job continues to be funded by ARRA. However, PDE‘s instructions stated
that effective with the December 31, 2009, data report, LEAs were no longer required to
report cumulative job numbers. Although the instructions stated that ―… the new
guidance changes the way LEAs and IUs must calculate the number of jobs,‖ the Title I
Coordinator interpreted PDE‘s instructions to mean that LEAs did not have to re-report in
subsequent reporting periods the jobs created with ARRA funds that it reported in the
previous reporting period. As explained above, this interpretation is inaccurate.

CUSD provided PDE with inaccurate and incomplete data, and PDE relied on these data.
It ultimately led to unreliable data being reported to the FederalReporting.gov Web site.
The American public relies on the accuracy of data in FederalReporting.gov to provide

22
  A JV is a written authorization usually prepared for every financial transaction. A correcting entry is
used to reverse previously performed financial transactions.
Audit Report
ED-OIG/A03K0003                                                              Page 14 of 28
transparency and accountability. In PDE‘s written response to our exceptions, PDE‘s
DSA stated that PDE ―. . . did not identify material omission or significant reporting
errors in it‘s [sic] (PDE‘s) reports or that of CUSD. CUSD did not notify PDE of the
incorrect information, therefore PDE could not report corrected information to
FederalReporting.gov. Further, OIG does not state these discrepancies are material, as
explicitly cited.‖ We do not dispute that PDE was unaware of CUSD‘s inaccurate data.
CUSD‘s data errors may not have been material in the scope of PDE‘s overall data report
to the FederalReporting.gov Web site; however, if other LEAs experienced similar
circumstances, the combination of errors could be significant to PDE‘s overall reporting.
Some of the errors may have been avoided if PDE‘s data reporting guidance to the LEAs
was clearer.

IDEA Guidance

PSD provided LEAs under its responsibility (one of which was PACS) with unclear
ARRA IDEA job reporting guidance which the LEAs followed. Consequently, relying
on the data that the LEAs submitted based on this guidance PDE could have reported
inaccurate data to the FederalReporting.gov Web site. PSD‘s guidance was distributed to
its LEAs on February 5, 2010. The guidance (under the Vendor Job Reporting section)
stated that jobs created and/or retained is not cumulative and that the LEA must report
jobs created only during the quarter. The guidance did not make it clear that once a job is
reported as created or retained using ARRA funds, the job shall continue to be reported as
created or retained in subsequent quarters as long as the job continues to be funded by
ARRA funds. In each quarter, all jobs funded by ARRA funds should be reported in that
quarter and be included in the FTE calculation for the quarter. This was not apparent in
PSD‘s reporting guidance. By stating that the LEA must report only jobs created and/or
retained by ARRA during the quarter, PSD‘s guidance could potentially lead an LEA to
omit a previously reported job from its subsequent quarterly report, even if it continued to
be funded by ARRA funds.

Since the reporting guidance was unclear, the ARRA IDEA data submitted to PDE by
LEAs under PSD‘s responsibility could potentially be inaccurate. The IUs may not be
aware of or keeping up to date with the most recently issued guidance on ARRA § 1512
data reporting. However, as the prime recipient of the ARRA funds, PDE is ultimately
responsible for the data it reports. Potential errors like this could be mitigated if PDE
ensures that the ARRA IDEA job reporting guidance the IUs provide to its LEAs clearly
explains the job reporting requirements.

Recommendations

We recommend that the Assistant Secretary for OESE, in coordination with OSERS,
require PDE to:

2.1    Provide additional guidance to ensure that its LEAs receive and understand
       ARRA Title I and IDEA job creation and retention requirements; and
Audit Report
ED-OIG/A03K0003                                                                           Page 15 of 28
2.2     Work with LEAs to ensure they develop and implement an effective process that
        will properly track and report all ARRA § 1512 data.

PDE and LEA Responses

PDE did not concur with the finding and recommendations. PDE asserted that it has been
providing LEAs with ARRA § 1512 reporting guidance on an ongoing basis. PDE
recently implemented a new electronic reporting system (PAEdTrak) to track and report
all ARRA § 1512 data. This data system includes validation rules which, according to
PDE officials, prohibit the most common types of mistakes and redirect subrecipients to
additional guidance when mistakes are made.

PDE provides guidance through its ARRA Reporting Web page, which is continuously
updated and includes recent communications about data reporting. Older
communications can be found on PDE‘s ARRA Resources Web page. PDE‘s
supplemental monitoring tools--the Funding Survey, Desk Monitoring Instrument, and
Onsite Instrument enable it to monitor and review the ARRA § 1512 data submitted by
its subrecipients.

CUSD provided comments but PACS did not. Regarding the inaccurate reporting of
data, CUSD stated that it expended ARRA Title I and IDEA funds but did not charge the
ARRA accounts when the expenditures were made. CUSD‘s year-end process captured
all expenditures applicable to ARRA Title I and IDEA funds. Regarding the
ARRA § 1512 guidance provided, CUSD stated that it followed the instructions and
guidelines for reporting information to PDE. If reporting changes were necessary, CUSD
stated that it submitted revised reports.

OIG Comments

Based on our review of PDE‘s response, its supplemental monitoring tools, its updated
Title I and IDEA program monitoring instruments, and the guidance contained on its
Reporting Web page, we concluded that PDE‘s newly implemented processes should
help to ensure that LEAs receive and understand ARRA job creation and retention
requirements.

We do not dispute that CUSD officials attempted to follow instructions and guidelines for
reporting information to PDE or that it its year-end process could capture all expenditures
applicable to ARRA Title I and IDEA funds. However, it did not properly report its
ARRA Title I and ARRA IDEA data or track its ARRA payroll expenditures as they
were incurred.23 In its planned monitoring of CUSD,24 PDE needs to ensure that CUSD
has a process in place to properly and accurately report its ARRA jobs data. PDE also
needs to ensure that CUSD is properly tracking and reporting all its Federal (ARRA and
non-ARRA) expenditures as they are incurred.

23
 The tracking of expenditures also is discussed in Finding No. 4.
24
 In the additional information PDE provided to us, it informed us that a supplemental monitoring visit at
CUSD was scheduled for November 30, 2010.
Audit Report
ED-OIG/A03K0003                                                                        Page 16 of 28
FINDING NO. 3:           PDE Needs to Improve Its Monitoring and Guidance Over
                         LEA Completion of Semiannual Time and Effort Certifications

PDE needs to improve its monitoring and guidance over LEA completion of semiannual
time and effort certifications (certifications). We found that certifications were not
adequately completed at two of the three LEAs we reviewed (CUSD and PACS).
Certifications are part of the supporting documentation that should be maintained for
personnel costs charged to Federal grants.

The applicable regulation is contained in the ―OMB Cost Principles for State, Local, and
Indian Tribal Governments‖ (OMB Circular A-87), Appendix B, 8.h.(3), which states—

                Where employees are expected to work solely on a single
                Federal award or cost objective, charges for their salaries and
                wages will be supported by periodic certifications that the
                employees worked solely on that program for the period covered
                by the certification. These certifications will be prepared at least
                semiannually and will be signed by the employee or supervisory
                official having firsthand knowledge of the work performed by
                the employee.

CUSD did not have policies and procedures to require employees to complete
certifications and did not complete them for employees working on ARRA and
non-ARRA funded Federal programs until April 2010. CUSD officials were unaware of
the certification requirement until its Title I Coordinator attended a PDE Title I
Coordinator‘s meeting in March 2010. After this meeting, the Title I Coordinator
requested that employee certifications be completed for the semiannual period that just
ended. During our April 2010 site visit, we found that the certifications were never
completed. We brought this to the attention of the CBO and the Title I Coordinator;
consequently, they had the certifications completed. However, the certifications did not
adequately fulfill the requirements because they did not include a time period or a
specific Federal program or Federal cost objective that was worked on.

We could not determine whether CUSD completed certifications for its IDEA employees.
The IDEA Coordinator stated that she had activity reports for all IDEA personnel, but
when we requested them, they were not provided to us. We could not determine the
amount of salary costs expended for Title I or IDEA ARRA and non-ARRA employees
because the CBO reconciles all accounts at the end of the school year and allocates
program funds at year end.

PACS completed certifications for its Title I employees25 (both ARRA and non-ARRA)
for two semiannual periods.26 However, the certifications were not adequate because
they were not being certified at the end of the semiannual period. The principal was
certifying the forms at the beginning of the period. Employees could change positions or
25
  PACS did not have any IDEA ARRA employees at the time of our review.
26
  The first semiannual period was July 1, 2009, through December 31, 2009. The second semiannual
period was January 1, 2010, to June 30, 2010.
Audit Report
ED-OIG/A03K0003                                                                     Page 17 of 28
duties during the period causing the certification to be inaccurate. Certifying time and
effort at the end of the period would eliminate the risk of such errors. As a result of the
inadequate certifications, PACS‘ Title I (both ARRA and non-ARRA) personnel
expenditures, totaling $438,835, were not properly supported.27

As discussed in Finding No. 1, PDE‘s DSA informed us that PDE‘s BBFM issued
administrative and fiscal guidelines to IDEA grant applicants in April 2009 and
June 2010. In both documents, PDE identified the applicable OMB Circular A-87 cost
principle requirement for personnel compensation. However, PDE needs to improve its
monitoring and guidance to ensure that certifications are properly completed for the
following reasons:

         LEAs are not completing certifications for all grants (ARRA and non-ARRA) or
          are not completing them properly;
         All LEAs may not be aware of the OMB Circular A-87 requirement because
          PDE‘s BBFM‘s guidelines were provided to IDEA grant subrecipients and not to
          Title I grant subrecipients; and
         Although PDE‘s Title I monitoring instrument included a step to determine
          whether LEAs prepared certifications, an LEA would only be monitored every
          3 years.

Recommendations

We recommend that the Assistant Secretary for OESE, in coordination with OSERS,
require PDE to:

3.1       Ensure that all LEAs within the Commonwealth are aware of the certification
          requirement and appropriately complete certifications for employees that work
          100 percent on ARRA and non-ARRA Federal programs or cost objectives; and

3.2       Require PACS to provide adequate documentation to support the $438,835 in
          inadequately supported Title I ARRA personnel expenditures or return any
          portion of that amount that the Department determines is not adequately
          supported.

PDE and LEA Responses

PDE did not concur with the finding and recommendations. PDE stated that it has
provided ongoing guidance and assistance to LEAs as part of the monitoring that is
conducted by program office staff. PDE has increased its monitoring efforts to address
fiscal and ARRA requirements. In addition, its supplemental monitoring tools include a
review of subrecipients‘ time and effort certification procedures.


27
 The amount represents the Title I ARRA and non-ARRA salaries from April 1, 2009, through
April 30, 2010.
Audit Report
ED-OIG/A03K0003                                                             Page 18 of 28
PACS stated that it has revised its time and effort certification process for the Title I
program and will review the guidance issued by PDE‘s BSE to ensure it is in compliance
with the policy for its IDEA program.

Neither PDE nor PACS provided comments relating to Recommendation 3.2. CUSD did
not provide any comments to this finding.

OIG Comments

Although PDE has provided guidance and assistance to LEAs, the monitoring and
guidance provided could be improved. The On-site Instrument addresses the time and
effort certification requirements for employees working on a single Federal award or cost
objective, but it does not address the time and effort certification requirement for split
funded employees. PDE‘s two other monitoring instruments do not address time and
effort requirements. PDE should address the time and effort certification requirements in
one or both of these instruments in case on-site reviews are not conducted.

We are aware that PDE‘s Title I and updated IDEA program monitoring instruments
address employee time and effort certification requirements; however, these monitoring
reviews are conducted only tri-annually (every 3 years). LEAs that are not visited during
the current supplemental monitoring cycle and do not receive a program monitoring visit
for 3 years may not be aware of the time and effort certification requirements or how to
properly complete or verify employee time and effort certifications. As a result, payroll
costs will be inadequately supported. PDE needs to provide additional guidance to LEAs
on when and how to prepare time and effort certifications. PDE should consider
providing time and effort certification guidance on its Web site. We also suggest that
PDE continue to use its supplemental monitoring process after September 2011 to ensure
that subrecipients have an adequate time and effort certification process.

PDE needs to ensure that PACS has adequate documentation to support the $438,835 in
Title I (ARRA and non-ARRA) personnel expenditures or require PACS to return any
funds that cannot be adequately supported. PDE also should ensure that PACS‘ time and
effort certification process for its IDEA program employees is adequate. Based on our
review of PACS‘ response, we concluded that its revised Title I program time and effort
certification process is adequate.


FINDING NO. 4:        PDE Needs to Ensure that LEAs Have Adequate Fiscal
                      Controls Over the Use of Federal Funds

A principle of ARRA is to ensure accountability over the use of funds provided under the
Act. During our limited review of LEA internal controls, we found fiscal control issues
at two of the three LEAs we reviewed (CUSD and PACs). CUSD did not record ARRA
and non-ARRA expenditures as they were incurred. CUSD also did not have adequate
controls relating to payroll data, the safeguarding of monetary instruments, and journal
voucher preparation. PACS did not have a strong accounting system; it did not have
Audit Report
ED-OIG/A03K0003                                                              Page 19 of 28
many internal controls built into it. Adequate fiscal controls are a means to ensure
accountability. If not corrected, the issues noted may put Federal funds (ARRA and
non-ARRA) at risk of misuse and in noncompliance with applicable ARRA guidance and
other Federal laws, regulations, and guidance. Similar issues could exist at other LEAs
within the Commonwealth. PDE needs to conduct monitoring and provide guidance to
ensure that all LEAs have adequate fiscal controls.

The applicable internal control requirements are addressed in EDGAR.

      34 C.F.R. § 80.20(b)(3) requires that effective control and accountability must be
       maintained for all grant and subgrant cash, real and personal property, and other
       assets. Grantees and subgrantees must adequately safeguard all such property and
       must assure that it is used solely for authorized purposes.

      34 C.F.R § 76.702 requires that a State and a subgrantee shall use fiscal control and
       fund accounting procedures that ensure proper disbursement of and accounting for
       Federal funds.

It is a basic accounting control procedure to have segregation of duties in place, which
prevents any one individual from having control over two or more aspects of a
transaction without review by another party.

Tracking of Expenditures

CUSD did not track its Title I (ARRA and non-ARRA) or SFSF program expenditures as
they were incurred. The Comptroller‘s Office advanced funds to LEAs monthly, based
on the length of the grant or the yearly allocation amount. As of June 30, 2010, the
Comptroller‘s Office advanced CUSD $1.8 million (73 percent) of the $2.6 million in
ARRA Title I funds it was awarded, and $4.7 million (92 percent) of the $5.1 million in
SFSF funds it was awarded. We requested supporting documentation to show how the
Title I and SFSF funds were expended from the CBO; however, he could not readily
provide it to us. As stated in Finding No. 2, the CBO charged program costs to CUSD‘s
general operating fund and at year-end would back out program expenses with correcting
JV entries in order to determine the actual costs.

As a result of not tracking its program costs, CUSD did not report actual Title I (ARRA
and non-ARRA) or SFSF expenditures to the Comptroller‘s Office in its quarterly
Reconciliation of Cash on Hand report. The reconciliation report was required to be
certified by a responsible LEA official to attest that the information provided was true
and accurate. The Comptroller‘s Office relied on the data in this report as an internal
control to determine whether an LEA was in need of additional funds or was maintaining
excess cash balances. If the Comptroller‘s Office determined that an LEA expended
funds in excess of its expected quarterly expenditure amount, it could accelerate an
LEA‘s future monthly payments. If an LEA did not expend all of the funds advanced to
it that quarter, the LEA‘s future monthly payments could be reduced or stopped.
According to the CBO, he estimated the quarterly SFSF expenditures included in the
Audit Report
ED-OIG/A03K0003                                                             Page 20 of 28
reconciliation report based on CUSD‘s total yearly SFSF budget. He would report a
quarter of the budgeted amount for each object code as expended on the reconciliation
report. For the Title I program (ARRA and non-ARRA), he based the quarterly
expenditures on the previous fiscal year‘s expenditure data. He would report a quarter of
the total amount expended for each object code in the previous year. For example, if
CUSD expended a total of $6 million for salaries in the previous FY, he would report a
quarter of that amount ($1.5 million) in the reconciliation report for the quarter.

By estimating its cash position and thus circumventing the quarterly reconciliation
control established by the Comptroller‘s Office, CUSD may have been in possession of
excess Federal cash. The U.S. Treasury incurs additional borrowing costs when Federal
funds are drawn and disbursed to LEAs in advance of their immediate cash needs.
Because of the Federal deficit, the U.S. Treasury must borrow the cash needed to fund
Federal programs and, as a result, incurs interest costs.

Improvement of Payroll Data Controls

CUSD‘s Deputy Director of Finance, a Foundations, Inc. employee, entered employee
salary data (initial and changes) into the payroll module of CUSD‘s accounting system
and, therefore, had the ability to change salary amounts. The Deputy Director of Finance
was also responsible for processing the payroll. The salary information was what
initiated the processing of the bi-weekly payroll in the payroll system. The HR
department also entered employees‘ initial salaries into the HR system module; however,
this was done only for informational purposes. HR department officials should be the
only persons permitted to change a salary amount. CUSD‘s accounting system can be set
up so that the salary amounts entered into the HR module would be transferred to the
payroll module and used to process the payroll. The Director of Finance would not have
the ability to make salary changes and also process the payroll. There would be a more
effective level of internal control over CUSD‘s payroll data, because the HR department
would not process the payroll, and because no one individual or department would have
control over the entire payroll process.

Safeguarding of Monetary Instruments

CUSD did not have procedures to adequately safeguard its manual checks and rubber
signature stamp. The manual checks were used to prepare payroll checks in case of
payroll processing errors or lost payroll checks. The rubber stamp consisted of the
signatures of the CUSD Board members who were the authorized signers for payroll
expenditures. The manual checks and the rubber signature stamp were maintained at
CUSD‘s administration office in a safe that was unlocked during the day and locked
every evening. Additionally, the CBO informed us that several employees had the safe
combination, but CUSD did not document which employees. Inadequately safeguarded
monetary instruments present the opportunity for theft, misappropriation, or unauthorized
use of funds. We discussed the issue with the CBO and he agreed that the safe should be
locked during the day and the checks and the rubber stamp should be kept in separate
locations.
Audit Report
ED-OIG/A03K0003                                                                           Page 21 of 28
Review of Journal Voucher Controls

CUSD‘s JV entries were not being reviewed and approved by someone other than the
preparer. The CBO prepared and input JV entries; however, no one was reviewing and
approving the entries he prepared before they were being input into the accounting
system.28 A JV entry should be reviewed and approved by an employee independent of
the employee preparing or inputting the entry into the accounting system. Because there
was no review of the JVs prepared by the CBO,29 there was a greater risk of errors being
made and of misuse of funds. This issue was also identified in CUSD‘s FY 2008
OMB Circular A-133 Single Audit report. In response to the finding, CUSD stated that
JVs were prepared and approved by the CBO.

In addition, the CBO was not required to sign the JV as preparer. Furthermore, the JV
did not include a place for the preparer‘s or an approver‘s signature. After informing
CUSD of the issue, the CBO agreed that the JV entry procedures should be improved.
The CBO stated that the procedures would be revised to include review and approval of
JVs prepared by the CBO by the Director of Finance. The JV form would also be revised
to include preparer and reviewer signatures.

Adequacy of Accounting System Internal Controls

PACS used the QuickBooks accounting system package to collect, process, and report
data (including ARRA data). According to PACS‘ Business Manager, the QuickBooks
system is not a strong accounting system and it does not have many internal controls built
into it. The Business Manager also stated that transactions within QuickBooks can be
changed. The ability to change data allows for data to be manipulated or for theft or
misuse of funds.30

PACS‘ Business Manager informed us that PACS was in the process of obtaining a new
accounting system, which should be in place by December 2010. He stated the new
system would have stronger internal controls.

Collectively, the issues identified above at CUSD and PACS put LEA‘s Federal funds
(ARRA and non-ARRA) at risk of being misspent.

Recommendations

We recommend that the Assistant Secretary for OESE, in coordination with OSERS, and
the CFO, require PDE to:

4.1     Conduct additional monitoring, provide guidance, and work with all LEAs in the
        Commonwealth to ensure that LEAs have adequate fiscal controls to provide
        assurance that ARRA and other Federal funds will be safeguarded, and that LEAs

28
   CUSD also did not have written JV preparation policies and procedures. See Finding No. 5 for details.
29
   CUSD‘s Director of Finance also prepared JVs; however, the CBO reviewed and input them.
30
   PACS also did not have written policies and procedures. See Finding No. 5 for details.
Audit Report
ED-OIG/A03K0003                                                              Page 22 of 28
       are accurately reporting the amount of ARRA funds expended or obligated to
       projects or activities; and

4.2    Work with CUSD and PACS to ensure that the cash management control issues
       noted in the Finding are adequately addressed.

PDE and LEA Responses

PDE did not specifically concur or non-concur with our finding; however, PDE believes
that its supplemental monitoring process addresses the issues noted in the finding because
fiscal controls are specifically reviewed in its supplemental monitoring instruments.
Additionally, PDE stated that subrecipient on-site visits include the review of
documented policies and procedures, permit discussion, and provide an opportunity to
give guidance and direction to the subrecipient.

PDE‘s BSE conducted a monitoring visit at CUSD in March 2010. The BSE will
continue with the on-site visits, at a minimum of twice a month, to ensure progress is
made on the corrective actions required by the BSE.

PDE‘s response did not include any comments about PACS accounting system internal
controls.

CUSD stated that although expenditures are recorded when incurred, the appropriate
ARRA account is not used during the year. CUSD also stated that it is CUSD‘s practice,
as a part of its year-end process, for the CBO to review and prepare all JV entries
necessary to close-out a Federal project. CUSD maintains detailed payroll and other
expenditure documents as part of the project file. All payroll records were updated at
year-end to reflect the correct ARRA account. CUSD reaffirmed that it estimates current
year payroll expenditures based on the previous year for its quarterly cash-on-hand
reporting to PDE. CUSD explained that this is done because staffing levels are similar
from year to year. CUSD further expressed that the district rarely experiences excess
cash.

PACS stated that the internal controls it has in place are strong and complement its
current accounting system through segregation of duties. To enhance PACS‘ fiscal
policy, it plans to implement a new enhanced accounting system that has automated
internal controls and fund accounting capability. PACS also will issue a comprehensive
accounting manual.

OIG Comments

Based on our review of PDE‘s response and its supplemental monitoring instruments, we
concluded that PDE‘s newly implemented processes should help to ensure that LEAs
have adequate fiscal processes in place. However, PDE‘s updated Title I and IDEA
program monitoring instruments include steps to review only whether subrecipients are
tracking ARRA funds and expenditures separately from non-ARRA funds and
Audit Report
ED-OIG/A03K0003                                                                Page 23 of 28
expenditures. PDE should revise its monitoring instruments to include a step to ensure
that LEAs track Federal (ARRA and non-ARRA) expenditures by program at the time
the expense is incurred.

Based upon our review of the additional information PDE provided to us about its
March 2010 monitoring visit, we concluded that the monitoring visit did not relate to the
issues noted in the finding. If PDE did not ensure that appropriate corrective actions
were made regarding the fiscal control issues noted in this finding during its planned site
visit on November 30, 2010, PDE should conduct additional monitoring of CUSD to
ensure the issues noted are corrected.

We suggest that PDE continue to use its supplemental monitoring process after
September 2011 to ensure that LEAs implement or maintain adequate fiscal controls,
even after ARRA funding ceases.

Additionally, PDE should ensure that PACS expeditiously implements its new
accounting system.


FINDING NO. 5:         PDE Needs to Ensure that LEAs Develop, Implement, and
                       Disseminate Adequate Policies and Procedures Over the Use of
                       Federal Funds

As previously stated, a principle of ARRA is to ensure accountability over the use of
funds provided under the Act. As stated in our report on the Commonwealth‘s internal
controls over selected ARRA funds, PDE could improve its monitoring and guidance of
subrecipient‘s fiscal systems and controls. PDE needs to ensure that LEAs develop,
implement, and disseminate policies and procedures for all fiscal processes. During our
limited review of LEA internal controls, we found that two of the three LEAs reviewed
(PACS and CUSD) did not have adequate policies and procedures in place and one LEA
had not disseminated all of its policies and procedures of various fiscal processes to all
employees.

As stated in Finding No. 4, the applicable Federal requirements relating to internal controls
are addressed in EDGAR (34 C.F.R. § 80.20(b)(3) and 34 C.F.R § 76.702).

Documented policies and procedures are part of a good internal control system.
Documentation facilitates the training of new employees, ensures the continuity of
operation during prolonged employee absences or turnover, and identifies the internal
controls an entity maintains. The policies and procedures should include adequate
segregation of duties, which is a basic accounting control procedure that strengthens
internal control by not allowing an individual to initiate, process, and record transactions
without the review and approval of other individuals. Improper segregation of duties
may allow internal controls to be circumvented for operational convenience or conceal
unintentional errors and irregularities. Proper segregation of duties should reduce the
potential risk resulting from the intentional or inadvertent actions of any one individual.
Audit Report
ED-OIG/A03K0003                                                                       Page 24 of 28
Lack of Written Policies and Procedures and Adequate
Review of Some Processes

PACS did not have written policies and procedures for its debit card usage; consequently,
debit card expenditures were not adequately reviewed to determine their allowability.
Federal funds could be used to pay for debit card expenditures. The purchase threshold
for the card was $10,000.

When the Chief Executive Officer (CEO) submitted debit card reimbursement requests,
he identified the funding source (the account code) to be charged. Although a purchase
justification and receipts were provided as supporting documentation for purchases,31 the
business analyst who reconciled the account had no knowledge of whether a purchase
that was charged to a particular grant was an allowable grant expense. No other
employee reviewed the expenditures. Lack of an adequate review process creates a
greater opportunity for the occurrence of improper grant expenditures.

PACS also did not have written accounting system policies and procedures for the input,
processing, and reporting of data. PACS used the QuickBooks accounting system
package to collect, process, and report data (including ARRA data); however, it did not
document its internal accounting system processes related to these areas. The lack of its
own written policies and procedures can negatively affect an LEA‘s level of management
control by allowing improper manipulation and loss of data resulting in the reporting of
inaccurate or incomplete data.

CUSD did not have written JV processing policies and procedures. CUSD also did not
have written policies and procedures for its accounts payable and purchasing processes.
The business services assistant stated that he had been working on developing an
accounts payable policy and procedure manual for the last 5 months. The purchasing
clerk used a notebook, developed by her predecessor, which contained purchasing
procedure notes for guidance. However, using the notebook as the guide for purchasing
procedures was inadequate because the notes in the notebook may not actually reflect
CUSD‘s official purchasing policies and procedures.

Furthermore, as a part of the purchasing process, CUSD did not require schools to
complete the funding code information on purchase requisitions. The purchasing clerk
stated that the schools normally did not know and did not put the correct funding codes
on the purchase requisition when purchasing items. She also stated that the CBO would
add the funding code to the requisition when approving it. Individuals ordering goods or
services should know the proper funding code to use and should be the ones to indicate
the funding code to be charged, because they should know the proper grant and activity to
charge. The CBO should not be determining the funding codes and then approving the
purchase requisitions. This is not an adequate segregation of duties and does not provide
for an adequate review process. No one was reviewing the purchase to determine
whether the correct accounting code was being used.

31
  PACS‘ principal and CEO were the only authorized users of the school‘s debit card. PACS‘ CEO stated
that the debit card was used for emergencies only.
Audit Report
ED-OIG/A03K0003                                                                       Page 25 of 28
By operating without adequate internal controls in these areas, PACS and CUSD were
putting Federal funds (ARRA and non-ARRA) at risk.

Needed Improvement of PACS Travel Policies and Procedures

PACS did not have travel policies that fully described the types of expenditures that were
unallowable. Although its policies and procedures contained guidance relating to travel,
these policies could be improved to include guidance on unallowable travel expenditures
(for example, alcoholic beverages, entertainment expenses and expenses incurred for
other persons) and on obtaining the most economical rates for airfare and lodging.

OMB Circular A-87, Appendix B delineates costs that are unallowable for
reimbursement, including alcoholic beverages, entertainment costs, and excessive
airfare.32 Employees need to be aware of travel related restrictions so that Federal funds
(ARRA and non-ARRA) are not used for unallowable or unreasonable purposes.
Furthermore, the policies could be improved to define and differentiate between local and
non-local travel policies. Employees were allowed to be reimbursed per diem for meals
for travel of 4 hours or more, which could potentially be local travel. An employee could
be in travel status for 4 or more hours but still be in the local metro area. Travel costs
during the period April 2009 through April 2010 totaled $38,824. Federal funds were
used to pay travel costs for staff professional development activities (Title I non-ARRA
funds represented $12,527 of this amount). Although no ARRA funds were expended for
travel during the period, it does not mean that they will not be in the future. Having
effective travel policies and procedures in place would help ensure that reimbursements
for unallowable or unreasonable travel do not occur.

Dissemination of CUSD Manual of Business Operating
Procedures to all Employees

The business services assistant and CUSD‘s purchasing clerk were unaware of and had
never been provided with a copy of CUSD's Manual of Business Operating Procedures.
Not making employees aware of the proper steps and procedures regarding the LEA‘s
processes could create the opportunity for misuse of funds, as well as unreasonable,
unsupported, and unallowable grant expenditures.

The issues identified at PACS and CUSD are putting ARRA funds at risk for
noncompliance with applicable OMB cost principles, the C.F.R., ARRA guidance, and
State requirements. Similar issues may be occurring at other LEAs in the
Commonwealth because the lack of documented and adequate fiscal policies and
procedures has been noted in a recently issued report on PSD.33 Having adequate
policies and procedures is a means to ensure accountability over the use of these funds.
PDE needs to ensure that all LEAs have adequate policies and procedures to ensure
effective oversight of Federal (ARRA and non-ARRA) funds.

32
  OMB Circular A-87, Appendix B, 3., 14., and 43.c.(1), respectively.
33
  See the Department‘s Office of Inspector General (ED-OIG) report entitled, ―Philadelphia School
District‘s Controls Over Federal Expenditures,‖ Control Number A03H0010, issued on January 15, 2010.
Audit Report
ED-OIG/A03K0003                                                              Page 26 of 28
Recommendation

We recommend that the Assistant Secretary for OESE, in coordination with OSERS, and
the CFO, require PDE to:

5.1    Conduct additional monitoring and provide guidance to ensure that all LEAs
       operating within the Commonwealth develop, implement, and disseminate
       adequate fiscal policies and procedures to provide assurance that Federal funds
       (ARRA and non-ARRA) are used to pay only reasonable and allowable program
       costs.

PDE and LEA Responses

PDE did not concur with the finding and recommendation. In its response, PDE
reiterated that it conducts yearly fiscal and programmatic monitoring, as well as
tri-annual site visits to LEAs. The monitoring instruments used address fiscal policies
and procedures. PDE asserted that fiscal policies and procedures are reviewed as a part
of its supplemental monitoring process and are verified during on-site reviews. PDE also
provides guidance and direction to subrecipients during on-site visits.

CUSD did not concur with our finding on segregation of duties. CUSD did not address
its lack of documented accounts payable, purchasing and JV processing policies and
procedures. In its response, CUSD stated that the CBO only assigns the account number
on requisitions when one cannot be determined by district staff. CUSD also stated that it
will disseminate its Manual of Business Operating Procedures.

PACS did not concur with our finding. Although PACS stated that its policies and
procedures are sufficient, it did develop policies and procedures for debit card usage.
The debit card policy requires the business manager to review and verify all purchases.
PACS also will update its travel policy to specify that school funds cannot be used to buy
alcoholic beverages.

OIG Comments

Based on our review of PDE‘s response, and its supplemental monitoring process and
tools, we concluded that PDE's supplemental monitoring process should address our
recommendation. However, we suggest that PDE continue to use this supplemental
monitoring process after September 2011 to ensure that subrecipients have adequate
policies and procedures over the use of Federal funds. Additionally, should the
self-evaluation surveys and desk reviews be used in lieu of site visits, PDE should require
subrecipients to periodically submit their policies and procedures for review.

We also suggest that PDE‘s planned monitoring of CUSD include a review to ensure that
it has developed adequate accounts payable, purchasing and JV processing policies and
procedures. PDE should also ensure that CUSD‘s purchasing process includes proper
Audit Report
ED-OIG/A03K0003                                                                    Page 27 of 28
segregation of duties so the CBO is not both determining the funding code entered on the
purchase requisition and also approving it.

We reviewed PACS‘ debit card policies and procedures and concluded they are adequate.
We suggest that PACS address differentiating between local and non-local travel and the
allowability of entertainment expenses and expenses incurred for other persons in its
travel policy.


                           SCOPE AND METHODOLOGY

Our audit consisted of an assessment of the designed system of internal controls that
CUSD, PACS, and PPS used in administering ARRA funds for the Title I, IDEA, and
SFSF programs. We reviewed the LEA-level controls over data quality, cash
management, and use of funds.

To achieve our audit objective, we judgmentally selected the three LEAs identified above
to include in our review of the Commonwealth‘s LEA-level system of internal controls
over ARRA funds. Using the Commonwealth's Recovery Web site,34 we identified the
total ARRA funding for the 627 Commonwealth LEAs. We stratified the LEA data into
three strata—large, medium, and small—based on funding amounts. The large stratum
consisted of five LEAs that received funding greater than or equal to $20 million. The
medium stratum consisted of 113 LEAs that received funding between $2.1 million and
$19.99 million. The small stratum consisted of 509 LEAs that received funding between
$0 and $2.099 million. We selected PPS from the large stratum, CUSD from the medium
stratum, and PACS from the small stratum. In our selections we considered information
obtained from ED-OIG‘s Investigation Services and OMB Circular A-133 Single Audit
reports.

To gain an understanding of and assess the designed system of internal controls over the
data quality, cash management, and use of funds that CUSD, PACS, and PPS had in
place we:
     Reviewed OMB Circular A-133 Single Audit reports35 and other applicable
       reports issued by ED-OIG;
     Reviewed applicable ARRA legislation, regulations, and guidance; and applicable
       Federal laws, regulations, and OMB Circulars;
     Identified ARRA funds allocated to and received and expended by each LEA for
       the Title I, IDEA and SFSF (if applicable) programs;
     Obtained and reviewed ARRA Title I, IDEA and SFSF (if applicable) approved
       applications and award letters for each LEA;
     Interviewed CUSD officials, including the Superintendent, Chief of Staff,
       Assistant Superintendent, CBO, Executive Director of Human Resources, Title I
       Coordinator, IDEA Coordinator, Finance Manager, and Purchasing Clerk. Also
34
 The Web site was http://www.recovery.pa.gov/portal/server.pt/community/impact/5996/education.
35
 Reviewed the OMB Circular A-133 Single Audit reports as follows: PPS FYs 2006 and 2007; CUSD
FYs 2007 and 2008; and PACS FY 2007.
Audit Report
ED-OIG/A03K0003                                                            Page 28 of 28
       interviewed the Agent for the Receiver and two Foundations, Inc., employees, the
       Deputy Director of Finance and the Business Services Assistant;
      Interviewed PACS officials, including the CEO, Purchasing Coordinator, and
       Administrative Assistant. Also interviewed the President of PACS‘ Board of
       Trustees and officials from Santilli & Thomson, including the Business Manager,
       Fiscal Officer, Business Analyst, Director of Operations, and a consultant to
       Santilli & Thomson;
      Interviewed PPS officials, including the Director of Finance; Associate Director
       of Budget; Financial Reporting Supervisor; Chief Financial Officer/Chief
       Operating Officer; Associate Director of Payroll; Purchasing Support Manager;
       and Executive Director for Budget Development and Operations;
      Held discussions with PDE‘s DSA and Education Administration Supervisor;
      Obtained and reviewed each LEAs available written policies and procedures for
       the use of funds, data quality, and cash management; and
      Obtained and reviewed other documents used by the LEAs in administering
       Federal funds (ARRA and non-ARRA).

We conducted our fieldwork at the three LEAs during site visits in July 2009,
March 2010, and April 2010. We discussed the results of our audit and our
recommendations with PPS on June 2, 2010; with PACS on June 17, 2010; and with
CUSD on June 22, 2010. We also provided the results of our audit to PDE on
June 1, 2010.

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.
               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
                                       ENCLOSURE
                                     PDE COMMENTS

Draft Response to the USDE-OIG Audit Report dated September, 2010

FINDING NO. 1:     PDE and the Comptroller’s Office Need to Ensure that LEAs
Minimize Excess Cash and Properly Remit Interest Earned on Federal Funds

We recommend that the Assistant Secretary for the Office of Elementary and Secondary
Education (OESE), in coordination with the Office of Special Education and
Rehabilitative Services (OSERS), and the Chief Financial Officer (CFO), require PDE
to:

1.1      Conduct monitoring and provide guidance to ensure that IUs have adequate
         policies and procedures to minimize the time lapsing between the transfer of funds
         advanced to its LEAs and the disbursement of those funds by the LEAs;

1.2      Expedite the dissemination of the special reminder and clarifying guidance to all
         LEAs, including those that receive SFSF funds, on the excess cash and interest
         remittance requirements. The guidance should instruct LEAs how to accurately
         calculate and timely remit interest earned on Federal funds;

1.3      Develop a process to monitor IU and LEA compliance with the excess cash and
         interest requirements; and

1.4.1 Work with PPS and PACS to ensure that the LEAs return to the Department
      excess interest earned on ARRA and non-ARRA Federal funds (excluding the
      $100 per year for administrative expenses that is permitted to be kept).

Response from Pennsylvania Department of Education

The Pennsylvania Department of Education (PDE) provides ongoing monitoring and
guidance to LEAs regarding the requirements stated in this finding. This guidance
includes the specific requirements detailed in contract agreements with LEAs and
additionally includes information routinely posted on the PDE website.

The agency program staff conduct annual desk monitoring via the application process and
through customary program activities. Further, program areas also conduct tri-annual
visits with sub recipients, using monitoring templates which include, in addition to
thorough programmatic elements, both fiscal and ARRA specific elements. Below are
links to existing monitoring documents.

http://www.education.state.pa.us/portal/server.pt/community/consolidated_program_revi
                                        ew/7378

      http://www.portal.state.pa.us/portal/server.pt?open=514&objID=508863&mode=2

                     In addition, please reference Attachment #1 and 2
                                           ENCLOSURE
                                         PDE COMMENTS

In addition to the ongoing monitoring work of program staff, PDE has increased its
monitoring efforts to address fiscal and ARRA specific requirements. In addition to the
program area scheduled reviews and updated tools, the supplemental monitoring includes
a Self Evaluation Survey, Desk Review Instrument and an On-Site Instrument. These
tools specifically address the issue of minimizing the amount of excess cash on hand.
Below is a link to a sample Survey – which is aligned with the other tools.

http://www.portal.state.pa.us/portal/http;//www.portal.state.pa.us;80/portal/server.pt/gate
       way/PTARGS_0_123531_855991_0_0_18/ARRA%20Survey%20FAQ.pdf

This is in addition to our existing guidance which specifically discusses remittance of
interest:

   http://www.portal.state.pa.us/portal/server.pt?open=514&objID=508863&mode=2
   (Section 611-Rider H, Rider I, and Rider J Administration and Fiscal Guidelines bottom of page 10)

As part of the sub-recipient on-site visits, the information reported on the self evaluation
is verified through the review of appropriate written policies and procedures on hand at
for the sub-recipient. During on-site visits, issues are discussed with the sub-recipient
along with guidance and direction to program area resources.

In addition to the guidance and monitoring, PDE is actively engaged in training. The
Bureau of Special Education (BSE) conducts annual trainings regarding Fiscal
verification and will continue to include in these annual trainings information and
guidance provided to BSE from OSEP on this topic. In addition to the collaborative PDE
ARRA webinars conducted on March 17th and 19th of 2009, BSE staff have conducted
trainings across the state for local school districts and Intermediate Units (IUs) on
October 14,15 and 21, 2009. Additional sessions were held with IU Business
Administrators on November 12, 2009, and for PA School Board Associations (PASBO)
on March 10, 2010. Regional Fiscal Trainings for school districts and IUs were
conducted on April 14, 16 and 22, 2010 and Fiscal Verification Training for IU Special
Education directors on September 16, 2010. ARRA-specific training was held on over 12
occasions from February to August 2010 to school business officials, federal funds
coordinators, intermediate units, executive directors, charter schools and to general
ARRA recipients.

PDE has specifically issued guidance on the remittance of interest via presentations
conducted with sub recipients, in addition to the information available on the website.
When monitors are on-site, they provide instruction on where and when to remit the
excess interest. Lastly, to consolidate this information and remind subrecipients of their
responsibilities, specifically related to issues discovered during monitoring visits, PDE
created a dedicated page to address monitoring issues and consolidate resources.
                                      ENCLOSURE
                                    PDE COMMENTS

http://www.portal.state.pa.us/portal/server.pt/community/american_recovery_and_reinve
                        stment_act/17696/arra_resources/728057

Regarding the excess interest for PPS and PACS, PDE has received confirmation that
PPS has remitted interest and will work with PACS to ensure the same.


FINDING NO. 2:    PDE Needs to Improve Its Monitoring and Guidance of LEA
ARRA § 1512 Data Reporting


Recommendations:
We recommend that the Assistant Secretary for OESE, in coordination with OSERS,
require PDE to:

2.1    Conduct monitoring and provide additional guidance to ensure that its LEAs
       receive and understand ARRA Title I and IDEA job creation and retention
       requirements; and

2.2.1 Work with LEAs to ensure they develop and implement an effective process that
      will properly track and report all ARRA § 1512 data.

Response from the Pennsylvania Department of Education

PDE has consistently provided LEAs with guidance on 1512 reporting requirements, and
continues to update its ARRA Reporting site, which is accessible at the following
address:

http://www.portal.state.pa.us/portal/server.pt/community/american_recovery_and_reinve
                        stment_act/17696/arra_reporting/613064

PDE regularly communicates to all ARRA recipients before and during the reporting
period, and throughout the quarter, notifying recipients directly of any changes or updates
in information. Communication is also documented so that new recipients or contacts
can see prior communications. Recent communications can be found on the ARRA
Reporting site above. Older communications can be found on our ARRA Resources site
below.

http://www.portal.state.pa.us/portal/server.pt/community/american_recovery_and_reinve
                        stment_act/17696/arra_resources/728057

In addition, PDE offers dedicated e-mail support to subrecipients during the reporting
period each quarter to answer any ARRA reporting questions.
                                      ENCLOSURE
                                    PDE COMMENTS




PDE also created and implemented a proprietary electronic reporting system currently
being utilized to properly track and report all ARRA 1512 data. This system has greatly
improved the data collection process and contains intrinsic data validation rules which
simply prohibit the most common types of mistakes, and re-direct subrecipients to
additional guidance when mistakes are made.

As noted in the previous response, supplemental monitoring resources provide specific
review of 1512 data through the Self Evaluation Survey, Desk Review Instrument and
On-Site Instrument.


FINDING NO. 3:      PDE Needs to Improve Its Monitoring and Guidance Over
sub-recipient Completion of Semiannual Time and Effort Certifications


Recommendations:
We recommend that the Assistant Secretary for OESE, in coordination with OSERS,
require PDE to:

3.1    Ensure that all LEAs within the Commonwealth are aware of the certification
       requirement and appropriately complete certifications for employees that work
       100 percent on ARRA and non-ARRA Federal programs or cost objectives; and

3.2.1 Require PACS to provide adequate documentation to support the $438,835 in
      inadequately supported Title I ARRA personnel expenditures or return any
      portion of that amount that the Department determines is not adequately
      supported.

Response from the Pennsylvania Department of Education

The Department provides ongoing guidance and assistance to LEAs as part of monitoring
conducted by agency program staff. As part of this, desk monitoring and review is
conducted annually, and site visits are conducted tri-annually. In addition to this work,
PDE has increased its monitoring efforts to address fiscal and ARRA specific
requirements. In addition to the program area scheduled reviews and updated tools, the
supplemental monitoring includes a Self Evaluation Survey, Desk Review Instrument and
an On-Site Instrument. These tools specifically address the issue of minimizing the
amount of excess cash on hands, and are shared with LEAs in an ongoing manner.
                                       ENCLOSURE
                                     PDE COMMENTS

FINDING NO. 4:      PDE Needs to Ensure that sub-recipients Have Adequate Fiscal
Controls Over the Use of Federal Funds

 Recommendations:
We recommend that the Assistant Secretary for OESE, in coordination with OSERS, and
the CFO, require PDE to:

4.1    Conduct monitoring and provide guidance, and work with all LEAs in the
       Commonwealth to ensure that LEAs have adequate fiscal controls to provide
       assurance that ARRA and other Federal funds will be safeguarded, and that LEAs
       are accurately reporting the amount of ARRA funds expended or obligated to
       projects or activities; and

Response from the Pennsylvania Department of Education

The supplemental monitoring resources described in response to Finding #1 specifically
review fiscal controls in the Self Evaluation Survey, Desk Review Instrument and On-
Site Instrument. To reiterate, as part of the sub-recipient on-site visits, the information
reported on the self evaluation is verified through the review of appropriate written
policies and procedures on hand for the sub-recipient. During on-site visits, issues are
discussed with the sub-recipient along with guidance and direction to Program Staff
resources noted above. Further, guidance is provided as follows:

                          http://www.pafpc.org/content/info.htm

http://www.education.state.pa.us/portal/server.pt/community/federal_programs/7374/addi
                                tional_resources/507180

4.2.1 Work with CUSD and PACS to ensure that the cash management control issues
      noted in the Finding are adequately addressed.

Response from the Department of Education

The PDE Bureau of Special Education (BSE) conducted a monitoring visit of Chester
Upland School District (CUSD) and issued a monitoring report on July 27, 2010. CUSD
is currently working on completing the required corrective actions directed by BSE. BSE
has assigned an advisor to conduct on-site visits, which will be held, at minimum, twice a
month at the CUSD, to insure continued progress on implementing the required
corrective action. At this time, CUSD has completed the corrective action items due to
date. Should CUSD fail to implement the required corrective action, BSE will initiate the
sanctions required, which are outlined in the Compliance BEC—attached as Attachment
# 3.
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FINDING NO. 5:         PDE Needs to Ensure that LEAs Develop, Implement, and
                       Disseminate Adequate Policies and Procedures Over the Use of
                       Federal Funds
Recommendation:
We recommend that the Assistant Secretary for OESE, in coordination with OSERS, and
the CFO, require PDE to:

5.1    Conduct monitoring and provide guidance to ensure that all LEAs operating
       within the Commonwealth develop, implement, and disseminate adequate fiscal
       policies and procedures to provide assurance that Federal funds (ARRA and
       non-ARRA) are used to pay only reasonable and allowable program costs.

Response from Pennsylvania Department of Education
Fiscal and programmatic monitoring is conducted annually, and site visits are conducted
tri-annually. The monitoring templates referenced in our response to Finding #1
specifically addresses fiscal policies and procedures.

In addition, the supplemental monitoring resources described in response to Finding #1
specifically review fiscal policies and procedures in the Self Evaluation Survey, Desk
Review Instrument and On-Site Instrument. To reiterate, as part of the sub-recipient on-
site visits, the information reported on the self evaluation is verified through the review
of appropriate written policies and procedures on hand for the sub-recipient. During on-
site visits, issues are discussed with the sub-recipient along with guidance and direction
to Program Staff resources noted above.
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Philadelphia Academy Charter School
1700 Tomlinson Road
Philadelphia, PA 19

Response to the U.S. Department of Education Office of Inspector General’s
American Recovery and Reinvestment Act of 2009:

The American Recovery and Reinvestment Act of 2009 (ARRA) emphasizes
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
(Department) 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 agencies charged with responsibility
for administering ARRA funds have designed systems of internal control that are
sufficient to provide reasonable assurance of compliance with applicable laws,
regulations, and guidance. Proper internal controls are essential for ensuring that ARRA
funds are administered properly and used in ways that are consistent with the intent of
ARRA


FINDING NO. 3:

PDE Needs to Improve Its Monitoring and Guidance Over LEA Completion of
Semiannual Time and Effort Certifications

We have analyzed the regulation and will implement the proper procedure based on our
analysis of the regulation. Certifications will be required at the beginning and end of the
semiannual period (See Exhibit A). Regarding IDEA funds, we will review the guidance
issued by BFE and BBFM to ensure we are in compliance with the recommended fiscal
policy.

FINDING NO. 4:

PDE Needs to Ensure that LEAs Have Adequate Fiscal Controls Over the Use of
Federal Funds

The internal controls currently in place are strong and compliment the current accounting
system (See Exhibit B). Institution of strong and comprehensive internal controls were
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part one of a multi step approach to enhancing the school finances and fiscal policies.
Rebuilding of the accounting records and issuing audits for fiscal year 2008 and fiscal
year 2009 was the second phase of strengthen the schools finances. The third step is the
implementation of a new enhanced accounting system which includes automated internal
control processes, fund accounting and an accounting manual.

Adequacy of Accounting System Internal Controls:

The internal controls currently in place are strong and compliment the current accounting
system through segregation of duties (See Exhibit B). Institution of strong and
comprehensive internal controls were part one of a multi step approach to enhancing the
school finances and fiscal policies. Rebuilding of the accounting records and issuing
audits for fiscal year 2008 and fiscal year 2009 was the second phase of strengthen the
schools finances. The third step is the implementation of a new enhanced accounting
system which includes automated internal control processes, fund accounting and
issuance of a comprehensive accounting manual.

FINDING NO. 5:

The Board of Trustees of Philadelphia Academy Charter School approved comprehensive
policies and procedures to govern the schools academic programs, operations and
finances in October 2008 through January 2009. Professional development on these
policies is conducted periodically.

The purchase threshold for the debit card is $1,500.00, and all disbursements will be
reviewed and verified by the business manager (See Exhibit C).


Philadelphia Academy Charter School currently does not have Travel Cards. The schools
travel policy states that employees on travel for school business or professional
development must obtain the most economical rates for airfare and lodging (See Exhibit
D). A stipend of $35.00 per day is allowed for breakfast, lunch and dinner inclusive.
Philadelphia Academy Charter School will update its policy to state that school funds
cannot be used for alcoholic beverages.
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Exhibit A:


                             Federal Program Certification

                                          First



I_____________________________ understand that my position is funded
              print name


by__________________________.
             print program


I certify that I worked solely on that program for the period August 15, 2010 to
December 31, 2010.



__________________________________________________                  __________________
      Employee Signature                                                  Date




__________________________________________________                  _________________
      Supervisor Signature                                                Date



          ********************************************************



                             Federal Program Certification

                                         Second



I_____________________________ understand that my position is funded
                print name


by__________________________.
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             print program


I certify that I worked solely on that program for the period January 1, 2011 to June 30,
2011.


__________________________________________________                  __________________
      Employee Signature                                                  Date


__________________________________________________                  __________________
      Supervisor Signature                                                Date
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Exhibit B

           Philadelphia Academy Charter School
         Purchasing and Accounts Payable Process


   Purchase request is approved by CEO
   or Principal




   Purchaser obtains multiple quotes
   where appropriate, applies accounting code
   and funding source to requisition



   Requisition is forwarded to School Fiscal Officer
   who verifies data and forwards PO to CEO
   or Principal with supporting documentation
   for review and approval



   CEO or Principal reviews PO and supporting
   documentation and signs PO




   PO is returned to School Fiscal Officer who verifies
   signatures enters PO in Purchase Order log
   and forwards all documentation to business office



   Business Manager verifies funds available,
   account coding and funding source and
   signs PO



   PO is returned to School Fiscal Officer and faxed
   to vendor and PO is sent to Purchaser




   When products are delived Purchaser verifies
   receiving report against PO. Products are
   then forwarded to requistor.
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When invoice is received from vendor School
Fiscal Officer date stamps the invoice,
reviews for accuracy and forwards to Purchaser



Purchaser verifes accuracy of invoice
against PO, enters account code and initials invoice.
Invoice is sent back to School Fiscal Officer



School Fiscal Officer completes an Accounts
Payable transmittal and sends all invoices
to the CEO for signature.
Once transmittal is signed and returned
School Fiscal Officer forwards transmittal
with invoices to processor in Business Office



Processor review invoices for accuracy and verifies
against PO log, then inputs invoice into QuickBooks.
Once processor has completed this task a listing
of pending payments with supporting invoices is
forwarded to Business Manager for approval



Business Manager reviews each invoice and
verifies proper account coding and funding source
in QuickBooks.
Once the review above is completed the
documentation is sent back to processor to
print checks.



Processor issues checks and packages
documentaion in voucher format and initials
checks as processor.
Checks are then sent back to
Business Manager who reviews documentation
a second time and signs check as the first signer.



Vouchers are then sent to CEO for final review
and signature.
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Vouchers are returned to processor who mails
checks and files vouchers.
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Exhibit C

                         Philadelphia Academy Charter School
                                Debit Card Procedures


   1. Purpose
         a. Debit cards are provided to senior administrators that have a need to make
            purchases on behalf of the school when a credit card is required. The card
            is a convenience that carries responsibilities. Although the card is issued
            in an employee‘s name, it should be considered school property and
            should be used with good judgment.

   2. Authority
         a. The card is for business-related purchases only; personal charges are not
             to be made to the card. . Purchases are limited to meals, refreshments,
             travel, small supplies and equipment.

            b. The cardholder is the only person entitled to use the card and is
               responsible for all charges made against the card. Improper use of the card
               can be considered misappropriation of school funds which may result in
               disciplinary action, up to and including termination.

   3. Responsibilities
         a. All charges are billed directly to and paid directly by the school. Any
            personal charges on the card could be considered misappropriation of
            school funds since the cardholder can not pay the bank directly

            b. Cardholders are expected to comply with internal control procedures in
               order to protect school assets. This includes keeping receipts, coding
               transaction to the appropriate general edger code, reviewing the
               transaction for propriety, reconciling monthly statements and following
               proper card security measures. Cardholders are responsible for reconciling
               their monthly statement and resolving any discrepancies by contacting the
               supplier first and then the bank.

            c. The purchasing threshold for the card is $1,500.00.
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Exhibit D


832. EMPLOYEE EXPENSE REIMBURSEMENT REGULATIONS

1.     Purpose

       1.1    To establish the policies and procedures governing the reimbursement of
              travel and other reasonable and proper expenses incurred by employees in
              the performance of official and necessary School business.

       1.2    Policies and procedures governing the reimbursement of travel other
              reasonable expenses incurred by employees in the performance official
              and necessary school business.

2.     Authorization and Approval of Travel and Reimbursements

The CEO is responsible for authorizing travel on necessary and essential School business
and the subsequent approval of incurred expenditures. The intent of reimbursement is to
defray those expenses the employee would not ordinarily have incurred had the employee
not been on travel status.

       2.1    The CEO is responsible for authorizing travel on necessary and essential
              School business and the subsequent approval of incurred expenditures.
              The intent of reimbursement is to defray those expenses the employee
              would not ordinarily have incurred had the employee not been on travel
              status.‖

       2.2    Expenditures for out of town travel require the approval of the CEO in
              advance of such travel. Expenditures for out of town travel of the CEO
              and Principal require the approval of the Board of Trustees.

       2.3    Expenditures in excess of the limitations established in these procedures
              will be approved only if fully documented and a review of the
              circumstances indicates that such expenditures were necessary and in the
              best interests of the School. Approval of the CEO is required.

       2.4    Conference Participation:

              (a)     Participation in any one conference will be limited to a number
                      such that there shall be substitute teacher coverage during the
                      period of conference attendance.

       2.5    Request for Reimbursement
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      (a)   Employees will be reimbursed for approved expenditures within
            the policies and limitations established herein. Employee Expense
            Reimbursement will requested on a form to be provided by the
            school for routine or out of state travel. Receipts for
            transportation, hotel accommodations, taxi fares, tolls, etc., must
            be obtained and attached to the form.

      (b)   All requests for reimbursement of travel expenses are subject to
            review by the Board Treasurer to determine the official nature of
            the expenditure and the propriety and reasonableness of the
            charges. Expenditures not deemed necessary or reasonable will
            not be reimbursed.

2.6   Reimbursable Expenses

      (a)   Travel within city should be submitted for reimbursement on a
            monthly basis.

      (b)   By Automobile:

            (1)    The shortest distance to the destination should generally be
                   taken. Exceptions may be made when expressways or
                   other highways are more convenient or require less time.
                   Records must be kept of the distances between stops so that
                   entries on the Reimbursement form will be accurate. In
                   listing trips, indicate the start destination (school/location)
                   of each trip and the miles covered. Show the total
                   reimbursable miles covered for the day in the prescribed
                   block, rounding the total to the nearest mile. A mileage
                   reimbursement rate equal to the amount allowed by the
                   Internal Revenue Service. Parking fees are reimbursable
                   when parking at commercial parking areas is necessary.
                   Parking fees are not reimbursable with respect to the
                   regular or normal work location.

            (2)    Mileage reimbursement will not be granted for the first stop
                   of each workday or for the trip home from the last work
                   location of the day. These two trips are equivalent to going
                   to work and returning home after work each day and are
                   not reimbursable. Mileage after the first stop through the
                   last official stop of the day is reimbursable.

      (c)   Travel via public transportation:

            (1)    Generally, the least expensive mode of travel should be
                   used. Enter the total fares for the day in the amount
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                              column on the reimbursement form. The cost of travel to
                              and from home and an employee‘s school or office is not
                              an allowable expense.

               (d)    Meals While in Travel Status

                        (1)   Meal allowance will be made for travel of over four (4)
                              hours. All meals while on travel status are reimbursable,
                              without documentation, at the following rates (taxes and
                              tips included):

                                      Meal Allowances:
                                      Breakfast $ 5.00
                                      Luncheon 10.00
                                      Dinner 20.00
                                      Total Per Day $ 35.00

Meals that are part of an official function (conventions, etc.) will be reimbursed in the
amount actually expended and should not be included in the meal allowance. A receipt
must accompany the reimbursement request for such meals. Meals that are included in
the registration fee should not be included in the request for meal allowance.
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FINDING NO. 2:         PDE Needs to Improve Its Monitoring and Guidance of LEA
                       ARRA § 1512 Data Reporting

Inaccurate Reporting of Job Creation Data

Response:
The CBO assumes all responsibilities associated with the reporting of federal project
expenditures. It is part of the year-end process to analysis the appropriateness of federal
program expenditures prior to submitting final expenditure reports.

CUSD did experience difficulty in attracting prospective candidates for these positions
and found it difficult to fulfill a complete compliment of personnel within the initial
phases.

CUSD did expend ARRA Title I and IDEA funds, however the ARRA expenditures
accounts were not used at that time. The year-end analysis of federal projects has capture
expenditures applicable to ARRA Title I and IDEA.

Recommendations:

We recommend that the Assistant Secretary for OESE, in coordination with OSERS,
require PDE to:

2.1    Conduct monitoring and provide additional guidance to ensure that its LEAs
       receive and understand ARRA Title I and IDEA job creation and retention
       requirements; and

2.2    Work with LEAs to ensure they develop and implement an effective process that
       will properly track and report all ARRA § 1512 data.

Response:
CUSD followed the instructions and guidelines for reporting information to PDE. If there
were any changes in reporting this information, CUSD submitted revised reports.

The CBO assumes all responsibilities associated with the reporting of federal project
expenditures. It is part of the year-end process to analysis the appropriateness of federal
program expenditures prior to submitting final expenditure reports.

FINDING NO. 4:         PDE Needs to Ensure that LEAs Have Adequate Fiscal
                       Controls Over the Use of Federal Funds

Response:
All expenditure transactions are recorded at the time the expenditure is incurred through
encumbering purchases and processing invoices or payrolls for payment. The issue is that
the appropriate account was not used during the course of the year. Detailed payroll
records, payroll history reporting and other expenditure transactions documents are part
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the project documentation file. All employee payroll records have been updated reflecting
the proper account.

Tracking of Expenditures

Response:
All expenditure transactions are recorded at the time the expenditure is incurred through
encumbering purchases and processing invoices or payrolls for payment. The issue is that
the appropriate account was not used during the course of the year. Detailed payroll
records, payroll history reporting and other expenditure transactions documents are part
the project documentation file. All employee payroll records have been updated reflecting
the proper account.

CUSD allocates payroll costs and benefits as part of its year-end process. When quarterly
reports are submitted previous year expenditures are used as a means of projection
expenditures for the next school year. This process is used because staffing levels, when
compared from year to year are very similar. It is seldom that we experience excess cash
with any of the district‘s federal projects.

Review of Journal Voucher Controls

Response:
At year end detailed payroll records, payroll history reporting and other expenditure
transactions documents are part the project documentation file. The CBO, as part of the
year end process reviews and prepares any correcting/adjusting/reclassification/allocation
JV entries necessary to close-out a federal project. All Year End
correcting/adjusting/reclassification/allocation JV entries are presented to the local
auditors.

FINDING NO. 5:        PDE Needs to Ensure that LEAs Develop, Implement, and
                      Disseminate Adequate Policies and Procedures Over the Use of
                      Federal Funds

Lack of Written Policies and Procedures and Adequate
Review of Some Processes

Response:
The CBO assigns budget account number when an appropriate account(s) cannot be
determined. Most of the requisition account numbers are assigned by district staff other
than the CBO.
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Dissemination of CUSD Manual of Business Operating
Procedures to all Employees

Response:
A manual of business office operating procedures has been prepared and will be
distributed to the appropriate departments and school facilities.