U.S. Department of Education Office of the Inspector General American Recovery and Reinvestment Act Virginia: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs Final Audit Report Virginia State Capitol ED-OIG/A03K0008 June 2011 UNITED STATES DEPARTMENT OF EDUCATION OFFICE OF INSPECTOR GENERAL AUDIT SERVICES PHILADELPHIA REGION June 9, 2011 Dr. Patricia I. Wright Superintendent of Public Instruction Virginia Department of Education P.O. Box 2120 Richmond, VA 23218 Dear Superintendent Wright: This final audit report presents the results of our audit to determine whether (1) the Commonwealth of Virginia (Virginia) and selected subrecipients used and accounted for Recovery Act funds in accordance with Recovery Act recipient plans, approved applications, and other applicable laws and regulations, and (2) data reported by Virginia were accurate, complete, and in compliance with Recovery Act reporting requirements. 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 actions to be taken will be made by the appropriate Department of Education officials. This report incorporates the comments you provided in response to our preliminary 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: Ann Whalen Deputy Director for Programs Implementation and Support Unit U.S. Department of Education 400 Maryland Ave., S.W., Room 7W206 Washington, DC 20202 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational excellence and ensuring equal access. Thelma Meléndez de Santa Ana, Ph.D. Assistant Secretary Office of Elementary and Secondary Education U.S. Department of Education 400 Maryland Ave., S.W., 3W315 Washington, DC 20202 Alexa E. Posny, Ph.D. Assistant Secretary Office of Special Education and Rehabilitative Services U.S. Department of Education 400 Maryland Ave, S.W. Washington, DC 20202 It is the policy of the U.S. Department of Education to expedite the resolution of audits by initiating timely action on the findings and recommendations contained therein. Therefore, receipt of your comments within 30 days would be appreciated. In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the Office of Inspector General are available to members of the press and general public to the extent information contained therein is not subject to exemptions in the Act. Sincerely, /s/ Bernard E. Tadley Regional Inspector General for Audit Enclosure Abbreviations, Acronyms, and Short Forms Used in this Report ___________________________________________________ C.F.R. Code of Federal Regulations Department U.S. Department of Education Fairfax County Fairfax County Public Schools ESEA Elementary and Secondary Education Act of 1965 Handbook Handbook of Procedures and Forms for Federal Program Reimbursements and Amendments Henrico County Henrico County Public Schools IDEA Individuals with Disabilities Education Act, Part B Grants to States LEA Local Educational Agency MOE Maintenance of Effort Norfolk Norfolk Public Schools OMB Office of Management and Budget OMEGA Online Management of Education Grant Awards Recovery Act American Recovery and Reinvestment Act of 2009 SFSF State Fiscal Stabilization Fund Title I Title I, Part A of the Elementary and Secondary Education Act of 1965 Virginia Education Virginia Department of Education Final Report ED-OIG/A03K0008 Page 1 of 16 Virginia: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs Control Number ED-OIG/A03K0008 PURPOSE The American Recovery and Reinvestment Act of 2009 (Recovery Act) places a heavy emphasis on accountability and transparency and, in doing so, increases the responsibilities of the agencies that are impacted by the Act. The U.S. Department of Education (Department) is ultimately responsible for ensuring that education-related Recovery Act funds reach intended recipients and achieve intended results. This report provides the results of our audit to determine whether (1) the Commonwealth of Virginia (Virginia) and selected subrecipients used and accounted for Recovery Act funds in accordance with Recovery Act recipient plans, approved applications, and other applicable laws and regulations, and (2) data reported by Virginia were accurate, complete, and in compliance with Recovery Act reporting requirements. We reviewed four education-related grants funded under the Recovery Act: State Fiscal Stabilization Fund (SFSF) Education Stabilization; SFSF Government Services; Title I, Part A of the Elementary and Secondary Education Act of 1965 (Title I); and the Individuals with Disabilities Education Act, Part B Grants to States (IDEA). We reviewed selected costs charged to these grants and quarterly data reported during the period February 17, 2009, through June 30, 2010. Our review covered seven data elements that must be reported under Section 1512 of the Recovery Act—estimated number of jobs created or retained, vendor information, project status, and the amount of funds awarded, subawarded, received, and spent. We conducted our review at the Virginia Department of Education (Virginia Education), as well as three local educational agencies (LEAs) within Virginia: Fairfax County Public Schools (Fairfax County), Henrico County Public Schools (Henrico County), and Norfolk Public Schools (Norfolk). We also reviewed two sheriffs’ offices—Prince William County and Fredericksburg County—based on the appropriated uses of SFSF Government Services funds. RESULTS IN BRIEF We concluded that Virginia’s Recovery Act expenditures were generally expended and accounted for in accordance with recipient plans and applications, and applicable laws, regulations, and guidance. However, we found that Virginia Education needs to improve its fiscal monitoring to ensure LEAs comply with Federal fiscal requirements related to the use of and accounting for Recovery Act funds. We noted fiscal issues at Norfolk and Fairfax County. Virginia Education approved reimbursement requests submitted by the LEAs that included unallowable and incorrectly coded expenditures. We did not identify any exceptions at Henrico County or at the two sheriffs’ offices. Final Report ED-OIG/A03K0008 Page 2 of 16 For the quarterly Section 1512 reporting, we concluded that Virginia Education and the selected LEAs’ reporting processes provided reasonable assurance that all of the reported data elements we reviewed were generally accurate and complete. The Recovery Act data reported by Virginia Education were accurate and complete and in compliance with Recovery Act reporting requirements. This report discusses the (1) instances of insufficient fiscal monitoring by Virginia Education of its LEAs’ Recovery Act expenditure reimbursement requests, (2) specific actions taken or planned to address our finding and recommendations; and (3) additional actions needed to improve compliance with Federal requirements for subrecipient monitoring. We provided a preliminary copy of this report to Virginia Education for review and comment on April 26, 2011. Virginia Education did not concur with our finding and stated that the finding and recommendations did not fully reflect the steps it had taken to monitor subrecipient fiscal and compliance requirements with Recovery Act funds. Virginia Education’s comments included an overview of its four-step monitoring process and clarifying information related to statements or conclusions made in the preliminary report. Virginia Education did not indicate whether it concurred with our recommendations. However, Virginia Education provided additional information for Recommendations 1.1 and 1.2, and indicated corrective actions taken or planned to be taken for Recommendations 1.3 and 1.4, respectively. Although we considered Virginia Education’s comments, we did not modify our finding and recommendations. Virginia Education’s comments are summarized at the end of the finding. The full text of Virginia Education’s comments is included as an Enclosure to this report. BACKGROUND The Recovery Act was signed into law on February 17, 2009, and had three immediate goals: (1) create new jobs and retain existing ones, (2) spur economic activity while encouraging investment in long-term growth, and (3) foster unprecedented levels of accountability and transparency in government spending. To help achieve the third goal, recipients of Recovery Act funds are required to submit quarterly reports on awards, spending, and job impacts under Section 1512 of the Recovery Act. According to the Office of Management and Budget (OMB), the reports should contain detailed information on the projects and activities funded by the Recovery Act in order to provide the public with transparency into how Federal dollars are being spent. The reports also help drive accountability for the timely, prudent, and effective spending of Recovery Act funds. Funding: Virginia was awarded a total of $1.6 billion in Recovery Act funds for the grants we reviewed. This consisted of $1.2 billion for SFSF funds ($219 million for Government Services and $984 million for Education Stabilization), $281 million for IDEA funds, and $164 million for Title I funds (see Table 1 at the end of this report section). Virginia received 67 percent of its SFSF Education Stabilization funds in May 2009. The initial award of $659.2 million was allocated between LEAs and public higher education institutions based on budget restoration calculations. The Virginia General Assembly approved specific allocations for the remaining SFSF Education funds in December 2010 and required the funds to be expended by Final Report ED-OIG/A03K0008 Page 3 of 16 September 30, 2011. The Virginia General Assembly appropriated SFSF Government Services funds of $109 million a year to partially offset payroll costs across 78 sheriffs’ offices and regional jails for fiscal year 2009 and 19 sheriffs’ offices and regional jails for fiscal year 2010. Administration and Reporting: Virginia Education oversaw the State’s education system and was responsible for administering Recovery Act funds. It administered Recovery Act funds through its Online Management of Education Grant Awards (OMEGA) system, an automated grant application and reimbursement system through which LEAs were reimbursed for requested grant expenditures. The OMEGA system enabled LEAs to review award balances for all open awards, prepare and submit grant applications, submit grant reimbursement requests, and receive bulletin board communications. All grants were administered on a reimbursement basis. Expenditure data supporting reimbursement requests were entered by file upload or by online forms. Expenditure data were reviewed and approved by Virginia Education through the OMEGA system. Virginia Education fulfilled Section 1512 reporting requirements on behalf of its LEAs, including the compilation of jobs data for submission to FederalReporting.gov. During the audit period, Virginia Education expended more than $764.6 million in Recovery Act funds. Virginia Education oversaw the State’s 132 LEAs, consisting of 1,881 elementary and secondary schools, which served more than 1.2 million students during the 2009–2010 school year. The following table summarizes the Recovery Act funds awarded and expended by program as of June 30, 2010. Table 1: Virginia Recovery Act Awarded and Expended Amounts by Program Reviewed Catalog of Federal Total Amount Total Expended Program Domestic Awarded Through June 30, 2010 Assistance No. SFSF Education 84.394 $983,865,903 $425,475,820 Stabilization Fund IDEA Part B 84.391 $281,415,033 $75,475,401 SFSF Government 84.397 $218,904,149 $218,904,149 Services Fund Title I Part A 84.389 $164,458,751 $44,794,283 Total $1,648,643,836 $764,649,653 Final Report ED-OIG/A03K0008 Page 4 of 16 FINDINGS AND RECOMMENDATIONS FINDING NO. 1 – Virginia Education Needs to Improve Its Fiscal Monitoring Over Recovery Act Funds Virginia Education needs to improve its monitoring of expenditures to ensure LEAs comply with Federal fiscal requirements related to the use of and accounting for Recovery Act IDEA and Title I funds. Two of the three LEAs that we reviewed incorrectly received reimbursements for Recovery Act expenditures that Virginia Education approved without adequate fiscal monitoring. The Federal regulation at 34 Code of Federal Regulations (C.F.R.) Part 80.40(a) (revised as of July 1, 2010) addresses the State Educational Agency role in monitoring subrecipients as follows: Grantees are responsible for managing the day-to-day operations of grant and subgrant supported activities. Grantees must monitor grant and subgrant supported activities to assure compliance with applicable Federal requirements and that performance goals are being achieved. Grantee monitoring must cover each program, function or activity. Fairfax County Improperly Spent Recovery Act IDEA Maintenance of Effort Flexibility Option Funds Fairfax County expended $4.75 million in Recovery Act IDEA funds for non-special education programs from July 1, 2009, through March 31, 2010. During the implementation of the Recovery Act, Virginia Education issued a letter on May 1, 2009, to LEAs informing them that the IDEA maintenance of effort (MOE) flexibility option (34 C.F.R. § 300.205) was available. However, the letter did not provide specific guidance to the LEAs on how to implement the option. The Virginia Education letter referred LEAs only to the Department’s Web site for guidance on meeting the MOE requirement. The MOE provision of 34 C.F.R. § 300.205 allows an LEA certain flexibility in any fiscal year in which the LEA’s IDEA allocation exceeds the amount the LEA received in the previous fiscal year. The LEA may reduce its level of expenditures from local funds or a combination of State and local funds for special education and related services by not more than 50 percent of the amount by which the LEA’s allocation exceeds the previous year’s allocation. The LEA must use those local funds or a combination of State and local funds that, under the MOE flexibility option, were not used for special education and related services on activities authorized under the Elementary and Secondary Education Act of 1965 (ESEA). 1 However, IDEA Part B Recovery Act funds can be used only for special education and related services. The Department’s guidance, “Funds for Part B of the Individuals with Disabilities Education Act Made Available Under The American Recovery and Reinvestment Act of 2009,” dated April 2009, specifies that “[a]n LEA must use IDEA Part B Recovery Act funds only for the excess costs of providing special education and related services to children with disabilities, except where IDEA specifically provides otherwise.” 1 As amended by the No Child Left Behind Act of 2001. Final Report ED-OIG/A03K0008 Page 5 of 16 An official from Fairfax County’s Compliance and Strategic Planning Office indicated that Fairfax County misunderstood the guidance. The official believed that the Recovery Act IDEA funds could be used for any allowable expenditure under ESEA. Fairfax County used the $4.75 million in Recovery Act IDEA funds to reinstate some of its non-special education programs. The LEA did not become aware that it could not use the funds for non-special education expenditures until a June 15, 2010, conference call about the MOE flexibility option with Virginia Education and other LEAs. During the call, Fairfax County realized that non- special education expenditures made as a result of using the MOE flexibility option could not be claimed for reimbursement using Recovery Act IDEA funds. Fairfax County notified Virginia Education of the issue and subsequently submitted adjustments to its April 2010 reimbursement request 2 to offset the $4.75 million incorrectly expended. According to Virginia Education, 32 other LEAs (nearly 25 percent of all LEAs) used the IDEA MOE flexibility option. Therefore, Virginia Education needs to provide clear guidance to its LEAs to ensure Recovery Act IDEA funds are being used appropriately. Norfolk Incorrectly Included Capital Outlay Expenditures in Its Indirect Cost Calculations Norfolk submitted a reimbursement request for Recovery Act Title I funds for $94,587 that resulted in it being reimbursed $3,784 for indirect costs. 3 We found that Norfolk should have sought reimbursement for only $21,983 in expenditures including $879 in indirect costs (4 percent of $21,983). Norfolk incorrectly included $72,604 of capital outlay 4 expenditures in its indirect cost calculations, resulting in an excess reimbursement of $2,905 ($3,784 minus $879). When we brought this to the attention of Norfolk officials, they acknowledged the error and indicated that the incorrectly claimed indirect costs would be returned within 10 business days of the date we notified the officials of the error. Federal regulation 2 C.F.R. Part 225, “Cost Principles for State, Local, and Indian Tribal Governments (OMB Circular A-87),” Appendix B, 15. b.(5) states that equipment and other capital expenditures are unallowable as indirect costs. We asked Virginia Education about its process for reviewing indirect cost calculations submitted by LEAs. Virginia Education’s Director of Grants Accounting and Reporting stated that her office estimated the allowable direct costs from the OMEGA system reimbursement request, and if the total was equal to or greater than the amount claimed by the LEA, her office approved the indirect cost. The official also informed us that Virginia Education had denied multiple reimbursement requests submitted by Norfolk for indirect costs that had been calculated incorrectly. 2 The April 2010 reimbursement requests submitted by Fairfax County had not been approved by Virginia Education at the time of the June 15, 2010, conference call. 3 Norfolk’s indirect cost rate was 4 percent (4 percent of $94,587 = $3,784). 4 In Virginia Education’s, “Procedures and Forms for Federal Program Reimbursements and Amendments,” capital outlay is defined as equipment for instruction, buildings, remodeling, and all other equipment. Final Report ED-OIG/A03K0008 Page 6 of 16 Only three indirect cost expenditures were contained within our sample. Although we found only one example of unallowable expenditures being included in Norfolk’s indirect cost calculations, additional unallowable expenditures may exist. Although Virginia Education does review indirect cost calculations, it needs to improve its monitoring process because not all of the calculation errors were detected. Virginia Education also needs to ensure that the process LEAs use to calculate indirect costs does not permit unallowable costs to be included. Norfolk Allocated Expenditures to Incorrect State Object Codes Of the 15 Recovery Act IDEA expenditures we sampled, 6 expenditures for materials and supplies were incorrectly allocated as equipment/capital outlay, including 3 office chairs and miscellaneous office supplies. In addition, Norfolk incorrectly bundled the cost of multiple items resulting in additional misallocated expenditures. Some of these misallocations affected indirect cost calculations because expenditures allocated to equipment/capital outlay cannot be claimed in the calculation of indirect costs. Virginia Education’s “Handbook of Procedures and Forms for Federal Program Reimbursements and Amendments” (Handbook) outlined criteria for its LEAs on the classification of materials and supplies, as well as equipment/capital outlay. According to the Handbook, materials and supplies should be coded to object code 6000, while equipment/capital outlay (meeting the capitalization threshold of $500) should be coded to object code 8000. The Handbook specifically defined materials and supplies as “articles and commodities which are consumed or materially altered when used and minor equipment (less than $500) which is not capital outlay (i.e., instructional materials, administrative supplies, etc.).” Norfolk’s process of allocating expenditures to equipment/capital outlay was based partly on its multiple capitalization thresholds. Norfolk generally used a $5,000 threshold for capitalization expenditures; however, for highly pilferable items (e.g., computers) Norfolk used a $500 threshold. In addition, Norfolk stated that the effort of coding expenditures to the State object codes was daunting, and as a result, expenditures were allocated to equipment/capital outlay to facilitate its inventory processes. Norfolk further stated that by allocating expenditures to equipment/capital outlay, purchases could be inventoried and, therefore, accounted for easily. The six expenditures noted as incorrectly allocated to the State’s object codes are not equipment/capital outlay or highly pilferable, and all cost less than $500. Therefore, these expenditures are not required to be part of Norfolk’s inventory and should be allocated to materials and supplies. Although the financial impact of these six incorrectly coded expenditures totals only $2,032, these transactions represented 40 percent of the IDEA transactions sampled. These incorrect allocations further exemplify the need for Virginia Education to improve fiscal monitoring of its subrecipients. During its review of reimbursement requests in the OMEGA system, Virginia Education officials had the ability to review the object codes used by the LEAs. Although Virginia Education reviewed expenditure data through the OMEGA system, the data were not sufficient to allow it to monitor the reasonableness and allowability of the expenditures. LEAs were not required to submit supporting documentation (e.g., invoices or purchase orders) with the reimbursement requests. It is Virginia Education’s responsibility to perform risk-based monitoring of the Final Report ED-OIG/A03K0008 Page 7 of 16 expenditures included in the reimbursement requests submitted by the LEAs, including the validity, accuracy, and allowability of the expenses. Virginia Education primarily relied on single audits by independent public accountants to monitor LEA expenditures. These single audits occurred well after payments were disbursed to the LEAs and were performed too late to ensure early detection of the inappropriate use of funds. In addition, Virginia Education’s Director of Grants Accounting and Reporting stated that her office relied on the honesty and integrity of the LEA officials’ charged with the local approval of expenditures in the OMEGA system as an internal control mechanism to show that the expenditure was valid, accurate, and allowable. However, during the audit period, Virginia Education did not review supporting documentation for the information entered into the OMEGA system, nor did it perform testing of the validity, accuracy, and allowability of the expenditures through fiscal monitoring activities. As a result of Virginia Education’s insufficient fiscal monitoring, there may be an increased risk that LEAs will charge unallowable, unsupported, or unreasonable expenditures to Recovery Act grants. Without proper fiscal monitoring, inappropriate payments for LEA expenditures may go unnoticed. Subsequent to our fieldwork, Virginia Education implemented a plan to monitor the use of and accounting for Recovery Act funds, as well as the data quality for its LEAs, for all Recovery Act programs. In February 2011, Virginia Education provided us with its subrecipients’ monitoring plan that included fiscal monitoring of Recovery Act funds. Virginia Education scheduled site visits with all of its subrecipients, using a risk-based scoring system, through the last quarter of 2011. The first site visits occurred at the end of September 2010. We reviewed the monitoring plan and concluded that it should improve Virginia Education’s monitoring of Recovery Act funds by increasing its oversight of LEA compliance with fiscal requirements related to the appropriate use of and accounting for these funds. RECOMMENDATIONS We recommend that the Assistant Secretary for Elementary and Secondary Education, in conjunction with the Assistant Secretary for Special Education and Rehabilitative Services, require Virginia Education to − 1.1 Continue to implement its risk-based fiscal monitoring procedures to ensure timely oversight of LEA compliance with fiscal requirements related to the appropriate use of and accounting for Recovery Act IDEA and Title I funds; 1.2 Verify that all LEAs that implemented the IDEA MOE flexibility option used Recovery Act IDEA funds only for special education and related services; 1.3 Ensure that the excess reimbursement of funds that were allocated for indirect costs are returned; and 1.4 Provide information on the finding contained in this report to all LEAs in Virginia. Final Report ED-OIG/A03K0008 Page 8 of 16 Virginia Education’s Comments and OIG Response Virginia Education did not agree with the finding and stated that the finding and recommendations did not fully reflect the steps it took to ensure fiscal monitoring and compliance with selected Recovery Act funds. Virginia Education stated that it used a four-step review process for monitoring fiscal compliance with the Recovery Act. The four steps included the following: • reviewing subrecipients planned use of Recovery Act funds through applications and budget requests; • reviewing subrecipient reimbursement request details for allowability through its OMEGA system; • reviewing single audits that help to assure the accuracy of Recovery Act data, the allowability of expenditures, and the validity of controls over Recovery Act funds; and • reviewing data quality through on-site reviews of expenditure supporting documentation, fiscal controls, and the subrecipient’s most recent single audit. Further, subrecipients are required to certify that expenditures were allowable and that documentation of the expenditures is available. OIG Response. We believe that we included the steps Virginia Education had taken to ensure fiscal monitoring and compliance with the Recovery Act funds reviewed in the report. However, we found that Virginia Education’s monitoring process could be improved. We did not discuss the review of subrecipient applications and budgets because those are only the planned use of the funds and could vary from the actual use of the funds, which was the focus of our review. In the finding, we noted that Virginia Education implemented a plan to monitor the use of and accounting for its LEAs’ Recovery Act funds and the quality of Recovery Act data. Virginia Education provided us with clarifying information to statements made in the preliminary report. We have numbered the clarifying statements below followed by the OIG response to each statement. 1. In response to the finding subsection “Fairfax County Improperly Spent Recovery Act IDEA Maintenance of Effort Flexibility Option Funds,” Virginia Education stated that Fairfax County made the error in submitting the $4.75 million reimbursement request because it misinterpreted the Department’s Recovery Act IDEA guidance. Fairfax County submitted a subsequent reimbursement request to Virginia Education to correct the error. Shortly after discovery of the error, Fairfax County incurred $4.75 million in allowable Recovery Act IDEA costs that were not reimbursed; therefore, there was a $0 net impact on the Recovery Act funds. Final Report ED-OIG/A03K0008 Page 9 of 16 Virginia Education’s response included a letter from Fairfax County in which it objected to the report stating that Fairfax County improperly expended the Recovery Act IDEA MOE flexibility funds. Fairfax County believed that the reader of the report might interpret the statement to mean that the funds were improperly expended. Fairfax County believed that the report should state that it improperly claimed reimbursement for the funds. OIG Response. We agree that Fairfax County misunderstood the MOE flexibility option guidance, and that because Fairfax submitted a reimbursement adjustment, the net impact was $0. However, as we stated in the report, the guidance provided by Virginia Education did not include specific information on how to implement the MOE flexibility option. Fairfax County improperly expended the MOE flexibility option funds between July 2009 and March 2010, and requested and received reimbursement for those funds. If the funds were not already expended, then a reimbursement request should not have been made. Although Fairfax County adjusted a later reimbursement request, the funds were originally expended on non-special education activities. . 2. In response to our conclusion that Virginia Education needs to provide clear guidance to its LEAs to ensure Recovery Act funds were being used appropriately, Virginia Education stated that it has provided substantial guidance to LEAs regarding the use of Recovery Act IDEA funds, including direct links through its own Web site to written guidance provided by the Department’s Office of Special Education Programs. Virginia Education also stated that it provided guidance through phone conferences and in-person training sessions. OIG Response. We do not dispute that Virginia Education provided information to its subrecipients about the use of Recovery Act IDEA funds; however, the guidance provided did not include specific information about the use of the Recovery Act IDEA MOE flexibility option funds. We reviewed the information on the Web site Virginia Education provided in its response and found that while it did include references to various Recovery Act IDEA guidance documents, it did not include any clarifying explanations related to the MOE flexibility option. 3. In response to the finding subsection “Norfolk Incorrectly Included Capital Outlay Expenditures in Its Indirect Cost Calculations,” Virginia Education stated that the funds for Norfolk’s reimbursement request that would have included the indirect cost recovery were not drawn down from the Department until July 2010. Virginia Education asserted that, as of June 30, 2010, in aggregate, Norfolk requested less reimbursement for indirect cost recovery than it could have, and that a reduction for the unallowable indirect costs discussed in the report has been included in a subsequent Norfolk reimbursement request. OIG Response. Although Norfolk might have been able to claim reimbursement for more funds than it did, the indirect costs noted in the report that were claimed for reimbursement were overstated because Norfolk included capital outlay expenditures in its indirect cost recovery calculations. We commend Norfolk for proactively reimbursing the unallowable indirect costs. Final Report ED-OIG/A03K0008 Page 10 of 16 4. In response to the finding subsection “Norfolk Allocated Expenditures to Incorrect State Object Codes,” Norfolk stated (through Virginia Education) that it did not include any of the purchases in question in its capital assets for financial reporting purposes, and that these items are not capital assets and are eligible for indirect cost recovery. Virginia Education asserted that the OMEGA system does not replace subrecipient financial systems or their financial system reporting. Therefore, the object code categorization in the OMEGA system should not be the absolute control for allowing indirect cost recovery on a controlled noncapitalized item in the subrecipient’s financial system. OIG Response. Even though Norfolk did not include the miscoded expenditures in its financial reporting, it did include some of the miscoded expenditures in its indirect cost recovery calculations. We agree that some of the items, which were coded as capital assets, were not capital assets and were eligible for indirect cost recovery; however, some were capital assets and were included in an indirect cost recovery calculation. In Virginia Education’s comments, Norfolk acknowledged that the expenditure coding data reported to Virginia Education through the OMEGA system could differ from its financial reporting, based on an internal review performed by Norfolk’s Fixed Asset Accountant. Therefore, the expenditure coding data input into the OMEGA system did not accurately represent the data reflected in Norfolk’s financial reporting. Because Virginia Education’s expenditure review process (which includes the review of indirect costs) relies on the OMEGA system, we agree that the OMEGA system should not be the absolute control for allowing indirect cost recovery. Virginia Education needs to perform additional fiscal monitoring to ensure LEAs are properly coding expenditures and including only allowable costs in indirect cost calculations. 5. In response to our statement that “Virginia Education primarily relied on single audits by independent public accountants to monitor LEA expenditures,” Virginia Education stated that it relied and continues to rely on the OMEGA system as its primary first line monitoring tool for reviewing subrecipient Recovery Act expenditure reimbursement requests. OIG Response. We were informed by Virginia Education’s Director of Grants Accounting and Reporting that it relied on the single audits to monitor LEA expenditures. We do not dispute that Virginia Education also relies on the OMEGA system to monitor subrecipient reimbursement requests. However, because Virginia Education did not require LEAs to submit detailed supporting documentation with the reimbursement requests, using the OMEGA system as the primary monitoring tool was not sufficient. 6. In response to our conclusion that single audits occurred well after payments were disbursed to the LEAs and were performed too late to ensure early detection of the inappropriate use of funds, Virginia Education stated that the single audits are generally completed by the fall/winter of the year audited, ensuring a timely review of a significant portion of expenditures. OIG Response. Although the single audit fieldwork may be completed by the fall/winter of the year being audited, the audit reports are not normally issued until nine months after Final Report ED-OIG/A03K0008 Page 11 of 16 the end of the fiscal year, well after the funds have been spent. We believe that this amount of time does not allow for early detection of the inappropriate use of Recovery Act funds. 7. In response to our statement that “Virginia Education did not review supporting documentation for the information entered into the OMEGA system, nor did it perform testing of the validity, accuracy, and allowability of the expenditures through fiscal monitoring activities,” Virginia Education stated that it does review the allowability of subrecipient Recovery Act expenditures through the OMEGA system. This review included vendor payments; check or voucher number; expenditure date, amount, and description; and total salaries and benefits. Virginia Education also stated that it ensures that the subrecipient acknowledged the online certification statement. Virginia Education stated that it provided us documentation of its planned Recovery Act data quality reviews of Virginia’s subrecipients, and that by April 2011, 36 percent of the on-site reviews had been conducted. OIG Response. Although Virginia Education did perform a review of subrecipient reimbursement requests submitted through the OMEGA system, the data submitted did not include enough detailed information to fully show that the expenditures were reasonable and allowable Recovery Act program expenditures. A review of vendor paid, check or voucher number, date, and general description is not adequate to determine whether the expenditure was reasonable and allowable. Expenditure descriptions can be misleading, and having only a vendor name or check number does not mean that the expenditure was proper. Although we agree it is good to require subrecipients to certify the data they submitted, subrecipient self-certification does not ensure that the data submitted are reasonable, allowable, and adequately supported program expenditures. We acknowledged Virginia Education’s on-site monitoring reviews in the report and stated that this process should assist Virginia Education in improving its fiscal monitoring. Virginia Education’s comments included responses to the report’s recommendations. In response to Recommendation 1.1, Virginia Education stated that it has conducted data quality reviews and technical assistance visits at 47 LEAs to date in its efforts to continue its fiscal monitoring of LEAs. In response to Recommendation 1.2, Virginia Education restated that it had provided substantial guidance to LEAs regarding Recovery Act IDEA funds. In response to Recommendation 1.3, Virginia Education reported that Norfolk’s overstated indirect costs have been deducted from a subsequent reimbursement request. In response to Recommendation 1.4, Virginia Education stated that it will provide a link to the final report to its LEAs. OIG Response. Virginia Education’s response to Recommendation 1.1 directly addresses the recommendation and should contribute to its timely monitoring and oversight of subrecipient fiscal requirements. Virginia Education’s response to Recommendation 1.2 does not adequately address the recommendation. We reiterate that Virginia Education should verify that the LEAs that implemented the IDEA MOE flexibility option used Recovery Act IDEA funds for only special education and related services. Virginia Education’s response to Recommendation 1.3 directly addressed the recommendation and we commend Norfolk for proactively returning the Final Report ED-OIG/A03K0008 Page 12 of 16 unallowable indirect costs. Virginia Education’s response to Recommendation 1.4 does not adequately address the recommendation. While providing a link to the final audit report is an adequate first step, Virginia Education should also actively communicate the finding issues with its LEAs. We did not modify our finding or recommendations based on Virginia Education’s comments. SCOPE AND METHODOLOGY The purpose of our audit was to determine whether (1) Virginia and selected subrecipients used and accounted for Recovery Act funds in accordance with Recovery Act recipient plans, approved applications, and other applicable laws and regulations, and (2) data reported by Virginia were accurate, complete, and in compliance with Recovery Act reporting requirements. Our audit covered the use of funds and the quality of data submitted to FederalReporting.gov for Recovery Act funds for the Title I, IDEA, and SFSF grants. We obtained background information about the programs, activities, and organizations being audited. To gain an understanding of the requirements applicable to use of funds and data reporting requirements for Federal grant programs at State and local agencies receiving Recovery Act funds, we reviewed Federal laws, regulations, OMB Circulars, and Recovery Act guidance issued by OMB and the Department. We reviewed prior Virginia Comprehensive Annual Financial Reports, prior independent audit reports, and applications for Recovery Act funds submitted by the LEAs to Virginia Education and by Virginia Education to the Department. To gain an understanding of the processes and systems pertaining to the scope of our review, we interviewed the following officials at Virginia Education: Director of Grants Accounting and Reporting; Director of Business and Risk Management; Coordinator of Compliance and Strategic Planning; Senior Controller; Senior Director of Accounting; Senior Director of Special Education; Human Resource Manager; and administrators for Title I and IDEA. At the LEAs, we interviewed officials responsible for each Recovery Act program. In addition, for the SFSF Government Services grant, we interviewed Virginia’s Assistant Director of Financial Reporting. We performed audit steps to determine whether Virginia complied with Federal requirements in the following areas: Use of Funds: We performed limited assessments of the three selected LEAs’ policies and procedures by selecting a judgmental sample of personnel and nonpersonnel expenditure transactions at each LEA to determine whether expenditures charged to Recovery Act grants complied with Recovery Act recipient plans, approved applications, laws, regulations, and guidance. We selected 78 transactions totaling more than $29.5 million for the period February 17, 2009, through June 30, 2010. The personnel transactions at two of the LEAs reviewed were generally consistent, so we selected at least 25 percent of the total costs. At one Final Report ED-OIG/A03K0008 Page 13 of 16 LEA, we could review only three personnel transactions. 5 We also reviewed personnel files, time and effort certifications, and personnel activity reports. For nonpersonnel expenditures, we reviewed each LEA’s universe of transactions, including dollar amounts and expenditure descriptions. We judgmentally selected expenditures for large dollar purchases of goods and services and expenditures with descriptions that appeared to have had questionable grant charges. We considered whether these expenditures were specifically prohibited under the Recovery Act. The personnel and nonpersonnel costs and transactions selected for testing are summarized in Table 2 at the end of this report section. We reviewed Virginia Education’s procedures for approving and accounting for Recovery Act expenditures and issuing expenditure reimbursements to LEAs. We also reviewed Virginia Education’s ability to separately account for Recovery Act funds. We discussed the monitoring of LEAs with Virginia Education officials and reviewed guidance provided by Virginia Education to LEAs about compliance with Recovery Act requirements. We obtained information regarding the internal control structure at the State and local level through interviews with administrators and through reviews of policies, procedures, and related documentation. We reviewed the use of and accounting for SFSF Government Services funds at two sheriffs’ offices, Prince William County and Fredericksburg County, that received $978,114 of the $218 million6 awarded to the State. We judgmentally selected the sheriffs’ offices that received the smallest SFSF Government Services awards. To conduct our review, we obtained supporting documentation for the payroll transactions for the month of February 2010 for Prince William County and the month of September 2009 for Fredericksburg County sheriffs’ offices. 7 We reviewed all 35 transactions, totaling $797,388, from the Prince William County sheriff’s office and all 11 transactions, totaling $180,726, from the Fredericksburg County sheriff’s office. To test personnel costs, we reviewed computer-generated records and supporting documentation provided by Virginia’s Compensation Board. We verified employment and confirmed that the employees were paid with SFSF Government Services funds by comparing payment transactions to the State’s salary report. We also reviewed the transactions for timeliness to verify that the payroll expenditures occurred prior to the reimbursements. Data Quality: We reviewed Virginia Education’s procedures to collect and report the required data for Section 1512 reporting. We verified that LEA data submitted to Virginia Education were supported by source documentation. Lastly, we used Virginia Education’s data as control totals to verify the accuracy and completeness of the statewide LEA data and the aggregate recipient data. To achieve our audit objectives, we relied, in part, on computer-processed data provided by Virginia Education and the three selected LEAs. We assessed the reliability of computer- processed data by comparing the reimbursement data from OMEGA to amounts for “total federal 5 Because Henrico County had only three personnel expenditures funded by the Recovery Act during our audit period, we selected all three. 6 All $218 million in SFSF Government Services funds were expended for payroll costs. 7 We selected only one month per office because the same personnel were paid with SFSF Government Services funds for the entire fiscal year. Final Report ED-OIG/A03K0008 Page 14 of 16 Recovery Act expended” and “total federal Recovery Act received” in the quarterly reports. For “jobs funded,” we reviewed supporting documentation and traced the data from origination to its posting on FederalReporting.gov. To determine whether the data were accurate, complete, and in compliance with Recovery Act reporting requirements, we reviewed supporting documents provided by Virginia Education and LEAs. We then compared the data reported by Virginia Education with data queries we extracted from FederalReporting.gov. Based on our testing, we determined that the computer-processed data used were sufficiently reliable for the purposes of this audit. We conducted fieldwork at Virginia Education’s office in Richmond, Virginia, in July 2010. 8 We also conducted fieldwork at Fairfax County, Henrico County, and Norfolk from August 2010 through October 2010. We held an exit conference with Virginia Education officials to discuss the results of the audit on March 15, 2011. 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. 8 During our fieldwork at Virginia Education, we obtained sheriffs’ offices expenditure information. Final Report ED-OIG/A03K0008 Page 15 of 16 Table 2: Universe and Sample Selection of Recovery Act Costs and Transactions by Grants and LEAs Personnel Costs Nonpersonnel Costs LEA Total SFSF Education Title I IDEA SFSF Education Title I IDEA Fairfax County Total Costs $21,926,638 $5,099,104 $9,435,078 $145,590 $2,087,790 $38,694,200 Total Transactions in Universe 20 66 14 N/A 74 268 442 Expenditure Amounts Selected $5,056,608 $2,031,335 $4,312,350 $61,950 $420,231 $11,882,474 Number of Transactions Selected 4 10 4 9 13 40 Henrico County Total Costs $8,964,763 $3,326 $0 $712,690 $9,680,779 Total Transactions in Universe 1 N/A 2 N/A 0 54 57 Expenditure Amounts Selected $8,964,763 $3,326 $0 $214,418 $9,182,507 Number of Transactions Selected 1 2 0 7 10 Norfolk Total Costs $19,014,335 $2,930,882 $96,807 $954,182 $1,905,422 $24,901,628 Total Transactions in Universe 16 403 18 N/A 289 593 1319 Expenditure Amounts Selected $7,076,013 $92,151 $74,988 $631,558 $589,911 $8,464,621 Number of Transactions Selected 2 4 2 7 13 28 Total Total Costs $49,905,736 $8,029,986 $9,535,211 $1,099,772 $4,705,902 $73,276,607 Total Transactions in Universe 37 469 34 N/A 363 915 1,818 Expenditure Amounts Selected $21,097,384 $2,123,486 $4,390,664 $693,508 $1,224,560 $29,529,602 Number of Transactions Selected 7 14 8 16 33 78 Final Report ED-OIG/A03K0008 Page 16 of 16 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 Department of Education’s mission is to promote The Inspector General Hotline student achievement and preparation for global competitiveness 1-800-MISUSED (1-800-647-8733) by fostering educational excellence and ensuring equal access. Or write: www.ed.gov Inspector General Hotline U.S. Department of Education Office of Inspector General 400 Maryland Avenue, S.W. Washington, DC 20202 Or e-mail: email@example.com 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 Page 1 of 8 COMMONWEALTH of VIRGINIA Patricia I. Wright, Ed.D. DEPARTMENT OF EDUCATION Office: (804) 225-2023 Superintendent or Public Instruction P.O. BOX 2120 Fax: (804) 371-2099 Richmond. Virginia 23218-21:!O May 9. 2011 Mr. Bernard TadJey Regional Inspector General Audit Region III U.S. Department of Education The Wanamaker Building 100 Penn Square East, Suite 502 Philadelphia, Pennsylvania 19107 Dear Mr. Tadley: Attached is the Virginia Department of Education's (VDOE) response to the preliminary copy of your audit report entitled Virginia: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act (ARRA) Programs, Audit Control Number ED OIG/A03K0008. The preliminary audit report was sent to VDOE on Tuesday. April 26. 2011. under the expedited issuance process for audit reports related to ARRA In accordance with the expedited issuance process, we are providing our response in time for the May 10, 2011. deadline. VDOE disagrees with the finding as stated in the preliminary audit report. Based on the clarification provided in the attachcd rcsponse document, we believe the finding should be withdrawn. Thank you for the opponunity to respond to this preliminary audit report. We look forward to our continued collaborative relationship in the future. Sincerely, Patricia I. Wright PIWIKHLlcle Attachments Enclosure Page 2 of 8 Virginia Response to U.S. Department of Education (USED) Office of Inspector General (OIG) Findings Related to Virginia Use of Funds & ))ata Quality for Selected Americllll H.ccovcry & Reinvestment Act (ARRA) Programs Preliminary Finding No. I: Virginia Needs to Improve its Fiscal Monitoring Over Recovery Act Funds. The Virginia Department of Education (VDOE) respectfully disagrees with the finding (and accompanying narrative) as stated. Of the $29,529,602 expenditures selected (page I I ) for sample. 72% were State Fiscal Stabilization funds. from which there were no audit findings. Additionally, the Finding and Recommendations section does not fully reneet the steps taken by Virginia to ensure fiscal mon itoring and compliance with selected ARRA funds. Virginia has used a four-step review process for monitoring fiscal compliance with the ARRA as follows: I. Review of the planned used of funds Prior to VDOE making the ARRA funds available for reimbursement, each subrecipient submitted a plan (application/annual plan/budget request) for use of funds that had to be reviewed for al10wability and approved by program specialists at VDOE. 2. Review of ARRA reimbursement requests As per the Virginia Cash Management Agreement with the U.S. Treasury, VDOE is reimbursemerll based for the subrecipients of federal education grants, meaning federal funds are not drawn/expended from USED until requests for reimbursement are disbursed to the subrccipients. "Reimbursement" also means each subrecipient records federal expenditure throughout the grant period and receives ·'federal" funds in arrears once requests for reimbursement are submitted, approved, and disbursed. VOOE requires each subrecipient oflhe ARRA education grant awards to submit requests for reimbursement of funds through use of its Online Management of Education Grant Awards (OMEGA) system. The details of reimbursement requests are compared to the subrecipients' approved planned use of funds while being reviewed for allowability and validity by VDOE prior to disbursement of funds. Through OMEGA, the subrecipient also certifies allowable use of funds and availability of back-up documentation. VDOE's primary fiscal monitoring mechanism is the review that occurs through OMEGA. 3. OMB 133 Audits The new Catalog of Domestic Assistance Numbers created for each ARRA education award triggered new programs for auditing purposes. These Ilew programs/revenue streams represent "high risk" to auditors as per section .520 (e) of the A-I33 Compliance Supplement. As a result of the "high risk" of ARRA programs, the fiscal year 20 I 0 independent audits of Virginia localities included the ARRA grants. These audits are timely when the grants are processed on a reimbursement basis, especially when it is taken into account that less than one-third of the Title I ARRA (CFDA 84.389) and IDEA ARRA (CFDA 84.391) funds were drawn from USED as of the ARRA reporting quarter ended June 1 Enclosure Page 3 of 8 30,2010. These audits have helped to assure the accuracy of ARRA reporting, validity and allowability of expenditures, and local controls on ARRA funding. 4. Recovery Data Quality Review Process VDOE planned an on-site ARRA data quality review process prior to the OIG audit and implemented the process during the audit by OIG. The process includes: sampling fiscal documentation of every ARRA grant reimbursed. collecting copies of the supporting documentation to ensure the accuracy and validity of OMEGA reimbursement requests as well as reviewing the most current OMB-133 audit outcomes for the subrecipients under review. Included in this subrecipient review are discussions identifying both best practices and potential process improvements. The tables that follow list the statements made by the OIG in the Preliminary Audit Report and VDOE clarifying statements: Preliminary Audit OIG Audit Report VDOE Clarifying Statement Statcmcnt Page 4 of 12: "Fairfax County c.xpcnded As of June 30, 20 I O. Fairfax County incurred a total of$15.92 $4.75 million in Recovery Act IDEA million in allowable Recovery Act IDEA expenditures. funds for non-special education programs from July I, 2009, through March 31, During the audit period ending June 30, 20I 0, Fairfax County was 2010." reimbursed for$J 1.52 million of Recovery Act IDEA funds for expenditures through March 31,20 I 0 (only$11.52 million was drawn from USED's GS system for Fairfax County as of June 30, 20 I 0 - which is confirmed in the Recovery Act Reports as of June 30, 2010). During the month of June 20 I 0 Fairfax identified an error in their interpretation of the USED ARRA IDEA guidance,which resulted in their recognition of $4.75 million requested for reimbursement in error. Shortly thereafter. Fairfax County recognized$4.75 million of allowable costs for IDEA Recovery Act funds that were incurred and not reimbursed as of June 30, 20 I O. The expenditure correction was recorded within a subsequent reimbursement request submitted to VOOE. The net impact of the error was $0 for federal ARRA funds. See attached Leiter dated May 6,2011 from Fairfax County. Page 5 of 12: "Therefore, Virginia Substantial guidance has been provided to LEAs regarding Recovery Education nceds to provide clear Act IDEA funds to be used only for special education and related guidance to its LEAs to ensure Recovery services. Much of this information is summarized at: Act IDEA funds are being used appropriately." h tt[!:llwww .II oc.v irci11ill.l:0v1stho o l finan('C/ll rnl/idcalin d ex.sh t m 1 VOOE used direct links to written guidance provided by OSEP. This methodology ensures that LEAs are given the most accurate and timely guidance available. In addition, guidance on requirements related to Recovery Act IDEA funds was provided by VDOE to LEAs through phone conferences and in-person training sessions. 2 Enclosure Page 4 of 8 Preliminary Audit OIG Audit Report VDOE Clarifying Statement Statement Page 5 of 12: "Norfolk incorrectly included A review of the $3,885,064 total reimbursed and reported as capital outlay expenditures in its indirect cost of June 30, 20I 0, for ARRA Title I funds for Norfolk showed calculations. that, in the aggregate, Norfolk requested reimbursement for Norfolk incorrectly included $7 2,60 4 of capital less indirect cost recovery than they were allowed. The outlay expenditures in its indirect cost analysis of this data has been sent to OIG. calculations that resulted in incorrectly charged indirect costs of $2,904. Norfolk submitted a The reimbursement related to this finding by OIG was neither reimbursement request for Recovery Act Title I expended at the state level nor drawn from USED until July funds for $94,587 thaI resulted in reimbursed of2010, and was not part of the June 30,2010, ARRA indirect costs of $3,784. The reimbursement reports. request should have reflected $21,983 in eligible expenditures for the calculation of indirect costs, The over recovery in the July 20 I 0 expenditure resulting in the reimbursement of $879 for reimbursement has been included as a reduction to Norfolk in indirect costs" a subseQuent reQuest for reimbursement. Page 5 of 12: "Of the IS Recovery Act IDEA OMEGA is designed to allow subrecipients to request expenditures sampled, six expenditures for reimbursement for expenditures of federal funds. Use of materials and supplies were incorrectly allocated budgeting to the major federal object codes is required to as equipment/capital outlay, including 3 office allow reviewers of requests to locale programmatic approval chairs and miscellaneous office supplies. In of use of funds in the related application for funds and budget addition, Norfolk incorrectly bundled the cost of transfers. OMEGA does not replace local financial systems, multiple items resulting in additional nor do the object code budgets in OMEGA supersede misallocated expenditures. Some of these subrecipient financial system reporting. Norfolk Public misallocations had an impact on the indirect cost Schools (NPS) provided additional information as follows: calculations because expenditures allocated to " ... It is NPS's practice to code all equipment andfurniture equipment/capital outlay cannot be claimed in purchases, 110 matter what the dollar value to objeci codes the calculation of indirect costs ... As a result of 8100-8220. Our fixed asset accountant then reviews each misallocated expenditures, VDOE cannot ensure and every item lhal is purchased under these objeci codes 10 that the LEAs complied with Federal fiscal make a delerminaJio11 of whether or 110t an item should be requirements related to use of and accounting for added to ollr inventory for cOnlrol purposes (which is the firsl Recovery Act funds." decision) alld whelher or 1101 il should be considered a capilal asset and depreCiated (the second pari of Ihe decision). NPS only capitalizes ilems which are more than S5,000 and in fact did 1101 include any ofthe fumiture or equipmenl ill queslioll in our capilal assels for financial reporting purposes. Therefore,for indirect cost purposes, these items shoufd not be considered capi/al assets at all and should be eligible for indirect COsl recovery.. , Consequently, the object code categorization in OMEGA should not be the absolute control on allowing indirect cost recovery on an item that is controlled but not capitalized in the subrecioient's financial system. Page 7 of 12: "Virginia Education relied on VDOE used and continues to rely on OMEGA as the primary single audits by independent public accountants first line monitoring tool for reviewing expenditure to monitor LEA expenditures." reimbursement requests from its subrecipients for the ARRA I grants audited by OIG. 3 Enclosure Page 5 of 8 Preliminary Audit OIG Audit Report YDOE Clarifying Statement Statement Page 7 of 12: "These single audits occurred well The Virginia ARRA grants are available for reimbursemenl after payments were disbursed to the LEAs and over a time period of27+ months, encompassing three State were performed 100 late to ensure early detection fiscal years. As of 6/30/20 I 0, only28% of the Tille I Part A of the inappropriate use of funds." ARRA funds, 27% of the IDEA 6 1 1 ARRA funds, and 44% of State Fiscal Stabilization Funds (Education) had been requested for reimbursement and drawn from USED's G5 system. For the ARRA reporting cycle ending June 30, 20 I 0, 88% of the funds drawn by VDOE for the selected ARRA grants were reimbursed to LEAs in the latter half(January through June) of the fiscal year, at a time when many of the local audits were being planned. The local audits are generally completed by the fall/winter of the year audited, ensuring a timely review of the significant portion of eXDenditures. Page 7 of 12: " ... Virginia Education did nOI VDOE reviewed the allowability of the ARRA expenditures review supporting documentation for the via review of the detailed expenditure information collected information entered into OMEGA, nor did it in OMEGA (including: vendor paid, check/voucher number, perform testing oflhe validity, accuracy, and date of expense, amount of expense, description of expense, allowability of the expenditures through fiscal and totals of time period salaries and benefits expended) and monitoring activities." acknowledgement of the divisions' online certification statement: �NAME PBLC SCHS hereby claims reimbursement of disbursement made duri ng the period MM/DD/YYYY to MM /DD/VYY under the provisions of the program or grant indicated above. This Is to c erti fy that the expen ditures listed In the reimbursement have been paid In accordance with the federal/state polici es and/or regulations of Virginia Board of Education. It further certifies that documentation has been retained in the office of the educational agency/organization and Is available upon request to support j the c lai m. It Is understood that this claim Is sub ect to federal andlor state audits.W Additionally, at the time of the audit, VOOE provided documentation for planned Data Quality Reviews of Virginia's subrecipients. These reviews began i n September of20 I 0, as the amount of data available for review was limited through June 30, 20 I 0, due to the close of the fiscal year and the timing of local audits. Included in the reviews are collections of back up documentation for a sample set of every ARRA CFOA reimbursed 10 the subrecipient to ensure accuracy and validity. By April26, 2011, the date of the OIG Preliminary Audit Report, 36% of the ARRA on-site visits of the LEAs had occurred. 4 Enclosure Page 6 of 8 Preliminary Audil DIG Audit Report: VDOE Response 1.1. Continue to implement risk-based fiscal VOOE is performing and will continue to perform ARRA monitoring procedures that provides timely data quality reviews and technical assistance visits in the sub oversight of LEA compliance with fiscal recipient LEAs receiving ARRA funds. As of the date of the requirements related to the appropriate usc of Preliminary Audit Report, Data Quality site visits had and accounting for Recovery Act IDEA and occurred at47 LEAs. Within the first sites visited, were Title I funds. those LEAs with the highcst risk scores from the VOOE risk assessment matrix. 1.2. Verify for all LEAs that implemented the Substantial guidance has been provided to LEAs regarding IDEA MOE nexibility option, that the Recovery Act IDEA funds to be used only for special Recovcry Act IDEA funds were used only education and related services. for special education and related services: 1.3. Ensure that the funds that were over The over allocated indirect cost recoveries have been allocated for indirect costs are returncd; and deducted From a subsequent reimbursement. 104. Provide information on the Gildings A link to the final audit report will be provided to the LEAs. contained in this report to all LEAs within Virginia. 5 Enclosure Page 7 of 8 Office of the Comptroller FAIRFAX COUNTY 8115 Gatehouse Road PUBLIC SCHOOLS Falls Church, Virginia 22042-1203 May 6, 2011 Mr. Kent Dickey Deputy Superintendent for Finance and Operations Virginia Department of Education P.O. Box 2120 Richmond, VA 23218-2120 RE: Preliminary Audil Report ED-OIG/A03KOO08 Dear Mr. Dickey: Fairfax County Public Schools (FCPS) is in receipt of the Virginia: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs Preliminary Audit Report conducted by the U.S. Department of Education, Office of the Inspector General. The e-mail communication sent by Bernard Tadley, Regional Inspector General for Audit, on April 26. 2011. to Patricia Wright at Virginia Department of Education. provides an opportunity for the LEA's who were reviewed to comment on the report. FCPS comments are as fonows: FCPS does not agree with the paragraph header stating "Fairfax County Improperly Spent Recovery Act IDEA Maintenance of Effort Flexibility Option Funds· or with the use of the word �expended" in the first sentence of the first paragraph of the Preliminary Audit report, both located on page 4. Readers of the report might interpret that FCPS improperly expended funds, which we believe Is Incorrect. FCPS misinterpreted the eligible expenditure reimbursement guidelines provided by the Virginia Department of Education under the Recovery Act and IDEA MOE option. The expenditures. originally claimed for reimbursement, were properly expended by the school division. However. upon further guidance from the Virginia Department of Education, it was determined the expenditures did not qualify for reimbursement. FCPS wou ld like to propose the following revisions: In the paragraph header, page 4, change header to "Fairfax County Improperly Claimed for Reimbursement Recovery Act IDEA Maintenance of Effort Flexibility Option Funds·. Enclosure Page 8 of 8 Mr. Kent Dickey Virginia Department of Education Page 2 May 5, 2011 In the first sentence of the first paragraph, under the above heading, page 4, change sentence to MFairfax County improperly claimed reimbursement of $4.75 million in Recovery Act IDEA funds,.,�, Thank you for your consideration of the proposed revisions. If you have any questions, please contact , grants compliance officer, at 571-423-3746. Sincerely, �eir Zupovitz Comptroller MZ:bz Enclosures cc: D. A nglada ' W. Jennings
Virginia - Use of Funds and Data Quality for Selected ARRA Funds.
Published by the Department of Education, Office of Inspector General on 2011-06-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)