oversight

Maryland: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs

Published by the Department of Education, Office of Inspector General on 2013-01-03.

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
    Maryland: Use of Funds and Data Quality for Selected
    American Recovery and Reinvestment Act Programs

                    Final Audit Report




                      Maryland State Capitol


ED-OIG/A03K0009                                January 2013
                             NOTICE


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


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 .
                          UNITED STATES DEPARTMENT OF EDUCATION
                                         OFFICE OF INSPECTOR GENERAL

                                                                          AUDIT SERVICES
                                                                     PHILADELPHIA REGION




                                              January 03, 2013


Dr. Lillian M. Lowery
State Superintendent of Schools
Maryland State Department of Education
200 West Baltimore Street
Baltimore, MD 21201


Dear Dr. Lowery:

This final audit report presents the results of our audit to determine whether (1) the State of
Maryland and selected subrecipients used and accounted for American Recovery and
Reinvestment Act of 2009 funds in accordance with Recovery Act recipient plans, approved
applications, and other applicable laws and regulations and (2) data reported by Maryland 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

                                      Deborah S. Delisle
                                      Assistant Secretary
                        Office of Elementary and Secondary Education
                                U.S. Department of Education
                              400 Maryland Ave., S.W., 3W315
                                    Washington, DC 20202
                                       Michael K. Yudin
                                  Acting 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

AFRS                         Annual Financial Reporting System

app                          Application

Baltimore City               Baltimore City Public Schools

C.F.R.                       Code of Federal Regulations

CSTEM                        Communication, Science, Technology, Engineering, and Math

Department                   U.S. Department of Education

ESEA                         Elementary and Secondary Education Act of 1965

FTE                          Full-Time Equivalent

FY                           Fiscal Year

IDEA                         Individuals with Disabilities Education Act, Part B

LEA                          Local Educational Agency

Maryland                     State of Maryland

Maryland Education           Maryland State Department of Education

MDM                          Mobile Device Management

OMB                          Office of Management and Budget

Prince George’s County       Prince George’s County Public Schools

Public Safety                Maryland State Department of Public Safety and Correction

Recovery Act                 American Recovery and Reinvestment Act of 2009

SEA                          State Educational Agency

SFSF                         State Fiscal Stabilization Fund

SIG                          School Improvement Grant

TEDL                         Transforming Education through Digital Learning

Title I                      Title I, Part A of the Elementary and Secondary Education Act of 1965
Final Report
ED-OIG/A03K0009                                                                      Page 1 of 67


          Maryland: Use of Funds and Data Quality for Selected
          American Recovery and Reinvestment Act Programs
                              Control Number ED-OIG/A03K0009


                                            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 State of Maryland (Maryland) 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 Maryland 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 (ESEA) of 1965 (Title I); and the Individuals with
Disabilities Education Act, Part B (IDEA). We reviewed selected costs charged to these grants
from April 1, 2009, through May 31, 2010, and quarterly data reported from July 2009 through
June 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 Maryland State Department of Education (Maryland Education),
Maryland’s Department of Public Safety and Correction (Public Safety) and two local
educational agencies (LEAs) within Maryland: Baltimore City Public Schools (Baltimore City)
and Prince George’s County Public Schools (Prince George’s County).

As a result of information that came to our attention during the review, we expanded our audit
period for Prince George’s County to include expenditures made from June 1, 2010, through
May 31, 2011, for the grants discussed above. Our expanded review also included Title I
Recovery Act School Improvement Grant (SIG) expenditures.
Final Report
ED-OIG/A03K0009                                                                      Page 2 of 67


                                            RESULTS IN BRIEF

We concluded the following.

         Maryland’s subrecipients’ Recovery Act expenditures were generally allowable,
          reasonable, and accounted for in accordance with the recipients’ plans, approved
          applications, and other applicable laws and regulations; however, we found some
          unallowable ($362,939), unsupported ($346,861), and inadequately supported ($26,782)
          expenditures at the LEAs we reviewed.
         Maryland Education could improve the monitoring of expenditures to ensure
          subrecipients complied with Federal requirements related to the use of and accounting for
          Recovery Act funds.
         Maryland Education needs to provide additional guidance to LEAs and better oversee
          their application of indirect costs to Recovery Act funds.
         Maryland’s reported data were generally accurate, complete, and in compliance with
          Recovery Act reporting. However, Maryland did not ensure that the jobs data reported
          by Public Safety and the LEAs that we reviewed were accurate, complete, or in
          compliance with Recovery Act reporting requirements.

We also found that the LEAs we reviewed spent $11,556 of regular Title I funds for unallowable
purposes.

This report discusses (1) Maryland Education’s monitoring of LEA processes and expenditures;
(2) unallowable, unsupported, and inadequately supported LEA expenditures; (3) inaccurate and
incomplete data reported by Public Safety and the LEAs; (4) inadequate internal controls and
policy enforcement for certain fiscal areas by the LEAs; and (5) our recommendations.

We provided a draft copy of this report to Maryland Education for review and comment on
September 14, 2012. Maryland Education and the LEAs did not fully concur with all of our
findings and recommendations.1 Maryland Education stated that Finding Nos. 1 and 2 did not
reflect all of Maryland Education’s monitoring of the LEAs. Maryland Education concurred
with Recommendations 1.3, 2.1, and 2.3 and partially concurred with Recommendations 1.1, 1.2,
and 1.4. It did not concur with Recommendation 2.2. Maryland Education neither concurred nor
nonconcurred with Recommendation 1.5. Maryland Education provided comments to our
suggested corrective action in Finding 3. Although we considered Maryland Education’s
comments, we did not revise our findings and recommendations based on these comments.
However, we did modify parts of the Findings. In Finding No. 1 we clarified our statement
about Maryland Education reviewing supporting documentation for LEA reimbursement
requests. In Finding No. 2 we removed the questioned indirect costs charged to Baltimore City’s
SFSF Education grant. In Finding No. 3 we revised the number of quarters that Prince George’s
County did not report Section 1512 FTE data. Maryland Education’s comments are summarized
at the end of each of the three findings. The full text of the Maryland Education’s comments is
included as an Enclosure to this report.

1
    Maryland Education’s comments included responses from both LEAs we reviewed.
Final Report
ED-OIG/A03K0009                                                                                     Page 3 of 67


                                              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.

Maryland Education oversaw the State’s 24 LEAs, consisting of 1,424 elementary and secondary
schools that served more than 869,113 students during the 2009–2010 school year.

Funding: Maryland was awarded a total of $1.2 billion in Recovery Act funds for the grants we
reviewed. This consisted of $879.8 million for SFSF funds ($160.1 million for Government
Services and $719.7 million for Education Stabilization), $200 million for IDEA funds, and
$136 million for Title I funds (see Table 1 at the end of this report section). Maryland received
about 50 percent of its SFSF Education Stabilization (SFSF Education) funds by May 2009. The
initial drawdown of the SFSF Education funds totaling $225 million was allocated among the
LEAs. SFSF Government Services funds amounting to $81 million was allocated to Maryland’s
Departments of Public Safety, Human Resources, and Juvenile Services, and to the State Police.
The Maryland General Assembly approved specific allocations for the remaining SFSF
Education funds in December 2010, and required the funds to be expended by
September 30, 2011.

Administration and Reporting: Maryland Education oversaw the State’s education system and
was responsible for administering Recovery Act funds. It administered Recovery Act funds
through its Annual Financial Reporting System (AFRS) that tracked LEA expenditures. AFRS
enabled LEAs to review award balances for all open awards, prepare and submit grant
applications, submit grant reimbursement requests, and draw down grant funds from Maryland
Education. All grants were administered on a reimbursement basis.

Maryland Education fulfilled Section 1512 reporting requirements on behalf of its LEAs,
including the compilation of jobs data. Public Safety compiled its own Section 1512 data. Both
Maryland Education and Public Safety reported the data to Maryland’s StateStat Office2 for
submission to FederalReporting.gov.




2
 Maryland’s StateStat office collects and manages performance and other reporting data for the State. StateStat is a
performance-measurement and management tool implemented by Maryland’s Governor.
Final Report
ED-OIG/A03K0009                                                                                    Page 4 of 67


During the audit period, Maryland Education expended about $446 million in Recovery Act
funds. The following table summarizes the Recovery Act funds awarded and expended by
program as of the June 30, 2010, reporting period.3

Table 1: Maryland Recovery Act Funds Awarded and Expended by Program Reviewed

                                 Catalog of Federal
                                                               Total Amount              Total Expended
         Program                 Domestic Assistance
                                                                 Awarded              Through June 30, 2010
                                        No.
    SFSF Education                     84.394                   $719,676,984                $251,052,213
SFSF Government Services               84.397                   $160,123,730                $ 81,073,888
     Title I, Part A                   84.389                   $135,958,438                $ 49,237,423
      IDEA, Part B                     84.391                   $200,216,990                $ 64,296,233
         Total                                                 $1,215,976,142               $445,659,757




                             FINDINGS AND RECOMMENDATIONS

FINDING NO. 1 – Maryland Education’s Monitoring Procedures Could Be Improved to
                Ensure That LEAs Comply With Federal Fiscal Requirements and
                Maintain Adequate Fiscal Controls

A principle of the Recovery Act is to ensure accountability over the use of funds provided under
the Act. Maryland Education could improve its monitoring of LEA expenditures to ensure
subrecipients comply with Federal fiscal requirements related to the use of and accounting for all
Federal grant funds. We found that both LEAs (Prince George’s County and Baltimore City)
improperly used Recovery Act funds, had inadequately documented Recovery Act expenditures,
and needed improvements in their internal controls.

The State educational agency (SEA) is responsible for monitoring subgrant-supported LEA
activities to ensure compliance with applicable Federal requirements (Title 34 of the Code of
Federal Regulations (C.F.R.), section 80.20(a)). LEAs are required to maintain effective control
and accountability for all subgrant cash, property, and other assets and ensure that they use these
assets solely for authorized purposes (34 C.F.R. § 80.20).4

Maryland Education’s Monitoring of LEAs
Although Maryland Education monitored its LEAs’ Federal expenditures and fiscal controls
through its reimbursement process and monitoring site visits, we found that the monitoring
instruments could be improved. Furthermore, Maryland Education did not monitor any
Recovery Act funds until after the end of our audit period.

3
  Because Recovery Act data is reported quarterly and the end of our audit period (May 31, 2010) was not a quarter
end month, we used the quarter that included May 31, 2010, and ended on June 30, 2010.
4
  Maryland Education’s Notice of Grant Award document to LEAs references 34 C.F.R. Part 80.
Final Report
ED-OIG/A03K0009                                                                     Page 5 of 67


We reviewed Maryland Education’s ―Title I, Part A and ARRA Program Review 2009–2010‖
monitoring instrument. The instrument required Maryland Education Title I program office
officials to review the LEA’s monitoring of school fiscal processes, including how the LEA
determines whether a school’s Title I program purchases are reasonable and that supplanting did
not occur. In addition, the instrument required the reviewer to determine who within the LEA
monitors expenditures and how often. Although reviewing the LEA’s monitoring processes is a
good practice to engage in, the review instrument did not require the Maryland Education
reviewer to test school- or LEA-level Title I expenditures. Furthermore, the instrument did not
require a review of personnel expenditures, which is usually one of the largest Title I program
expenditure categories for LEAs.
We also reviewed Maryland Education’s Division of Special Education/Early Intervention
Services program office’s ―Subrecipient Monitoring Instrument,‖ which was revised in
June 2011. Although the instrument included a review step about the allowability of
expenditures in accordance with Federal and State requirements, it did not indicate (in the
verification portion of the review step) what the reviewer should do to complete this step, nor
what documentation the reviewer should examine.
We reviewed Maryland Education’s ―State Fiscal Year 2010 Subrecipient Monitoring Report,‖
on Baltimore City, dated February 2, 2012, and found that although the monitoring instrument
included a step to review personnel expenditures in accordance with OMB Circular A-87
requirements, the report did not include a finding on unsupported personnel expenditures. Our
audit found a high percentage (78 percent) of unsupported personnel costs.
Maryland Education’s monitoring instrument, ―Fiscal Program Review‖ for SFSF Education
funds stated that the monitoring review is to determine whether the funds were used in
accordance with the LEA’s Recovery Act Master Plan. The review required testing of no less
than five transactions or five percent of recorded expenditures to determine whether they were in
accordance with the planned use of funds and in compliance with policies and procedures. This
step did not require testing expenditures to determine whether they were for allowable purposes.
Testing expenditures to determine whether they were in accordance with the planned use of the
funds would not necessarily determine whether the actual use of the funds (the expenditure) was
for an allowable purpose. The actual expenditure could fit within the planned use but still not be
an allowable use of program funds. If the policies and procedures are not adequate, then
determining whether an expenditure was in compliance with the policies and procedures may not
show whether an expenditure was allowable. The document included a step to select and test the
allowability of journal entry expenditures; however, this is not adequate. Not all expenditures
are made using journal entry procedures.

None of the monitoring instruments had a step requiring the reviewer to determine whether the
LEAs had documented accounts payable policies and procedures, nor did these instruments have
steps to determine whether LEAs were ensuring that technological devices were being used for
authorized purposes. Having adequate policies and procedures for fiscal processes would reduce
the amount of unallowable expenditures incurred by the LEAs.
Final Report
ED-OIG/A03K0009                                                                                   Page 6 of 67


Maryland Education also used single audits conducted by independent public accountants to
monitor LEAs’ Federal expenditures, according to its Section Chief for the Federal Aid Unit.
We reviewed the fiscal year (FY) 2009 and 2010 single audit reports for Prince George’s County
and the 2010 single audit report for Baltimore City; none of the reports included any of the fiscal
or internal control issues we found.

It should be noted that the Audit Chief of Maryland Education’s State Audit Unit stated that his
department began performing audits of Federal funds at the State’s LEAs with the fiscal year that
ended June 30, 2009. The audits are performed every 2 years, cover a 2-year period, and will be
done at the same time as the LEA State fund audits. These audits are performed on regular
Federal grant funds as well as Recovery Act funding.

As stated previously, Maryland Education monitored LEA expenditures through the
reimbursement process. LEAs entered general expenditure data supporting reimbursement
requests by file upload in AFRS. Although Maryland Education reviewed and approved the
expenditure data, it reviewed only account code information; it did not review actual invoices or
other supporting documentation. Maryland Education did not require LEAs to submit supporting
expenditure documentation with the reimbursement requests. If LEAs were required to submit
supporting documentation at least periodically upon request (even on a sample or random basis),
Maryland Education could test expenditures and if necessary take early action on the
appropriateness of an expenditure.

LEA Improper Use of Funds and Inadequate Documentation of Expenditures

We found that the LEAs had unallowable, unsupported, and inadequately supported
nonpersonnel and personnel Title I, IDEA, and SFSF Education Recovery Act expenditures. The
nonpersonnel expenditures were for items such as travel, entertainment events, awards,
professional services, utility payments, items for personal use, food, and giveaway items for
noneducational events. We also found that one LEA did not have adequate controls over the use
of tablet computers purchased with Federal funds and did not have adequate policies and
procedures for travel, and online purchasing. The other LEA did not have adequate accounts
payable policies and procedures. See Other Matters and Enclosures 1 through 6 for the full
details of the results of our review of the nonpersonnel and personnel expenditures and the other
issues found. Although we reviewed Recovery Act grant funds, the issues noted apply to the use
of and accounting for all Federal funds. We discuss some examples of the expenditures and
internal control issues that we found below.

Nonpersonnel Expenditures
We found unallowable, unsupported, and inadequately supported Title I, IDEA, and SFSF
Education Recovery Act nonpersonnel expenditures at the LEAs we reviewed.5 In total, we
found $130,124 in unallowable and $28,274 in inadequately supported Title I grant expenditures;
$22,461 in unallowable IDEA grant expenditures; and $13,785 in unallowable and $95,615 in
5
  We used a risk-based approach to judgmentally select expenditure transactions to review at each LEA. Detailed
information on the number and amount of expenditures we selected at each LEA and the respective universes of
expenditures is provided in Tables 7 and 8 in the Scope and Methodology section of this report.
   Final Report
   ED-OIG/A03K0009                                                                                      Page 7 of 67


   unsupported SFSF Education expenditures. Tables 2 and 3 show (by grant) the universes,
   sample sizes and amounts, and the amount and number of expenditures reviewed for Prince
   George’s County and Baltimore City. Enclosures 1 through 3 include a full discussion of all the
   unallowable, unsupported, and inadequately supported nonpersonnel expenditures, and other
   related fiscal control issues we found at both LEAs.

   Table 2: Unallowable, Unsupported, and Inadequately Supported Nonpersonnel
   Expenditures at Prince George’s County


                                                                                         Unsupported    Unsupported
                                                                                              or             or
              Universe    Universe     Sample    Sample      Unallowable   Unallowable
 Grant                                                                                   Inadequately   Inadequately
                No.       Amount         No.     Amount          No.        Amount
                                                                                          Supported      Supported
                                                                                             No.          Amount
Title I
Recovery
Act and
               5,342     $7,165,185     152     $4,684,176        19         $122,362         17           $26,849
Regular
(expanded
work)6
IDEA
Recovery
Act            4,857     $6,911,054      32      $686,792         6           $6,633           0             $0
(expanded
work)
SFSF
               7,703     $33,147,810     50     $1,719,433        1           $13,785          3           $95,615
Education



   Table 3: Unallowable, Unsupported, and Inadequately Supported Nonpersonnel
   Expenditures at Baltimore City


                                                                                         Unsupported    Unsupported
                                                                                              or             or
             Universe     Universe     Sample   Sample       Unallowable   Unallowable
Grant                                                                                    Inadequately   Inadequately
               No.        Amount         No.    Amount           No.        Amount
                                                                                          Supported      Supported
                                                                                             No.          Amount
Title I
Recovery
Act and        1,457     $1,974,454      40     $152,385         7           $7,762           1            $1,425
Regular
Title I
IDEA            192      $1,027,968     22      $392,393         6          $15,828           0             $0




   6
       The sample included 22 expenditures, totaling $100,678, that were funded by Title I SIG Recovery Act funds.
Final Report
ED-OIG/A03K0009                                                                      Page 8 of 67


Examples of Unallowable Nonpersonnel Expenditures

The following examples include unallowable travel costs, utility payments, overcharges for
professional services, event giveaway items, and entertainment expenditures.

      Prince George’s County charged $108,882 to the Title I Recovery Act grant for
       unapproved travel.

      Prince George’s County charged $13,785 to SFSF Education funds for utility (electricity)
       obligations that were incurred before the Recovery Act was signed into law.

      Prince George’s County spent $8,736 in regular Title I funds for gifts and other items
       provided to staff at a principal’s meeting.

      Prince George’s County was overcharged $2,256 for professional services that were
       charged to Title I Recovery Act funds.

      Prince George’s County’s Turnaround Schools Director was advanced $1,083 from
       Title I Recovery Act funds for a rental car that he did not use.

      Prince George’s County’s Turnaround Schools Budget Administrative Specialist used
       Title I SIG Recovery Act funds to purchase a mini-refrigerator ($212) and a microwave
       oven ($199) from Staples for her personal use at the office.

      Baltimore City was overcharged $15,828 for professional services on six invoices that
       were paid from IDEA Recovery Act funds.

      Two Baltimore City elementary schools used Title I Recovery Act and regular Title I
       funds, totaling $4,352, for dinner cruises of Baltimore’s Inner Harbor.

Examples of Unsupported and Inadequately Supported Nonpersonnel Expenditures

      Prince George’s County did not provide supporting documentation for three
       expenditures, totaling $95,615, for utility (electricity) costs charged to the SFSF
       Education grant.

      Prince George’s County did not have adequate supporting documentation for the hours
       billed on an invoice, totaling $22,741, which was paid with Title I Recovery Act funds.

      Baltimore City provided inadequate documentation for two Title I Recovery Act
       expenditures, totaling $1,425, for food at a school activity. The supporting
       documentation provided for the activity did not show what the activity was or support the
       number of people the food was ordered for.
Final Report
ED-OIG/A03K0009                                                                                    Page 9 of 67


Personnel Expenditures7
We found inadequately supported Recovery Act personnel expenditures at Baltimore City
totaling $117,919 for the Title I program; $82,404 for the IDEA program; and $49,431 for the
SFSF Education program. Table 4 shows the results of our review of personnel expenditures for
Baltimore City. Enclosure 4 details the unallowable, unsupported, and inadequately supported
personnel expenditures we found.

Table 4: Unsupported or Inadequately Supported Personnel Expenditures
         at Baltimore City

                                                                Unsupported
                                                                                    Unsupported or
          Universe     Universe      Sample      Sample              or
Grant                                                                                Inadequately
            No.        Amount          No.       Amount         Inadequately
                                                                                   Supported Amount
                                                               Supported No.
Title I    45,407     $11,590,214      107       $141,493            87                 $117,919
IDEA       15,116     $2,517,456        49       $122,347            31                  $82,404
SFSF       2,583      $1,236,687        44        $54,331            42                  $49,431


Basis for Unsupported or Inadequately Supported Expenditures

Title I and IDEA personnel expenditures were unsupported because Baltimore City did not
provide time and effort certifications or personnel activity reports for partially funded employees
who were working on multiple cost objectives (as required by OMB Circular A-87, Appendix B,
8.h.(3) and (4))8 and sufficient supporting documentation (that is, a time sheet or sign-in sheet) to
show that the employees actually worked during the payment period in which the expenditure
was incurred (as required by OMB Circular, A-87, Appendix A, C.1. j., which states that
expenditures should be adequately documented). Expenditures were inadequately supported
because Baltimore City did not provide at least one of the types of supporting documentation
discussed above.

Baltimore City’s SFSF Education personnel expenditures were unsupported because Baltimore
City did not provide any documentation, such as sign-in sheets for professional development
expenditures or time and attendance records for extracurricular activity expenditures. The SFSF
Education expenditures did not meet the requirements in ―Guidance for Grantees and Auditors,
SFSF Program,‖ December 24, 2009, which states that LEAs must maintain documentation
supporting salaries funded by SFSF funds. The documentation must be in the same manner as

7
  Because of time constraints, our review of personnel expenditures at Prince George’s County included only a
review of time sheets and sign-in sheets. We reviewed 34 Title I Recovery Act expenditures, totaling $89,242, from
a universe of 15,526 expenditures totaling $3,247,524 and found one minor unallowable expenditure. The LEA did
not expend SFSF Education funds on personnel.
8
  Employees working on a single Federal award are required to submit semiannual certifications stating that the
employee worked solely on that award during the time period. Employees working on multiple cost objectives are
required to submit personnel activity reports at least monthly. Baltimore City did not provide us with any
documentation to show whether the employees sampled worked on one or more cost objective.
Final Report
ED-OIG/A03K0009                                                                                   Page 10 of 67


that used to support the time and effort of personnel performing similar duties who are paid with
State or local funds.

Technology Purchased With Federal Funds At Risk of Being Used for Unauthorized Purposes

The use of technology devices, such as cell phones, tablets, and laptop computers is increasing in
education. Maryland Education should work with its LEAs to help ensure that its policies can
help maximize the effectiveness of the use of these devices in education and allow for the proper
accountability over the use of the devices. Maryland Education should update its monitoring
instruments to include a review of such devices to determine whether LEAs have developed and
implemented policies and procedures to ensure that the items are used for authorized purposes.

For the 2011–2012 school year, Prince George’s County purchased 3,922 tablet computers with
Title I Recovery Act funds for its Transforming Education through Digital Learning (TEDL)
technology initiative. The district gave tablet computers to all students, teachers, and select staff
members in its four Title I middle schools. Although our review of the technology was early in
the program year, we found some indications of possible issues that may arise with the use of the
tablet computers, the policy relating to the use of the tablet computers, and ensuring appropriate
accountability for the use of such devices. Prince George’s County’s policies and internal
controls over the tablet computers did not ensure that the assets were used only for purposes
consistent with its policies. Subgrantees must adequately safeguard all assets and must ensure
that they are used solely for authorized purposes (34 C.F.R. § 80.20).

Teachers and other staff were allowed to take their assigned tablet computers home. When the
tablets were not connected to the school server, teachers could use them for personal use. Prince
George’s County’s staff policies on the tablet computers did not include guidance on staff
incidental usage. To prevent unauthorized use, the policies should include guidance on use that
is appropriate to the nature and the legitimate purposes for the devices and that allow for
appropriate use, monitoring, and accountability.

Prince George’s County’s tablet computers usage policies for staff stated that Internet games
were not allowed on the tablet computers and that downloading applications (apps) was strictly
prohibited. We found that the district was not enforcing this policy.

We performed a physical inventory of the tablet computers distributed to staff in three of the
middle schools9 and issued to the Title I Department. In total, we reviewed 30 of the 137 tablet
computers that had been distributed to staff at the 3 middle schools and 7 of the 21 tablet
computers issued to the Title I Department. We found that 13 of the 37 tablet computers had
apps on them that were against Prince George’s County’s policy and can be for personal use.
For example, we found apps for social networking sites, Internet games, sporting sites,
entertainment, music, and religion. These apps did not appear to be educationally related based


9
 We did not visit all four middle schools in the TEDL program because one school was closed as a result of
earthquake damage.
Final Report
ED-OIG/A03K0009                                                                      Page 11 of 67


on the nature of the app and the subject matter the teacher taught. Enclosure 5 provides further
detail on our review of the tablet computers.

The Title I Technology Specialist stated that there were no controls in place to prevent the
downloading of apps; however, the tablet computers have a control that monitors applications for
appropriateness. Prince George’s County used Mobile Device Management (MDM), which
captures an image of what apps are on the tablet computer at a given time. This software is
installed on all staff and student tablet computers. The administrators at each of the schools in
the TEDL program could review the images on the tablet computers at their own discretion, but
they were not required to do it on a regular basis.

The Prince George’s County’s Director of State and Federal Programs provided us with articles
and executive summaries that addressed how some of the apps discussed above could be used for
educational purposes. However, the articles and summaries were on how the apps could be used
for higher education, such as by university students and professors. Prince George’s County did
not provide us with information, such as lesson plans or screen images that showed how the apps
were being used in Prince George’s County’s Title I middle schools.

Collectively, the lack of adequate internal controls that led to the issues identified at Prince
George’s County and Baltimore City increases the risk that LEAs could misuse Federal funds
(Recovery Act and non-Recovery Act) and puts the LEAs at risk for noncompliance with
applicable OMB cost principles, the C.F.R., Recovery Act guidance, and State of Maryland
requirements. Similar issues may be happening at other LEAs in the State.

Based on our review of the two LEAs’ Recovery Act expenditures, we concluded that Maryland
Education should provide additional guidance to and improve its monitoring of its LEAs to
minimize the risk of a reoccurrence of the issues we found. Improvements to Maryland
Education’s monitoring process should include revising its monitoring instruments to include the
areas noted above, performing a review of expenditures before reimbursement is made, and
providing additional fiscal control and accountability guidance to the LEAs. Strengthening
Maryland Education’s monitoring efforts will assist in reducing the risk that LEAs will charge
unallowable, unsupported, or unreasonable expenditures to Recovery Act and non-Recovery Act
Federal grants. Additionally, without adequate fiscal monitoring, Maryland Education cannot
ensure that LEAs are exercising effective accountability over Federal funds and may not identify
inappropriate payments for LEA expenditures.


RECOMMENDATIONS

We recommend that the Assistant Secretary for the Office of Elementary and Secondary
Education, in conjunction with the Assistant Secretary for the Office of Special Education and
Rehabilitative Services and the Director of the Implementation and Support Unit, require
Maryland Education to—
Final Report
ED-OIG/A03K0009                                                                                  Page 12 of 67


1.1     Revise its monitoring instruments to (1) ensure adequate oversight of and subrecipient
        compliance with fiscal requirements related to the appropriate use of and accounting for
        Federal grant funds and (2) determine whether LEAs have implemented appropriate
        internal controls to ensure that they are using technology items purchased with Federal
        funds for educational purposes.

1.2     Return to the Department $166,37010 in Recovery Act (Title I, IDEA, and SFSF
        Education) and regular Title I funds that were used for unallowable expenditures.
1.3     Provide guidance to its subrecipients on the unallowability of expenditures made with
        program funds for the types of unallowable items we found, such as entertainment trips,
        awards, travel, and items used for personal use.
1.4     Provide adequate documentation to support the $373,643 in unsupported and
        inadequately supported Recovery Act expenditures or return any portion of that amount
        the Department determines is not adequately supported.

1.5     Require Prince George’s County to develop and implement a process to enforce its tablet
        computer usage policy and ensure that technology purchased with Federal funds is used
        only for authorized purposes, including incidental use.


Maryland Education and LEAs’ Comments

Maryland Education stated that it did not concur with the finding because many of the
monitoring instruments it used were not referenced. Maryland Education included a list of
monitoring and outreach processes it used in the oversight of SFSF Education funds with its
response.

Maryland Education also stated that because we used risk-based judgmental sampling that was
targeted to high-risk areas, and because we found limited errors, this provides some evidence that
its monitoring and oversight efforts were effective.

Maryland Education stated that reviewing LEA expenditures before reimbursement, even on a
sample basis, is not practical because the resources required to put such a control in place would
outweigh the benefits received.

Maryland Education stated that $142,453 of the unallowable expenditures cited in the report
were allowable and $369,981 of the unsupported or inadequately supported expenditures could
be adequately supported.



10
  This amount also includes $19,551 in unallowable expenditures found in addition to our sampled expenditures.
These expenditures were for a principal’s meeting, career expo (see Enclosure 1) and dinner cruises (see
Enclosure 2).
Final Report
ED-OIG/A03K0009                                                                    Page 13 of 67


Prince George’s County’s comments were provided as Attachment 4 to Maryland Education’s
response. Prince George’s County partially concurred with the finding. The LEA did not concur
with $124,369 of the $166,606 in unallowable nonpersonnel and personnel expenditures cited in
the report. Prince George’s County stated that it had supporting documentation for $95,994 of
the unsupported expenditures cited in the report. The LEA also stated that officials provided
sign-in sheets, an agenda, and parent feedback documentation for the ―Mother Daughter Tea‖
expenditure included in Enclosure 3.

Prince George’s County commented that the MDM system on the tablet computers allows an
administrator to remotely configure, query, lock, or wipe a device clean. It also commented that
we had not requested lesson plans or screen shots showing how the devices were used in the
classroom.

Baltimore City’s comments were provided as Attachment 3 to Maryland Education’s response.
Baltimore City concurred with the finding, except for $15,828 paid from IDEA Recovery Act
funds for professional services. The LEA stated that adjustments to the costs charged by the
vendor were made in April 2010; therefore, no overcharges occurred. Baltimore City also stated
that it had supporting documentation for $249,754 of the questioned personnel expenditures
charged to Recovery Act Title I, IDEA, and SFSF Education funds. The LEA stated that it is
still collecting some of the documentation and that additional documentation is available for
review.

Recommendation 1.1: Maryland Education partially concurred with the recommendation.
Maryland Education believes it has an adequate monitoring process; however, it will review its
monitoring instruments to determine what additional review steps could be included.

Recommendation 1.2: Maryland Education partially concurred with the recommendation.
Maryland Education stated that $142,453 of the unallowable expenditures were allowable.

Recommendation 1.3: Maryland Education concurred with the recommendation.

Recommendation 1.4: Maryland Education partially concurred with the recommendation.
Maryland Education stated that it can provide adequate supporting documentation for $369,981
of the unsupported or inadequately supported expenditures.

Recommendation 1.5: Maryland Education neither concurred nor nonconcurred with the
recommendation, but stated that it will incorporate a review of Prince George’s County’s
compliance with its computer usage policy in the SEA’s Federal grant monitoring instruments.

OIG Response

As stated in the finding, we reviewed the grant monitoring instruments that were provided to us
during our review. The additional information included in Attachment 1 to Maryland
Education’s response relates only to the SFSF grant and most of the items listed are not
Final Report
ED-OIG/A03K0009                                                                                 Page 14 of 67


monitoring instruments. Many are emails to the LEAs about issues such as funding and audit
schedules. Although some of the information may have included guidance, they are not
monitoring instruments.

As stated in the finding, we believe the monitoring instruments we reviewed could be improved.
Revising the instruments as indicated in the finding and providing additional guidance to the
LEAs will help to ensure that LEAs have adequate fiscal internal controls.

While using a risk-based sampling approach may allow for more unallowable and unsupported
expenditures to be found, the unallowable and unsupported expenditures also show that the
LEAs internal controls were not adequate or were not working as intended and that the LEAs
may need additional guidance. As stated in the finding, Maryland Education should revise its
monitoring instruments and provide additional fiscal control guidance to LEAs.

In response to Maryland Education’s comments, we revised our statement about the SEA
reviewing supporting documentation for LEA reimbursement requests. We still believe that
adding a control to review supporting documentation for LEA expenditures on a sample or
periodic basis before reimbursement is practical and could be achieved. Maryland Education
could determine a threshold for the review of expenditures (for example, by dollar amount or
percentage of a budget) and use a risk-based approach to select those LEAs that they consider to
be high-risk. Other SEAs have implemented a similar process.

Although Maryland Education stated that $142,453 of the unallowable expenditures was
allowable and that $369,981 of the unsupported or inadequately supported expenditures could be
properly supported, these amounts are greater than the amounts cited by Prince George’s County
and Baltimore City. The differences represent questioned expenditures made by Prince George’s
County. There is a total difference of $2,256 for the unallowable costs (this amount represents
overcharges for professional services on a vendor’s invoice, see Enclosure 1) and $24,233 for the
unsupported or inadequately supported costs (this amount represents $22,741for inadequately
supported costs paid to a vendor for professional services and $1,492 used for catering for
end-of-the-year activities at a school, see Enclosure 3).11 No explanation was provided for the
differences.

Although Prince George’s County provided an explanation of the capabilities of the MDM
software, the software does not prevent downloading of unauthorized apps. Also, as stated in the
finding, Prince George’s County did not require that administrators review the apps downloaded
on the tablet computers. During the exit conference, we requested that Prince George’s County
officials provide us with lesson plans and screen shots when we made our final follow-up visit in
February 2012. They provided only the information discussed in the finding.

Neither Prince George’s County nor Baltimore City provided any additional supporting
documentation to us, other than written explanations, to support those nonpersonnel and

11
  The total unallowable costs the LEAs stated were allowable was $140,197, and the unsupported or inadequately
supported costs was $345,748.
Final Report
ED-OIG/A03K0009                                                                        Page 15 of 67


personnel expenditures that they state are allowable or can be adequately supported. For
example, Baltimore City did not provide supporting documentation to show that an adjustment
was made to the IDEA Recovery Act grant for the $15,828 overcharge for professional services
nor was any supporting documentation provided for the $249,754 in unsupported or inadequately
supported personnel expenditures. In addition, as stated in Enclosure 3, Prince George’s County
did not provide us an agenda, sign-in sheets, or parent feedback information for the ―Mother
Daughter Tea‖ event.

Furthermore, both Prince George’s County and Baltimore City had ample time to provide us
with adequate supporting documentation. We conducted fieldwork at the LEAs in 2010 and
2011, held numerous discussions with the LEAs, and conducted follow-up site visits in
February 2012. Because no additional supporting documentation was provided, we could not
determine whether the expenditures were allowable or were adequately supported. We did not
revise our finding or recommendations.


FINDING NO. 2 – Maryland Education Needs to Provide Additional Guidance to LEAs
                       and Better Oversee LEAs’ Application of Indirect Costs

Maryland Education needs to provide additional guidance to LEAs and better oversee the LEAs’
application of indirect costs to Recovery Act and other Federal funds. We determined that
Baltimore City and Prince George’s County overcharged $196,569 in indirect costs to Recovery
Act funds. Baltimore City improperly charged $175,163 in indirect costs to two grants in our
review by overstating its indirect cost base for the Title I grant and by using the incorrect indirect
cost rate for the IDEA grant. Prince George’s County overcharged Title I Recovery Act funds
$21,406 because it included excludable costs in its indirect cost base.

Maryland Education provided only limited guidance on indirect costs in its ―Financial Reporting
Manual for Public Schools‖ (revised 2009). The manual defined indirect costs and stated only
the following in Appendix F, 1. Administrative costs (b).

       Indirect costs associated with accounting, auditing, budgeting, disbursement
       services, management information systems, and purchasing are allowable to the
       extent of the Restricted Indirect Cost Rate approved for Federal programs, not
       to exceed a maximum of two percent. Grantees approved to use the rate, by
       including indirect costs on the award budget, must apply it to the total direct
       costs minus equipment costs.

This guidance was not adequate because it was very limited in its instruction. Furthermore, the
guidance did not refer the reader to Federal regulations or OMB Circular A-87, which would
provide more information on the application and recovery of indirect costs.

The Chief of Maryland Education’s Office of Local Financial Reporting stated that Maryland
Education did not conduct any monitoring of indirect costs. We reviewed the monitoring
instruments Maryland Education used to monitor Recovery Act funds and found that only the
Final Report
ED-OIG/A03K0009                                                                     Page 16 of 67


instrument for the IDEA grant required a review of indirect costs. The ―Subrecipient Monitoring
Instrument,‖ dated June 2011, for the Division of Special Education and Early Intervention
Services included a review of indirect costs charged to the grant to ensure subrecipients
computed costs in the grant budget and calculated them correctly. However, it is not apparent
that the reviewer is required to test actual indirect costs charged to the grant. Although Maryland
Education is currently performing some monitoring of LEA indirect cost calculations for the
IDEA grant, it needs to do so for all Federal grants. Maryland Education needs to ensure that
monitors review actual indirect costs that subrecipients charge to Federal grants. Maryland
Education performed a monitoring review of Baltimore City’s school year 2010 IDEA (Recovery
Act and non-Recovery Act) grants in November 2011. The monitoring report did not include
any indirect cost findings.

The Chief of Maryland Education’s Office of Local Financial Reporting also stated that
Maryland Education relied on single audits to determine whether LEAs were properly recovering
indirect costs. Maryland Education’s reliance on the single audit is not sufficient to ensure that
errors in the application of indirect cost rates and any inclusion of costs that should be exempt
are disclosed in a timely manner because single audits generally occur well after the fiscal period
in which transactions are recorded.

The Department’s guidance on indirect cost recoveries for Recovery Act Title I and IDEA funds
(―Funds under Title I, Part A of the Elementary and Secondary Education Act of 1965 Made
Available Under the Recovery Act,‖ dated November 2009, and ―Funds for Part B of the
Individuals with Disabilities Education Act Made Available Under the Recovery Act,‖ revised
July 2009) states that an LEA is allowed to apply its current negotiated indirect cost rate to
obligations incurred under the Recovery Act. The guidance alerts recipients that overrecoveries
of indirect cost should be adjusted in future periods, thereby reducing future indirect cost
recoveries.

LEAs Did Not Follow Their Approved Indirect Cost Rate Plans

When local governments receive funds only as a subrecipient, the primary recipient is
responsible for negotiating indirect cost rates and monitoring the subrecipient’s plan
(OMB Circular A-87, Appendix C, D. 3.). Both LEAs had FY 2010 Indirect Cost Plans, dated
November 5, 2009, that were approved by Maryland Education. Baltimore City’s indirect cost
plan excluded equipment and capital outlay expenditures from the indirect cost calculations.
This exclusion applied to all grants we reviewed.

Capital outlays or unallowable items specified in the grantee’s indirect cost plan should be
excluded from the indirect cost calculation. If a grantee uses a restricted indirect cost rate,
general management costs covered by that rate must be excluded from the direct costs charged to
the grant (34 C.F.R. §§ 76.569(a), (b)).

Equipment and other capital expenditures are unallowable as indirect costs
(OMB Circular A-87, Appendix B, 15. b.(5)).
Final Report
ED-OIG/A03K0009                                                                                 Page 17 of 67


Baltimore City
Baltimore City included $417,323 in equipment costs that should have been excluded from the
indirect cost base used to calculate the indirect costs charged to the Title I Recovery Act grant.
As stated above, according to Federal regulations and Baltimore City’s indirect cost rate plan, the
district was not to include equipment costs in the indirect cost base. As a result, Baltimore City
overstated the indirect cost base12 it used for the Title I grant by $417,323.

In addition, Baltimore City did not use the correct indirect cost rate for the IDEA Recovery Act
grant. Baltimore City should have used the restricted indirect cost rate (0.0523) contained in its
indirect cost plan for the IDEA program. Baltimore City used a rate of 0.0739 for the grant.13
Because Baltimore City applied the incorrect indirect cost rate to the program, it overstated
indirect costs that it charged to the IDEA Recovery Act grant.

Because Baltimore City did not properly exclude equipment costs from the indirect cost base and
because it used an incorrect indirect cost rate, Baltimore City overcharged $175,163 for indirect
costs to Title I and IDEA Recovery Act funds (see Table 5 and Enclosure 6).

Baltimore City’s Controller informed us that the LEA uses its current approved indirect cost rate
until Maryland Education approves a new rate. Therefore, until the FY 2010 rate was approved,
Baltimore City used its FY 2009 approved rates. Baltimore City’s policy was to include
encumbrances in its indirect cost base during the life of the grant and then back the costs out in
the final indirect cost calculation. At the exit conference, Baltimore City officials informed us
that they made an adjusting journal entry to deduct capital improvement and equipment costs
from the indirect costs charged to the grants. However, the amount of the adjustment did not
agree with the amount we calculated.

We reviewed the documentation and determined that the adjustment also included additional
encumbrances and other expenditure accruals that were not in the original indirect cost
calculation. The expenditure accruals were identified in FY 2011, after the FY 2010 year-end
accounting procedures had been completed. In accordance with generally accepted accounting
principles, these accrual expenditures should have been captured as prior period adjustments in
the period they were identified (FY 2011) rather than being included as FY 2010 costs.
OMB Circular A-87, Appendix A, C. 1.(f) and (g) requires indirect costs to be determined in
accordance with generally accepted accounting principles. The correct amount of the adjustment
should be $175,163, as stated above. Baltimore City officials did not provide us with evidence
that the adjustment was actually made to the grants in FY 2011.




12
  The indirect cost base used was $24,778,089.
13
  We could not determine why Baltimore City used this rate. The correct base cost was used. We calculated the
rate using the base cost and the indirect costs charged to the grant ($525,345 divided by $7,112,961).
Final Report
ED-OIG/A03K0009                                                                                   Page 18 of 67


                        Table 5: Baltimore City Overcharged Indirect Costs

                            Grant         Indirect          Correct         Difference
                                           Costs            Indirect
                                          Charged            Costs

                          Title I        $889,053           $867,227         $ 21,826
                          IDEA14         $525,345           $372,008         $153,337
                          Total         $1,4174,398        $1,239,235        $175,163

Baltimore City’s Controller informed us that the difference between the calculations for the
IDEA grant ($45,912) was because of encumbrances, the inclusion of the IDEA Preschool
Recovery Act grant (which we did not include in our calculations), and other expenditure
accruals posted after indirect costs were calculated. She also stated that the LEA recorded an
additional expenditure accrual to reflect the expenditure in the proper accounting period.
Baltimore City recorded the accrual after its year-end indirect cost journal entries had been
recorded. The Controller further stated that Baltimore City did not make the related journal entry
to record the accrual, although it should have. She informed us that Baltimore City would
reemphasize the appropriate procedure to its grant accountants.

Prince George’s County
Prince George’s County overstated its Title I Recovery Act indirect cost base by $515,805
because it included midlevel administration costs in its indirect cost base. These costs were
excludable expenses according to Prince George’s County’s approved indirect cost plan. Using
an indirect cost base ($5,371,409) that included these costs resulted in an indirect cost recovery
of $222,914 ($5,371,409 multiplied by 0.0415). The correct base should have been $4,855,604
($5,371,409 minus $515,805). The correct amount that Prince George’s County should have
charged to Title I Recovery Act funds for indirect costs was $201,508 ($4,855,604 multiplied by
0.0415). Title I Recovery Act funds were overcharged $21,406 ($222,914 minus $201,508) for
indirect costs.

Neither Baltimore City nor Prince George’s County had written policies and procedures on how
to apply and calculate indirect costs to Federal grants. Both LEAs relied on indirect cost
guidance provided by Maryland Education.

Maryland Education needs to develop a process to better monitor the LEAs’ application of
indirect costs to ensure that overcharges to indirect cost recoveries do not occur in the future.




14
  Baltimore City also had an IDEA Preschool Recovery Act grant; the indirect cost calculation does not include that
grant.
Final Report
ED-OIG/A03K0009                                                                      Page 19 of 67


RECOMMENDATIONS

We recommend that the Office Chief Financial Officer require Maryland to—

2.1    Provide additional guidance to and expand monitoring of subrecipients to ensure that they
       apply indirect costs to all Federal grants consistent with Federal regulations and their
       approved indirect cost recovery plan.

2.2    Return to the Department the $196,569 in Title I and IDEA Recovery Act funds
       overcharged for indirect cost recoveries or ensure that the LEAs appropriately adjust
       indirect costs claimed in FY 2013.

2.3    Ensure that LEAs develop written policies and procedures for allocating indirect costs to
       Federal grants that ensure indirect costs charged to the grants are allocable, allowable,
       and consistent with Federal regulations and guidance and generally accepted accounting
       principles.


Maryland Education and LEAs’ Comments

Maryland Education disagreed that it provided inadequate monitoring of and guidance to the
LEAs on indirect costs. Maryland Education stated that basic guidance on indirect costs is
provided to LEAs in the ―Financial Reporting Manual for Maryland Public Schools‖ and that the
document was referenced by Maryland Education personnel in multiple training sessions.
Maryland Education stated that it disagrees that unallowable indirect costs were charged to the
SFSF Education grant because of the flexibility in the grant provisions. The SFSF Education
grant can absorb an unrestricted amount of indirect costs because it is not limited by the
approved indirect cost rate or the base. A LEA would not be in violation of the SFSF Education
grant provisions if all of its indirect costs were paid by SFSF Education funds. As of May 2011,
Maryland Education developed a new indirect cost process in which overrecoveries or
underrecoveries of indirect costs will be automatically adjusted in the development of the next
year’s indirect cost rates.
Baltimore City partially concurred with the finding. The LEA stated that it corrected the amount
of indirect costs charged to the Recovery Act SFSF Education and Title I grants, it excluded
capital expenditures from the calculation, it used the correct rate for the SFSF Education grant,
and it excluded encumbrances from all the Recovery Act grants when the final adjustments were
made. Baltimore City also stated that it did not include equipment costs in the Recovery Act
Title I and SFSF Education indirect cost base.
Prince George’s County did not concur with the finding. It stated that although midlevel
administration costs should be excluded from the indirect cost rate calculation, the formula that it
used to calculate its indirect costs was consistent with the instructions in the ―Financial
Reporting Manual for Maryland Public Schools‖ and its indirect cost plan. Neither document
states that midlevel administration costs should be excluded from the indirect cost base.
Final Report
ED-OIG/A03K0009                                                                        Page 20 of 67


Recommendation 2.1: Maryland Education concurred with the recommendation.

Recommendation 2.2: Maryland Education did not concur with the recommendation because as
stated above, it believes there was no restriction on the amount of indirect costs that could be
charged to SFSF Education grant funds.

Recommendation 2.3: Maryland Education concurred with the recommendation. It will
incorporate a review of indirect costs into its Federal grant monitoring instruments.

OIG’s Response

We agree that basic guidance on indirect costs was provided in the ―Financial Reporting Manual
for Maryland Public Schools.‖ However, more than basic guidance should have been provided
to the LEAs, such as ensuring that the LEAs were aware of the indirect cost requirements
contained in OMB Circular A-87 and 34 C.F.R. §76.569.

We considered additional information about the indirect costs charged to SFSF Education
Recovery Act funds. Because of the flexibilities in the use of the funds, we modified the finding
to exclude questioned indirect costs charged to these grant funds.

As stated in the finding, Baltimore City calculated an adjustment to the indirect costs charged to
the Recovery Act grants; however, LEA officials did not provide us with evidence that the
indirect cost adjustment was actually made to the grants in FY 2011.

Although the ―Financial Reporting Manual for Maryland Public Schools‖ and Prince George’s
County’s indirect cost plan did not state that midlevel administration costs should be excluded
from the indirect cost base used for the Title I program, Federal regulations require that the costs
be excluded. As stated previously, the indirect cost rate cannot be applied to costs that are
excluded from the indirect cost rate calculation. The indirect cost rate should be applied
consistently with the rate calculation; therefore, the indirect cost rate can be applied only to those
costs that are not excluded from the indirect cost rate calculation (in the base). Because midlevel
administration costs were required to be excluded from the indirect cost rate calculation, the
indirect cost rate cannot be applied to these costs.

We commend Maryland Education for developing a self-correcting indirect cost rate process.
However, it did not provide us with any additional information on the process; therefore, we
could not determine whether the new process will help to ensure that LEAs calculate and apply
indirect costs appropriately.
Final Report
ED-OIG/A03K0009                                                                    Page 21 of 67


FINDING NO. 3 – Maryland Did Not Ensure Section 1512 Jobs Data Were Accurate
                and Complete

To ensure transparency in government spending, Section 1512 of the Recovery Act requires
recipients to report data to the FederalReportng.gov Web site each quarter. We identified data
quality issues at the two LEAs and the State agency we reviewed. Maryland did not have
adequate processes and controls in place to ensure that the required data its LEAs submitted and
the State agency reviewed were accurate and complete.

The Recovery Act Section 1512 jobs data reported for the first four reporting quarters, July 2009
through June 2010, to FederalReporting.gov by Maryland for the receipt of the SFSF
Government Services funds and the two LEAs we reviewed were not accurate, complete, or in
compliance with Recovery Act reporting requirements. The method Public Safety used to
calculate the SFSF Government Services jobs data was flawed. Baltimore City’s full-time
equivalent (FTE) data did not include all summer pay, temporary salaries, and stipend positions
funded by Recovery Act funds and was not based on actual hours worked in each quarter. Prince
George’s County’s FTE data was not correct because it included unfilled positions in its FTE
calculation and did not include all FTEs paid with Recovery Act funds.

The applicable Section 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 Section 1512 reporting
requirements are met in a timely and effective manner, (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.

In Maryland each state agency performed its own Recovery Act Section 1512 data collection for
reporting. Reports with the data were sent quarterly to Maryland’s StateStat Office for batch
submission to FederalReporting.gov. Maryland’s StateStat Office validated the data by
determining that all mandatory fields were completed and that the alpha and numeric fields were
correct. Public Safety submitted its data to Maryland’s Department of Budget and Management,
which then forwarded the data to Maryland’s StateStat Office for reporting.

As a prime recipient of the Title I and IDEA Recovery Act funds, Maryland Education was
responsible for establishing controls to ensure that LEAs submitted accurate and complete
Recovery Act data that met the reporting requirements. LEAs reported their Recovery Act
Section 1512 jobs data to Maryland Education’s Office of Finance. A Staff Specialist in the
Office of Finance stated that her office reviewed the data that LEAs submitted. Staff reviewed
the data to determine whether the data type in each data field was valid and whether all data
fields had been completed. Once the data review was completed, the Office of Finance
forwarded the 1512 data to Maryland’s StateStat Office, which consolidated it with all of
Maryland’s jobs data for reporting to FederalReporting.gov. Maryland Education did not
Final Report
ED-OIG/A03K0009                                                                                     Page 22 of 67


determine whether LEAs used an appropriate methodology to calculate jobs data nor whether the
data were accurate and complete.

Although Maryland provided guidance on jobs data reporting to its subrecipients and State
agencies, we found that the two subrecipients and the State agency we reviewed did not
accurately interpret the requirements or did not understand them. Maryland’s Governor’s Grants
Office provided guidance to State agencies through a Recovery Act Web site it created,
statewide conference calls, webinars, and training sessions. Although Maryland provided
extensive training and guidance, Maryland Education’s review of the data that the recipients
submitted was not adequate to determine reporting errors.

When submitting the data to Maryland, subrecipients and State agencies were required only to
certify that they properly recorded their data, the data were accurate, Maryland could properly
track the data, and that they had documentation including signed and approved timesheets and
approved invoices. Maryland officials did not review subrecipients’ or State agencies’ FTE
calculation methodology or review any supporting documentation for the data submitted to them.
The certifications were not adequate for Maryland to ensure that its recipients’ Recovery Act
FTE reporting was accurate and complete.

Public Safety
Public Safety’s SFSF Government Services jobs data were not accurate or complete. Public
Safety based its report of the number of jobs on budget estimates of planned and existing
positions and included unfilled positions. Public Safety determined the number of FTEs that
could be funded based on the average salary15 for its six occupational classifications. The
average salary was divided into the total amount of Recovery Act funds allocated (arbitrarily) for
each classification to determine the number of positions. The number of positions was
multiplied by 2,080 hours to determine the number of hours funded. The hours funded was
divided by 520 (the number of quarterly hours in a full-time schedule) to determine the FTEs
reported. In addition, the FTE calculation did not include the $6,000,000 in overtime costs
Public Safety charged to SFSF Government Services funds. As a result, the FTEs Public Safety
calculated were not accurate and were underreported by 2,144. Maryland reported a total of
2,756 FTEs for the 4 quarters of FY 2010 for Public Safety; however, the correct number should
have been 4,900.

Public Safety’s jobs data methodology was not in compliance with OMB’s ―Updated Guidance
on the American Recovery and Reinvestment Act − Data Quality, Non-Reporting Recipients,
and Reporting of Jobs Estimates,‖ December 18, 2009. OMB’s guidance states that to calculate
FTEs, the number of actual hours worked in funded jobs is divided by the number of hours
representing a full work schedule for the kind of job being estimated. These FTEs are then
adjusted to count only the portion corresponding to the share of the job funded by Recovery Act
funds. Recipients should count all hours funded. Unfilled positions should not have been


15
  The average salary was determined by dividing the total payroll budget for each classification by the total number
of positions budgeted for that classification.
Final Report
ED-OIG/A03K0009                                                                      Page 23 of 67


included as an FTE created or retained because these positions did not represent actual hours
worked or were not funded with Recovery Act funds.

U.S. Department of Education ―Clarifying Guidance on the American Recovery and
Reinvestment Act of 2009,‖ dated August 26, 2010, and updated September 30, 2010,
Question 3 also required recipients to include overtime hours in their calculations of jobs data.

Public Safety did not report FTEs for the first and second reporting quarters. Public Safety’s
Director of Budget Management stated that Public Safety sent its methodology to Maryland’s
Department of Budget and Management for review before the initial submission to
FederalReporting.gov. Maryland’s Department of Budget and Management instructed Public
Safety to revise the timeframe of the data it used but did not tell Public Safety that the
methodology was incorrect.

When we brought the unfilled positions and overtime exclusion to the attention of Public
Safety’s Director of Financial Services, she stated that Public Safety would revise the FTE
calculation to include the overtime cost and exclude the unfilled positions. The Manager for the
Division of Procurement Policy and Administration in the Department of Budget and
Management obtained guidance on how to calculate its FTEs from the Department on
January 20, 2011. Public Safety revised its methodology and recalculated the FTEs for the SFSF
Government Services grant. The revised methodology was based on the total hours worked in a
cost center.

The amount of SFSF Government Services funds allocated to each cost center was arbitrarily
determined and based on the amount of funds Public Safety received each quarter. Using the
revised methodology, the correct number of total FTEs for the four quarters was 4,900.
Maryland could not report the revised data again because the time period for reporting corrected
jobs data had expired. As a result, the FTE data reported and included on FederalReporting.gov
was not accurate or complete.

The Maryland agency responsible for monitoring the data reported by the subrecipient of the
SFSF Government Services funds was not designated. Although Maryland Education was
designated as the payee of the funds by the Governor, Maryland Education indicated that it had
no subrecipient oversight responsibilities for the SFSF Government Services funds because
Maryland Education was not the actual awardee and none of its subrecipients expended the
funds. The Governor’s Grants Office was awarded the SFSF Government Services funds and
was dependent on Maryland’s Department of Budget and Management to oversee the reporting
of Recovery Act Section 1512 data and ensure that the data were accurate and complete. This
was consistent with its overall responsibilities of gathering the Section 1512 data for the entire
State and reporting it as a single source to Maryland’s StateStat Office for submission to
FederalReporting.gov.

A formal interagency agreement between Maryland Education and the Governor’s Grants Office
would have been beneficial to clearly define the responsibilities of the parties involved in
receiving the SFSF Government Services funds. This agreement would have defined which
Final Report
ED-OIG/A03K0009                                                                    Page 24 of 67


agency was responsible for the monitoring of the recipient of the funds and how the monitoring
should be conducted.

Baltimore City
Baltimore City’s FTE data were not accurate or complete. Baltimore City did not report FTEs
for summer pay, temporary salaries, and stipends that were funded by Recovery Act funds.
Baltimore City also did not calculate the FTEs based on actual hours worked in a quarter.
Baltimore City’s Senior Financial Analyst initially informed us that the LEA created a query in
its financial system to calculate the FTE jobs data for reporting. Based on the query, Baltimore
City reported that the Title I, IDEA, and SFSF Education Recovery Act grants funded 875 FTEs
during the 4 reporting quarters of FY 2010.

After further review, Baltimore City officials informed us that the LEA reported FTEs in
quarters 1 through 3 based on estimated FTEs and budgeted amounts. According to Baltimore
City’s Senior Financial Analyst, the LEA used estimates and budgeted amounts based on how
Baltimore City interpreted the Recovery Act FTE reporting guidance at the time. In quarter 4,
Baltimore City began reporting its FTEs based on the number of hours actually worked in the
quarter because they better understood the Recovery Act guidance.

The Senior Financial Analyst provided us with the actual FTEs for each quarter of FY 2010. The
actual FTEs included hours worked for the summer pay, temporary salaries, and stipend
positions that were excluded from the data reported. Table 6 shows the reported and actual
FTEs.
                Table 6: Baltimore City’s FY 2010 Reported and Actual FTEs

                                                                             Difference
                                            FTEs             Actual
           Grant           Quarter                                         Overreported/
                                           Reported          FTEs
                                                                          (Underreported)
                              1                    235.0          105.9               129.1
                              2                        0            2.6                (2.6)
    SFSF Education
                              3                        0              6                (6.0)
                              4                      8.1           11.8                (3.7)
   Total                 All Quarters              243.1          126.3               116.8
                              1                        0           22.7              (22.7)
     IDEA Recovery            2                     30.0           27.0                  3.0
         Act                  3                     30.0           28.4                  1.6
                              4                     27.8           26.2                  1.6
   Total                 All Quarters               87.8          104.3              (16.5)
                              1                        0          217.2             (217.2)
    Title I Recovery          2                    216.0          236.9              (20.9)
           Act                3                     72.0          215.9             (143.9)
                              4                    256.2          267.5              (11.3)
   Total                 All Quarters              544.2          937.5             (393.3)
   Total, All Grants     All Quarters              875.1        1,168.1               (293)
Final Report
ED-OIG/A03K0009                                                                                  Page 25 of 67


Baltimore City’s FY 2010 Section 1512 quarterly reports for the SFSF Education grant were
overstated by a total of 116.8 FTEs and were understated for the IDEA and Title I Recovery Act
grants by a total of 16.5 and 393.3 FTEs, respectively. For the programs combined, the FTEs for
the 4 quarters were underreported by 293.

Prince George’s County
Prince George’s County did not report any FTEs for the Title I program in the second quarter,
and it did not report any FTEs in the third quarter for the IDEA grant.16 It also did not report
accurate FTE data in the fourth reporting quarter. Prince George’s County’s Restricted Funds
Supervisor informed us that the Title I program data was not reported because they did not have
a grant award letter during the second quarter. We were not provided an explanation for the
IDEA grant.

Prince George’s County also did not report FTEs for some positions that were paid with
Recovery Act funds and included unfilled positions in the FTEs it reported (11 for the Title I
program and 30 for the IDEA program in each quarter). The unreported FTEs were for positions
that were paid with Recovery Act funds but were not authorized by Prince George’s County’s
staffing plan. Although the unreported positions were not authorized by the staffing plan, they
should have been reported as an FTE because the positions were filled and paid with Recovery
Act funds. As stated previously, unfilled positions should not have been included as an FTE
created or retained. The December 2009 Updated OMB Recovery Act Job Reporting guidance
states that the hours for all positions paid with Recovery Act funds should be included in the
FTE calculation.

Prince George’s County reported 46 FTEs in the third and fourth quarters for the Title I program,
and it reported 91 FTEs for the first, second, and fourth quarters for the IDEA program. The
LEA should have reported FTEs only for positions that were actually filled and paid with
Recovery Act funds (120 total FTEs each quarter; 38 for the Title I program and 82 for the IDEA
program).

Maryland’s Title I Grant Waiver and Continued Jobs Data Reporting

Maryland was granted a waiver on May 29, 2012, to extend the time period to obligate FY 2009
ESEA funds, including its regular and Recovery Act Title I funds, through September 30, 2012.
As a condition of the waiver, Maryland must estimate the number of jobs created or retained
with regular Title I funds after September 30, 2011, in a manner and format consistent with the
quarterly reports required under Section 1512 of the Recovery Act. Maryland must provide the
reports to the Department if the Department requests them. Therefore, Maryland needs to
provide additional guidance to its LEAs and improve its monitoring of LEA jobs data to ensure
the data reported is accurate and complete.




16
  Based on the salaries paid from Recovery Act funds in each quarter, FTEs reported should have been reported for
both the Title I and the IDEA programs for the second through fourth Recovery Act reporting periods.
Final Report
ED-OIG/A03K0009                                                                      Page 26 of 67


We are not making a recommendation for this Finding because the period to obligate the Title I
Recovery Act funds expired on September 30, 2012, and the other Recovery Act programs have
expired. In the future, if multiple Maryland State agencies are involved in reporting
requirements similar to the Recovery Act Section 1512 requirements, we suggest that Maryland
prepare a formal interagency agreement that details each agency’s responsibilities for collecting,
maintaining, reporting, and reviewing the data quality. We also suggest that Maryland work
closely with its subrecipients to ensure that they collect and report accurate and complete data in
accordance with the requirements.

Maryland Education and the LEA’s Comments

Maryland Education neither concurred nor nonconcured with the finding. It stated that during
the audit period, accounting for FTEs was undergoing continual refinement by OMB and the
Department. Because of the continual refinement inconsistences in FTE reporting may have
occurred.
Maryland Education noted that ongoing guidance from OMB, the Department, and the
Recovery.gov Web site state that a solution to correct reports previously filed was being
developed, but current guidance does not allow for correction of FTE jobs data. Maryland
Education is reviewing and auditing its 1512 FTE reporting. Adjustments that are determined to
be necessary based on these reviews will be reported in accordance with OMB’s forthcoming
guidance.

Baltimore City concurred with the finding. Prince George’s County did not concur with the
finding. Management stated that according to guidance provided by Maryland Education it was
not responsible for reporting the FTEs until it received the Notice of Grant Award and that it
notified Maryland Education in a March 2010 email that the information reported for Title I was
the first reporting because they had not received the award notice earlier. Maryland Education
did not provide a response from Public Safety on the finding.

OIG’s Response
We commend Maryland Education for reviewing and auditing its Section 1512 FTE data.
Maryland Education’s statement that OMB will be issuing forthcoming guidance on correcting
previously reported FTE data may not be correct. Although OMB guidance issued in
December 2009 (M-10-8, ―Memorandum for the Heads of Executive Departments and Agencies,
Updated Guidance on the American Reinvestment and Recovery Act-Data Quality, Non-
Reporting Recipients, and Reporting of Job Estimates‖) states that recipients will be required, at
a time and process to be specified in the future, to submit prior period corrections to jobs and
other data, guidance issued in September 2010 (M-10-34, ―Memorandum for the Heads of
Executive Departments and Agencies-Updated Guidance on the American Reinvestment and
Recovery Act‖) states that changes to prior reports may not be initiated for the number of jobs
field. Also, the American Reinvestment and Recovery Act Recipient Reporting
Federalreporting.gov User Guide (Chapter 16) does not indicate that instructions or guidance on
making corrections to prior period FTE data will be forthcoming. Maryland Education should
Final Report
ED-OIG/A03K0009                                                                     Page 27 of 67


maintain a record of and any supporting documentation for any revisions that they find are
needed in the event that reporting revised data is required.
We clarified our finding issue for Prince George’s County to reflect that because the LEA did not
have a Notice of Grant Award for the Title I Recovery Act grant until after the first reporting
quarter ended, it did not have to report FTEs for the first reporting period (which ended in
September 2009). Prince George’s County’s initial Title I Recovery Act grant award notice was
approved in late October 2009 and received in early December 2009. Therefore, the LEA did
have it in time for reporting FTEs in the second quarter, which ended in December 2009.



                                     OTHER MATTERS

Some SFSF Education Funds Were Spent for Questionable Purposes

We found instances where SFSF Education funds used by Baltimore City were spent for
questionable purposes. The purpose of the SFSF grant is to help stabilize State and local budgets
to minimize and avoid reductions in education and other essential services. We noted SFSF
Education expenditures that were spent for questionable purposes and did not fit the intended
purpose of the SFSF Education grant. These expenditures were for face painters, balloons, and a
steel orchestra (5 expenditures totaling $5,410) for entertainment at a Baltimore City Middle
Grades Fair. None of the expenditures were for essential activities or services or were used to
minimize or avoid reductions in education or related to school reform, as stated in the purpose of
the SFSF Education grant.

We suggest that Maryland Education work with its LEAs to ensure that Federal grant funds are
being used in the most effective manner.

Maryland Education Comments

Baltimore City disagreed with our statement in the draft report that questioned the use of funds
for digitizing former employees’ files and postage for mailing questionnaires to parents.
Baltimore City stated that the employee files were digitized to ensure accuracy in maintenance of
the employee records and that expenditure was a viable use of SFSF Education funds. The LEA
further stated that the mailing of the questionnaire was done to obtain ―accurate data used in
identifying enrolled students ethnicity.‖ Baltimore City stated that the Middle Grades Fair helps
students explore high school choice selection and that the funds were used for materials,
supplies, lunch, and other motivational activities.

OIG’s Response

Based on Baltimore City’s comments, we removed the issue about the digitizing of the former
employees’ files and postage for the mailing questionnaires to parents. We still believe that the
other expenditures did not meet the purposes of the SFSF Education grant. The funds were used
to pay for nonessential activities at the Middle Grades Fair.
Final Report
ED-OIG/A03K0009                                                                    Page 28 of 67


Questionable Online Purchases Made With Federal Funds

In the universes of Prince George’s County Recovery Act expenditures, we found questionable
purchases from OfficeMax and Staples for items such as room deodorizers and facial tissues.
Examples of other expenditures that we noted in the Title I Recovery Act universe were for
popcorn, mints, cutlery, plates, a coffee canister, coffee creamer, and a $222 electric pencil
sharpener. Although we did not select these expenditures for sampling, based on the quantity of
purchases of these types of items, these purchases could have been an abuse of the Federal funds.
In the universe of all three grants reviewed at Prince George’s County, we noted that
762 expenditures totaling $124,920 were for items purchased from OfficeMax and Staples.
Although the cost of the individual items purchased may not have been significant, the potential
for more significant instances of abusive purchasing exists.

We requested policies and procedures for ordering items from OfficeMax and Staples. The
Restricted Funds Supervisor provided us with a training document that showed how to access
and use the OfficeMax Web site to purchase items. The document did not include policies on
what items should not be purchased or on what funding sources could be used. The purchaser
entered the account code with funding source in the system and sent the order for approval. The
training document was also provided as the process for ordering items from Staples.

Purchasing items such as food, beverages, and supplies for break rooms should be restricted
because the items could be for uses that are unallowable. See Enclosures 1 and 4 for similar
unallowable and unsupported items that were purchased from OfficeMax or Staples. The
purchasing of these items can be abused, as found in our samples. Federal funds should not be
used to purchase these types of items because they are not necessary for the performance of the
grant programs. For an item to be allowable it must be necessary and reasonable for the proper
and efficient performance and administration of the Federal award (OMB Circular A-87,
Appendix A, C. 1.).

We suggest that Maryland Education require Prince George’s County to develop and implement
processes and procedures to ensure that it complies with Federal laws, regulations, and
requirements when using Federal funds to purchase items from online stores such as OfficeMax
or Staples.

Maryland Education Comments

Prince George’s County stated that it has policies and procedures in place that govern all
purchases. All purchases receive a standard level of review and that hierarchal approval of
purchases occurs. Rules regarding purchases made with Title I funds are located in the LEA’s
Title I Manual and are enforced by the program director.
Final Report
ED-OIG/A03K0009                                                                    Page 29 of 67


OIG Response

As stated above, the only documented policies and procedures that we were provided was a
training document on how to access and use the OfficeMax Web site to order items. Maryland
Education needs to ensure that Prince George’s County has adequate processes and procedures
for using Federal funds to purchase items from online stores.


                    OBJECTIVE, SCOPE, AND METHODOLOGY

The purpose of our audit was to determine whether (1) Maryland 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
Maryland 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 from
April 1, 2009, through May 31, 2010.

We selected two subrecipients (two LEAs—Prince George’s County and Baltimore City) and
one State agency (Public Safety) that received Title I, IDEA, and SFSF funds in Maryland to
review. Our selections were based on risk factors such as the amount of Recovery Act funds
allocated and expended and interviews conducted with Maryland Education officials.

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 Maryland Comprehensive Annual
Financial Reports; prior independent audit reports (OMB A-133 single audits); State of Maryland
Accounting and Procedures Manual for budgeting, project and grant accounting, and general
accounting; and subrecipient monitoring instruments.

To gain an understanding of the processes and systems pertaining to the scope of our review, we
interviewed the following officials at Maryland Education: Deputy State Superintendent
(Administration); Director of Business Services; State Audit Unit, Audit Chief; Staff Specialist;
Education Program Specialist, Program Improvement and Family Support Branch; Branch Chief
for Special for Education Administration and Policy. At the LEAs, we interviewed the Senior
Grants Financial Analyst for Baltimore City and the Restricted Grants Supervisor for Prince
George’s County. In addition, we interviewed the Directors of Purchasing and Payroll; and
Accounts Payable personnel. For the SFSF Government Services grant, we interviewed Director
of Financial Services, Director of Budget, the Deputy Director of the Governor’s Grants Office,
a manager and budget analyst in the Department of Management and Budget and an analyst from
Maryland’s StateStat Office.
Final Report
ED-OIG/A03K0009                                                                                      Page 30 of 67


We performed audit steps to determine whether Maryland complied with Federal requirements in
the following areas.

Use of Funds: We performed limited assessments of the two selected LEAs’ policies and
procedures by selecting a judgmental sample of personnel and nonpersonnel expenditures at each
LEA. We determined whether expenditures charged to Recovery Act grants complied with
Recovery Act recipient plans, approved applications, laws, regulations, and guidance. We
selected 443 expenditures, totaling more than $8.1 million, made during the period
April 1, 2009, through May 31, 2010. We judgmentally selected at least 10 percent of each
grant’s total expenditures for review.17 Our samples and results cannot be projected to the audit
universe. The personnel and nonpersonnel expenditure universes and sample sizes are
summarized in Table 7 at the end of this report section.

We also reviewed Title I Recovery Act funds expended by Maryland Education. Maryland
Education expended $134,934. We reviewed all six of the expenditures made.

Additionally, we expanded our audit period for Prince George’s County as a result of
information that came to our attention. We judgmentally selected a sample of 201 nonpersonnel
Title I, Title I SIG, IDEA, and SFSF Education expenditures, totaling $5,844,103, for review.
The sample represents 10 percent of Prince George’s County’s Recovery Act expenditures from
June 1, 2010, through May 31, 2011. The universes and sample sizes are summarized in Table 8
at the end of this report section.

For personnel expenditures we reviewed time and effort certifications, personnel activity reports,
timesheets, and sign-in sheets. We judgmentally selected our samples based on the payment
descriptions in Baltimore City’s and Prince George’s County’s payroll/personnel records. We
used judgmental sampling to allow us to select samples that captured all of the different types of
payment descriptions.

For nonpersonnel expenditures, we reviewed each LEA’s universe of transactions, including
dollar amounts and expenditure descriptions. We judgmentally selected large and small dollar
expenditures, along with those whose description appeared to be unusual purchases for the
programs we reviewed. We considered expenditures to be unusual if we concluded that the item
purchased or the vendor would not usually be associated with the program type. We also
considered whether the Recovery Act or Federal regulations specifically prohibited these
expenditures.

We also performed inventories, both physical and virtual, of the tablet computers purchased by
Prince George’s County for the TEDL initiative, and other items purchased with Title I SIG
Recovery Act funds. We conducted the physical inventory at three middle schools and Prince
George’s County’s Title I Department. We inventoried a random sample of 30 of the 137 tablet
computers issued to the three middle schools. We conducted the virtual inventory on all tablet

17
  We only selected 8 percent of the total Title I expenditures because many of Baltimore City's Title I grant payroll
expenditures were for small amounts.
Final Report
ED-OIG/A03K0009                                                                                Page 31 of 67


computers purchased for the TEDL initiative to determine whether they were accounted for in
the LEA’s inventory system.

We reviewed the use of and accounting for the $53.7 million in SFSF Government Services
funds received by Public Safety during our audit period. Because it did not use individual salary
costs for its FTE calculations, we could not select a personnel sample for review. We also could
not select a sample of nonpersonnel expenditures to review because Public Safety did not
account for the funds using actual individual costs. We reviewed the journal entries and related
supporting documentation transferring the costs to Recovery Act funds.

We reviewed Maryland Education’s procedures for approving and accounting for Recovery Act
expenditures and issuing expenditure reimbursements to LEAs. We reviewed the drawdowns of
grant funds reimbursed to Prince George’s County to determine whether Maryland Education
was appropriately reimbursing LEAs.18 We also reviewed Maryland Education’s ability to
separately account for Recovery Act funds. We discussed the monitoring of LEAs with
Maryland Education officials and reviewed guidance provided by Maryland 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 and procedures and related documentation.

Data Quality: Through an interview we evaluated Maryland Education’s procedures to collect
and report the required data for Section 1512 reporting. We verified that LEA data submitted to
Maryland Education were supported by source documentation. We used Maryland Education’s
data as control totals to verify the accuracy and completeness of the statewide LEA data and the
aggregate recipient data.

We reviewed the methodology used by Public Safety in calculating its jobs data. We obtained
the data from Public Safety’s Office of Budget Management. We were unable to perform any
verification of the SFSF Government Services data reported by Public Safety because the data
reported were based on budget estimates rather than actual data.

To achieve our audit objectives, we relied, in part, on computer-processed data provided by
Maryland Education and the two selected LEAs. We assessed the reliability of computer-
processed data for the LEAs by comparing the reimbursement data from AFRS to amounts for
―total Federal Recovery Act expended‖ and ―total Federal Recovery Act received‖ in Maryland’s
Section 1512 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 Maryland Education and the LEAs. We then
compared the data reported by Maryland Education with data queries we extracted from the
LEAs, and Maryland’s Recovery Act Web site (www.StateStat.Maryland.gov). Based on our


18
  We found no issues with Prince George’s County’s drawdowns. Because of time constraints, we did not test
Baltimore City’s drawdowns.
Final Report
ED-OIG/A03K0009                                                                               Page 32 of 67


testing, we determined that the computer-processed data used were sufficiently reliable for the
purposes of this audit.

We conducted fieldwork at Maryland Education’s office in Baltimore, Maryland, in July 2010. 19
We conducted fieldwork at Prince George’s County in Upper Marlboro, Maryland, in
September 2010, June 2011, and August 2011. We conducted fieldwork at Baltimore City in
Baltimore, Maryland, in December 2010 and February 2011. We held an exit conference with
Maryland Education officials to discuss the results of the audit on February 2, 2012. We
conducted follow-up fieldwork at Baltimore City and Prince George’s County on
February 16, 2012, and February 23, 2012, respectively.

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.




19
  During our fieldwork at Maryland Education, we obtained Public Safety’s drawdown and expenditure
information.
Final Report
ED-OIG/A03K0009                                                                                   Page 33 of 67


Table 7: Universe and Sample Selection of Recovery Act Expenditures by Grant and LEA

                    SFSF                                     SFSF
      LEA                       Title I        IDEA                         Title I        IDEA          Totals
                  Education                                Education
                               Personnel     Personnel                   Nonpersonnel   Nonpersonnel
                  Personnel                               Nonpersonnel
                                 Costs         Costs                        Costs          Costs
                    Costs                                    Costs

 Baltimore City


Total Costs       $1,236,687   $11,590,214   $2,517,456   $15,796,583     $1,974,454     $1,027,968    $34,143,362


Total No. of        2,583        45,407       15,116         1,543          1,457           192          66,298
Expenditures


Amount of          $54,331      $141,493     $122,347      $3,050,502      $158,385       $392,393     $3,919,451
Expenditures
Sampled
                     44           107           49            37             40             22            299
No. of
Expenditures
Sampled


Prince George’s
    County


Total Costs
                               $3,247,524    $5,532,498   $33,147,810     $1,551,671     $3,149,287    $46,628,790
Total No. of
Expenditures
                                 15,526       18,149         7,703           891            365          42,634
                     N/A
Amount of
                                $89,242       $77,012      $1,719,433     $1,021,109     $2,026,497    $4,933,293
Expenditures
Sampled
                                   34           38            50             49             57            228
No. of
Expenditures
Sampled


      Totals


Total Costs
                  $1,236,687   $14,837,738   $8,049,954   $48,944,393     $3,526,125     $4,177,255    $80,772,152

Total No. of
Expenditures        2,583         60,933      33,265         9,246          2,348           557         108,932


Amount of         $54,331       $230,735     $199,359      $4,769,935     $1,179,494     $2,418,890    $8,852,744
Expenditures
Sampled

                     44           141           87             87            89             79            527
No. of
Expenditures
Sampled
Final Report
ED-OIG/A03K0009                                                                                 Page 34 of 67



     Table 8: Prince George’s County Expanded Review Universe and Sample Selection of
                          Recovery Act Nonpersonnel Expenditures



                           SFSF Education             Title I20          IDEA               Total



     Total Costs              $41,700,659           $7,165,185        $6,911,054       $55,776,898

     Total No. of
     Expenditures                16,029                 5,342            4,857             26,228

     Amount of
     Expenditures               $473,135            $4,684,176         $686,792         $5,844,103
     Sampled

     No. of
     Expenditures                   17                   152               32               201
     Sampled




20
  The Title I universe includes 719 Title I Recovery Act SIG expenditures, totaling $624,741. We sampled
22 Title I Recovery Act SIG expenditures, totaling $100,678.
       Final Report
       ED-OIG/A03K0009                                                                                 Page 35 of 67


                 Enclosure 1: Finding 1 – Prince George’s County’s Unallowable
                              Nonpersonnel Expenditures by Grant

Title I Recovery Act (84.389A)
                           Expenditure Description                                                Criteria              Amount
Eight expenditures were for the travel of 85 students, parents, and teachers (from      According to an Education
various elementary, middle, and high schools) to a Communication, Science,              Program Specialist in
Technology, Engineering, and Math (CSTEM) conference in Texas in April                  Maryland Education’s
2011.                                                                                   Program Improvement and
                                                                                        Family Support Branch,
Prince George’s County did not budget funds for travel to the national                  the funds could be used for
competition in its FY 2010 Title I Recovery Act carryover report (this report,          the travel costs only if the
                                                                                                                        $108,882
dated November 30, 2010, was for budgeting unspent FY 2010 Title I Recovery             travel expenditures were
Act funds for spending during the 2010-2011 school year).21 Funds were                  budgeted in the
budgeted for only contractual services and materials for Prince George’s                FY 2010 Title I Recovery
County’s own CSTEM (local) competitions. The funds excluded should not                  Act carryover report.
have been used without approval. Furthermore, because the funds were
expended for the competition, some of the other services or activities, such as
staff training, that were budgeted and approved may not have been carried out.
                                                                                        OMB Circular A-87,
Prince George’s County paid a vendor’s invoice without adequate supporting              Appendix A, C.3.a. Costs
documentation to show that the hours billed were the actual hours worked,               are allocable to a cost
resulting in an overcharge for professional services. The supporting                    objective if the services
documentation had to be provided by the vendor; however, the documentation              involved are chargeable in
did not match all of the hours billed. We noted four differences between the            accordance with benefits
supporting documentation and the invoice: two employees were billed at $42 per          received.
hour although the supporting documentation indicated that they were to be billed
at $30 per hour employees ($2,106 overcharge); one employee’s monthly hours             OMB Circular A-87,
totaled 36 although she was paid for 35 hours ($30 undercharge); and another            Appendix A, C.1.j. To be
employee’s monthly hours totaled 28 although she was paid for 37 hours ($270            allowable costs must be          $2,256
overcharge).                                                                            adequately documented.

The invoice should not have been paid without proper supporting documentation           34 C.F.R. § 80.20(b)(6).
to show that the hours billed were actually worked, and should have been                Accounting records must
reconciled to supporting documentation. Prince George’s County personnel                be supported by source
should have performed this verification. We found that the Title I Department           documentation such as
did not have written procedures that required the review of invoices with               payrolls and time and
supporting documentation for the costs billed prior to payment.                         attendance records.




       21
          The carryover report was to inform Maryland Education about the amount of the LEA’s FY 2010 carryover and
       its proposed use. Within the report, LEAs were reminded that any amendment to the activities or budgeted funds
       had to be submitted and approved before funds could be expended.
         Final Report
         ED-OIG/A03K0009                                                                                Page 36 of 67


                   Enclosure 1: Finding 1 – Prince George’s County’s Unallowable
                         Nonpersonnel Expenditures by Grant (continued)

Title I Recovery Act (84.389A)
                       Expenditure Description                                              Criteria                 Amount
Food provided for a school planning and management team meeting.              OMB Circular A-87, Appendix B,
The meeting agenda showed that the ―goal of the meeting was to                27. Costs of meetings and
provide leadership and vision goals to ensure concrete structure and          conferences, the primary purpose of
procedures for implementation.‖ Based on our review of the agenda,            which is the dissemination of             $180
we concluded that this was a staff meeting and not a meeting or training      technical information, are
session where technical information was discussed.                            allowable. This includes costs of
                                                                              meals.
The purchase of 6 USB key chains, totaling $108. The Title I Budget           OMB Circular A-87, Appendix B,
Analyst provided us a written statement that the USB key chains were          1.f.(3) Costs of memorabilia,
                                                                                                                        $108
―awarded‖ to high school seniors who had graduated.                           including models, gifts, and
                                                                              souvenirs are unallowable.
Title I Recovery Act SIG (84.388)
                                                                              OMB Circular A-87, Appendix A,
                                                                              C.3.a. Costs are allocable to a cost
                                                                              objective if the services involved
                                                                              are chargeable in accordance with
Advanced payment for a car rental. Principals of the Turnaround
                                                                              benefits received.
Schools (5) and the Turnaround Schools Director took a trip to
Chicago, Illinois. The Turnaround Schools Director was advanced
                                                                              Prince George’s County’s travel
funds to rent a car while in Chicago. Prince George’s County could not
                                                                              policy 4134, ―Nonlocal
provide us with a receipt for the car rental. During a follow-up site visit
                                                                              Reimbursable Travel,‖ required
we learned that the Director signed an ―Employee Acknowledgement of
                                                                              travelers to maintain receipts for
Restitution‖ form acknowledging that he was overadvanced $1,083 (the
                                                                              hotels, conference registrations,
amount advanced for the rental car). Prince George’s County did not
                                                                              airlines, and similar costs. The
require the Director to complete a Travel Reimbursement Request
                                                                              travel policy also required the        $1,083
(Form 4133-4), which was used to reconcile funds advanced with
                                                                              completion of a Travel
expenses incurred, as required by the LEA’s travel policy.
                                                                              Reimbursement Request form
                                                                              within five days of the traveler’s
By not ensuring that travelers submit a Travel Reimbursement Form,
                                                                              return from travel to work.
with receipts, there is no supporting documentation to show that
expenses were actually incurred or that the travelers actually took the
                                                                              34 C.F.R. § 80.20(b)(3) requires
trip. Prince George’s County did not enforce its own travel policies and
                                                                              that effective internal control and
procedures.
                                                                              accountability must be maintained
                                                                              for all grant and subgrant cash and
                                                                              that subgrantees must assure that it
                                                                              is used for authorized purposes.
       Final Report
       ED-OIG/A03K0009                                                                              Page 37 of 67


        Enclosure 1: Finding 1– Prince George’s County’s Unallowable Nonpersonnel
                             Expenditures by Grant (continued)
Title I Recovery Act SIG (84.388)
                     Expenditure Description                                           Criteria                   Amount
                                                                         OMB Circular A-87, Appendix A,
                                                                         C.1.a. For an item to allowable it
Trip to a skating rink to recognize students who complied with the       must be necessary and reasonable for
code of conduct to increase positive behavior. The request for the       proper and efficient performance and
trip approval states it was an incentive trip. The funds were not used   administration of the Federal award.
in a manner that met the intent and purpose of the Title I SIG grant,                                               $525
which is to use the funds to provide adequate resources to               Title I, Part A, Section 1003(g)
substantially raise the achievement of students in the lowest-           requires states to provide subgrants
performing schools.                                                      to LEAs for the purpose of providing
                                                                         assistance for school improvement
                                                                         consistent with section 1116.
Purchase of a mini-refrigerator ($212) and a microwave oven ($199).
                                                                         OMB Circular A-87, Appendix B,
The Turnaround Schools Budget Administrative Specialist stated
                                                                         20. Costs of goods or services for
that these items were being used for her personal use. The costs of                                                 $411
                                                                         personal use of employees are
goods or services for an employee’s personal use are unallowable.
                                                                         unallowable.
These items were purchased online from Staples.
                                                                         OMB Circular A-87, Appendix A,
                                                                         C.3.a. Costs are allocable to a cost
                                                                         objective if the services involved are
Legal book on the termination of school employees. The cost of the
                                                                         chargeable in accordance with
book was $168, with an additional $12 for shipping and handling
                                                                         benefits received.
charges. The book purchase was unallowable because it was not
allocable to the Title I SIG grant. It could not be used in a manner                                                $180
                                                                         Title I, Part A, Section 1003(g)
that met the intent and purpose of the Title I SIG grant (stated
                                                                         requires states to provide subgrants
above).
                                                                         to LEAs for the purpose of providing
                                                                         assistance for school improvement
                                                                         consistent with section 1116.
Title I, Part A Regular Funds (84.010)
For a May 21, 2011, principals’ meeting, the Title I Department
purchased 145 watches and velvet pouches to hold the watches for
$2,565 (including a set-up fee for imprinting of the watches and
                                                                         OMB Circular A-87, Appendix A,
shipping and handling charges). One hundred laser pens, that were
                                                                         C.1.a. For an item to allowable it
also USB devices, were purchased, totaling $2,631 (the cost of each
                                                                         must be necessary and reasonable for     $8,736
pen was $25; there was also a $75 ―set-up‖ fee for imprinting the
                                                                         proper and efficient performance and
pens and $56 for shipping and handling). The principals were also
                                                                         administration of the Federal award.
given folders with their school names printed on the front. The 150
folders, along with index labeling and the printing of the names, cost
$3,539.
          Final Report
          ED-OIG/A03K0009                                                                              Page 38 of 67


                    Enclosure 1: Finding 1 – Prince George’s County’s Unallowable
                          Nonpersonnel Expenditures by Grant (continued)

IDEA Recovery Act (84.391A)
                         Expenditure Description                                          Criteria                   Amount
Items purchased for a Career Expo. We were informed that the Career         OMB Circular A-87, Appendix A,
Expo was a type of professional development for students with               C.1.a. For an item to allowable, it
disabilities so they would be ready for the outside world after high        must be necessary and reasonable
school. The students received training on various topics, such as           for proper and efficient performance
resume writing, managing money, and employer expectations. Prince           and administration of the Federal
George’s County purchased portfolio binder bags ($743), book bags           award.                                     $6,463
($4,484), pens ($244), pocket folders ($524), and water bottles ($468)
and had them imprinted with ―Career Expo 2011.‖ Although the Career         OMB Circular A-87, Appendix B,
Expo event was allowable, the purchase of the items was not necessary       1.f.(3). Costs of memorabilia,
to carry out the event. Because of the custom printing these items are      including models, gifts, and
considered promotional items, gifts, or souvenirs.                          souvenirs are unallowable.
Overbilling for a student’s transportation to school. The supporting
documentation for the expenditure stated that the student was sick and
did not attend school on March 25, 2011; however, Prince George’s           OMB Circular A-87, Appendix A,
County was billed and paid for the student to be transported that day.      C.3.a. Costs are allocable to a cost
The LEA was not required to pay for transportation if the student was       objective if the services involved are     $170
sick. The total amount of the expenditure that was sampled was              chargeable in accordance with
$3,910. The $170 billed for the day’s transportation was not allocable      benefits received.
to the grant and therefore unallowable because there was no benefit
received.
SFSF Education (84.394)
                         Expenditure Description                                           Criteria                  Amount
Utility expenses incurred before the Recovery Act was signed into law.      The Department’s Guidance for
Prince George’s County’s Test Administration received an invoice for        Grantees and Auditors, State Fiscal
reimbursement, dated January 22, 2010, for 18 utility (electricity) bills   Stabilization Fund Program,
for service received from August 13, 2007, through February 11, 2009.       December 24, 2009, page 6, states
The real estate management company that managed the property paid           that the Department has authorized
the utility expense for the entire building and then billed Prince          States to use SFSF funds to support
George’s County for reimbursement for the portion of the property that      allowable obligations that were
it occupied (52 percent). Although the invoice from the property            incurred as of February 17, 2009,        $13,785
management company was dated after the date of the enactment of the         the date of the enactment of the
Recovery Act, these obligations were incurred before                        Recovery Act.
February 17, 2009.
                                                                            34 C.F.R. § 76.707(e) states that the
                                                                            obligation for public utility services
                                                                            is made when the service is
                                                                            received.
Total                                                                                                                $142,779
          Final Report
          ED-OIG/A03K0009                                                                            Page 39 of 67


                Enclosure 2: Finding 1– Baltimore City’s Unallowable Nonpersonnel
                                      Expenditures by Grant

Title I Recovery Act (84.389A) and Title I Regular Funds (84.010)
                     Expenditure Description                                          Criteria                        Amount
Expenditures for two dinner cruises of Baltimore’s Inner
Harbor taken by different elementary schools. Both cruises
were presented as being for parents and school volunteers. On
the first cruise, 17 of the 45 attendees were school personnel.
The total cost of the cruise was $2,590, of which $1,090 was      OMB Circular A-87, Appendix B, 14.
paid from Title I Recovery Act funds and, $1,500 was paid         specifically prohibits charging entertainment
from regular Title I funds.                                       costs to Federal grants. Costs of entertainment,
                                                                  including amusement, diversion, and social
On the second cruise 18 of the 30 attendees were school           activities and any costs directly associated with   $4,352
personnel. The total cost of this cruise was $1,742. Title I      such costs (such as tickets to shows or sporting
Recovery Act funds were charged $422 and the regular Title I      events, meals, lodging, rentals, transportation,
funds were charged $1,320.                                        and gratuities) are unallowable.

The total costs of both cruises are unallowable. Title I
Recovery Act funds were charged $1,512 and regular Title I
funds were charged $2,820
Title I Recovery Act (84.389A)
The cost of food purchased for a school parent teacher
association meeting was unnecessary and unreasonable. One
expenditure ($2,413) was for the purchase of fried chicken,
potato salad, coleslaw, biscuits, cookies, and soda. Another      OMB Circular A-87, Appendix A,
expenditure of $64 was for the ―shipping and handling‖ of the     C.1.a. For an item to allowable it must be
food. The agenda for the May 12, 2010, meeting showed items       necessary and reasonable for proper and
discussed were the school budget for the school year 2010–        efficient performance and administration of the
2011, the bylaws of the organization, and the treasurer’s and     Federal award.
president’s reports. The Title I guidance does not require that
food is provided for parental events.                             OMB Circular A-87, Appendix A,                      $1,575
                                                                  C.2.a. Reasonable costs are determined by
The supporting documentation showed that 28 people attended       giving consideration to whether the cost is
the meeting (3 were either teachers or staff). The amount of      generally recognized as ordinary and necessary
funds spent on food for this meeting is unreasonable. The cost    for operation of the governmental unit or the
of the meal was $99 per parent ($2,477/25). U.S. General          performance of the Federal award.
Services Administration Federal meal per diem for Baltimore
City at that time was $36 for dinner; therefore, $63 per parent
($99-$36) is unreasonable.
                                                                  OMB Circular A-87, Appendix B, 14.
Expenditure for admission for 30 people to a theatrical           specifically prohibits charging entertainment
performance at a theater in downtown Baltimore, Maryland.         costs to Federal grants: Costs of entertainment,
The theatrical performance was the final event of a parent        including amusement, diversion, and social
                                                                                                                      $1,336
appreciation dinner and awards ceremony for an elementary         activities and any costs directly associated with
school, which also included dinner, dancing, and a performance    such costs (such as tickets to shows or sporting
by a ―local singer.‖                                              events, meals, lodging, rentals, transportation,
                                                                  and gratuities) are unallowable.
          Final Report
          ED-OIG/A03K0009                                                                                      Page 40 of 67


                Enclosure 2: Finding 1 – Baltimore City’s Unallowable Nonpersonnel
                                Expenditures by Grant (continued)

Title I Recovery Act (84.389A)
                    Expenditure Description                                                Criteria                         Amount
Baltimore City paid for the catering of food for an event for           Section 1118 of the ESEA. Schools receiving
mothers and daughters to have a makeover day at one of the              Title I funds must ensure effective
schools. Participants paid $5 to a local ladies’ civic                  involvement of parents and support a
organization to attend the event. Baltimore City provided food          partnership among the school, the parents and          $500
for the event. A makeover day does not fit the requirement of a         the community to improve student academic
parental involvement activity, which is to improve student              achievement through training, information,
academic achievement.                                                   and coordination activities.
IDEA Recovery Act (84.391A)
We reviewed six IDEA Recovery Act invoices, totaling
$296,430,22 that did not have a description of the services
rendered or the associated time frame of the work performed.
The invoices only charges were for salaries, the vendor’s rent,
utilities, advertising, and indirect costs. When we informed the
LEA of the issues, the Director of Special Education agreed
that the invoices were not adequate because of the lack of
                                                                        34 C.F.R. § 80.20(b)(3) requires that effective
information and stated that he would take corrective action.
                                                                        internal control and accountability must be
                                                                        maintained for all grant and subgrant cash and
Baltimore City also paid the invoices without adequate
                                                                        that subgrantees must assure that it is used for
supporting documentation from the vendor to show that the
                                                                        authorized purposes
costs billed were actually incurred. During a February 16, 2012,
                                                                                                                            $15,828
site visit we were provided supporting documentation for the
                                                                        OMB Circular A-87, Appendix A,
services rendered. Baltimore City’s Controller stated that this
                                                                        C.3.a. Costs are allocable to a cost objective if
cost reimbursement contract was invoiced and paid monthly
                                                                        the services involved are chargeable in
based on ―estimated costs.‖ We compared the actual costs
                                                                        accordance with benefits received.
incurred to the estimates invoiced and found that Baltimore
City was overbilled $15,828 over the 6 months we reviewed.

Baltimore City’s written accounts payable policies and
procedures were not adequate because they did not require the
review of supporting documentation for costs billed prior to
payment of an invoice. Having adequate policies and
procedures is part of effective internal controls.
Total                                                                                                                       $23,591




          22
            The expenditures were a portion of a $1,200,000, 2-year district level contract for the recruitment of school
          psychologists and social workers. The six invoices were for $49,405 each.
      Final Report
      ED-OIG/A03K0009                                                                                   Page 41 of 67


             Enclosure 3: Finding 1 – Unsupported and Inadequately Supported
                     Nonpersonnel Expenditures by LEA and Grant 23

Prince George’s County- Title I Recovery Act (84.389A)
                                   Expenditure Description24                                                Amount
For one invoice we were provided sign-in sheets to support the hours billed on the invoice
but were unable to reconcile the number of hours supported by the sign-in sheets to the
hours billed. Prince George’s County officials also could not reconcile the hours. The
Senior Budget Analyst for Title I informed us that the unwritten procedure was for the
Title I Instructional Specialist to receive the invoice from the vendor and compare it with
the instructor sign-in sheets maintained in the Title I department. The Instructional
Specialist also reviewed them against the student sign-in sheets maintained at the schools
that were provided the services. Once the review was complete the invoice was submitted
                                                                                                            $22,741
to the Accounts Payable department for payment.

For the invoices we reviewed, there was no evidence that this process was performed; the
invoices were paid and adequate supporting documentation for the hours billed was not
provided. The Senior Budget Analyst for Title I also told us that at the close of the fiscal
year, the Title I department was in the process of writing standard operating procedures for
the Title I department. The updated policy will require the vendor to turn in a log with the
invoices. The log will be used for additional verification before payment is made.
Recovery Act funds were used for catering of end-of-year events at one school. They
included a parent and student field day; student and parent end of year celebrations; and pre-
K, kindergarten, and 6th grade promotion ceremonies. The cost for the purchases of water                     $1,492
and snacks for these events was transferred to Title I Recovery Act funds via journal entry.
No agenda, information on activities conducted or sign-in sheets were provided.
Breakfast food for a Moms of Mount Rainer breakfast event held at the elementary school.
The event was stated as being for mothers, grandmothers, sisters, aunts or any significant
women in a student’s life. We were provided only with the invitation to the event and sign-                   $810
in sheets from the event. No agenda or other information on the activities conducted at the
event was provided.
Ten expenditures for the purchase of items for a Mother Daughter Tea held at a school.
Items such as paper plates, water, cutlery, napkins, tea, coffee, popcorn, and candy were
purchased for this event. The event included musical, poetic, and dance entertainment,                        $379
along with gifts for the mothers. No agenda or other information on any other activities
conducted at the event were provided. The items were purchased online from OfficeMax.




      23
         The criteria for all the unsupported or inadequately supported expenditures is 34 C.F.R. § 80.20(b)(6).
      Accounting records must be supported by source documentation such as cancelled checks, paid bills, payrolls, time
      and attendance records, and contract and subgrant award documents. The Federal regulation at
      34 C.F.R. § 80.20(b)(3) about internal controls applies to the policies and procedure issues noted.
      24
         If no supporting documentation at all was provided to us then the expenditure was unsupported. All other
      expenditures were inadequately supported.
Final Report
ED-OIG/A03K0009                                                                               Page 42 of 67


        Enclosure 3: Finding 1– Unsupported and Inadequately Supported
           Nonpersonnel Expenditures by LEA and Grant (continued)


Prince George’s County- Title I Recovery Act SIG (84.388)
                                 Expenditure Description                                         Amount
Four Title I SIG Recovery Act expenditures for food for parental involvement workshops
(description on the requisitions for the events) held at the Turnaround Schools. We were
not provided any supporting documentation to show parental attendance or what                     $1,427
activities were conducted at the workshops.

Prince George’s County- SFSF Education (84.394)
No supporting documentation was provided to us for three SFSF Education Recovery
Act expenditures for utility (electricity) expenses.                                             $95,615

Baltimore City-Title I Recovery Act (84.389A)
Two expenditures for food for an activity at a school. The purchase order for the
expenditure indicated that food was ordered for 100 people; however, the supporting
documentation provided was only a sign-in sheet that included 17 names. We did not
                                                                                                  $1,425
receive a program or an agenda that identified the type of activity conducted. As a result,
we could not determine whether the activity, and therefore the food, was allowable.

Total                                                                                            $123,889
        Final Report
        ED-OIG/A03K0009                                                                       Page 43 of 67


        Enclosure 4: Finding 1– Baltimore City Unsupported Personnel Expenditures

  Grant
                     Expenditure Description                              Criteria                   Amount
 (CFDA)
             Baltimore City did not provide time and       OMB Circular, A-87, Appendix A,
             effort certifications, personnel activity     C.1.j. To be allowable under Federal
             reports (for partially funded employees) or   awards, costs must be adequately
             supporting documentation (that is, a time     documented.
             sheet or sign-in sheet) to show that the
             employees actually worked during the          OMB Circular A-87,
             payment period that the expenditure was       Appendix B, 8.h.(3). For employees
             incurred for 87 expenditures.                 that work solely on a single Federal
                                                           award or cost objective, charges for
                                                           their compensation will be supported by
                                                           periodic certifications that the
                                                           employees worked solely on that
   Title I                                                 program for the period covered by the
 Recovery                                                  certification.
                                                                                                     $117,919
    Act
 (84.389A)                                                 OMB Circular A-87, Appendix
                                                           B, 8.h.(4). For employees
                                                           working on multiple activities
                                                           or costs objectives, a
                                                           distribution of their
                                                           compensation will be supported
                                                           by personnel activity reports or
                                                           equivalent documentation
                                                           which meets the standards in
                                                           subsection (5)(c) They must be
                                                           prepared at least monthly and
                                                           must coincide with one or more
                                                           pay periods.
             Baltimore City did not provide time and
   IDEA      effort certifications, personnel activity
 Recovery    reports or supporting documentation to show
                                                           Same as previous criteria.                $82,404
    Act      that the employees actually worked during
 (84.389A)   the payment period that the expenditure was
             incurred for 31 expenditures.
             No supporting documentation for
                                                           34 C.F.R. § 80.20(b)(6). Accounting
             42 expenditures was provided to show that
                                                           records must be supported by such
             the employees actually worked during the
  SFSF                                                     source documentation such as cancelled
             payment period. Examples of supporting
Education                                                  checks, paid bills, payrolls, time and    $49,431
             documentation that could have been provided
 (84.394)                                                  attendance records, and contract and
             are sign-in sheets for the professional
                                                           subgrant award documents.
             development or time and attendance records
             for the extracurricular activities.
Total                                                                                                $249,754
Final Report
ED-OIG/A03K0009                                                                Page 44 of 67


    Enclosure 5: Apps Found on Prince George’s County Staff’s Tablet
 Computers That Were Noneducational and Could Be Used for Personal Use


                                      Title I Department

              Position                                         Apps
Program Accounting Tech               Photobooth
Instructional Technology Specialist   Bible, Pandora Internet Radio
Senior Budget Analyst                 Bible

                                 Buck Lodge Middle School

         Subject Taught                                        Apps
Science                               Skype
Physical Education                    Facebook, Bible, Angry Birds
Math                                  Skype
Language Arts                         People Magazine, Internet Movie Database, Pandora
                                      Internet Radio
Social Studies                        Fox Soccer 2go, Words With Friends
Math                                  Words With Friends

                               Charles Carroll Middle School

   Position or Subject Taught                                  Apps
Math and Science                      Facebook, Mahjong
Math and Science                      Skype
Social Studies                        Facebook, Pandora Internet Radio
Reading/Language Arts Resource        Pandora Internet Radio
Final Report
ED-OIG/A03K0009                                                                                      Page 45 of 67



        Enclosure 6: Finding 2 – Summary of Baltimore City’s Overstated and
                         Correct Indirect Costs Calculations

     Grant       Indirect       Correct        Indirect       Indirect     Overstated      Overstated        Correct
                Cost Base       Indirect        Costs          Costs        Indirect        Indirect         Indirect
                 Used by       Cost Base       Charged         Using         Costs           Costs            Costs
                   LEA                                        Correct       Charged        Charged on
                                                                Rate         Due to        Excludable
                                                                           Incorrect         Costs
                                                                              Rate


                   (A)            (B)25           (C)            (D)           (E)             (F)             (H)

                                                             (A*.0523)        (C-D)
                                                                                                              (D-F)

     Title I   $17,665,128    $17,247,805      $889,053      $889,05326         $0           $21,826         $867,227

     IDEA      $7,112,961      $7,112,961      $525,345       $372,008      $153,337            $0           $372,008

     Total     $24,778,089    $24,360,766     $1,414,398     $1,261,061     $153,337         $21,826        $1,239,235




25
   The correct indirect cost base was determined by subtracting the excludable costs included in Finding 2 from the
indirect cost base used by Baltimore City (Column A above).
26
   The base cost multiplied by the indirect cost rate does not equal this amount; Baltimore City could have charged
more indirect costs to the grant.
Final Report
ED-OIG/A03K0009                                                                                                     Page 46 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report




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Final Report
ED-OIG/A03K0009                                                                                                                                             Page 47 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




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Final Report
ED-OIG/A03K0009                                              Page 48 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)
Final Report
ED-OIG/A03K0009                                                                                                                    Page 49 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




         Fixulif1!4 "\#.]              lDriu:tYJtierrt   '\@~·Ak   m hm?Jid' rdJitbJJJrJ!Ji (i!d.liXJf¥'4''   !tJ   J01; ~h +Utd
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Final Report
ED-OIG/A03K0009                                              Page 50 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




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Final Report
ED-OIG/A03K0009                                                                                                                              Page 51 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




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Final Report
ED-OIG/A03K0009                                                                                                                 Page 52 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




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Final Report
ED-OIG/A03K0009                                              Page 53 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)
Final Report
ED-OIG/A03K0009                                              Page 54 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)
Final Report
ED-OIG/A03K0009                                              Page 55 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)
Final Report
ED-OIG/A03K0009                                              Page 56 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




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Final Report
ED-OIG/A03K0009                                              Page 57 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)
Final Report
ED-OIG/A03K0009                                              Page 58 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




                  •
Final Report
ED-OIG/A03K0009                                              Page 59 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




                  •
Final Report
ED-OIG/A03K0009                                              Page 60 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)
Final Report
ED-OIG/A03K0009                                                                                                               Page 61 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




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Final Report
ED-OIG/A03K0009                                              Page 62 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




              •
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Final Report
ED-OIG/A03K0009                                              Page 63 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




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Final Report
ED-OIG/A03K0009                                              Page 64 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)
Final Report
ED-OIG/A03K0009                                                              Page 65 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




          n "¥[)1' (ft      -   7\J::AV)hb!lid t:UocaiiiJW! 11t£'L'fi¥ tn•
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Final Report
ED-OIG/A03K0009                                              Page 66 of 67


     Enclosure 7: Maryland Education’s Comments to the Draft Report
                              (continued)




              •
Final Report
ED-OIG/A03K0009                                                                  Page 67 of 67




Anyone knowing of fraud, waste, or abuse involving U.S. Department of Education funds
         or programs should contact the Office of Inspector General Hotline:

                  http://www2.ed.gov/about/offices/list/oig/hotline.html

         We encourage you to use the automated complaint form on our Web site;
             however, you may call or write the Office of Inspector General.

                                      Call Toll-Free:
                                Inspector General Hotline
                                    1-800-MISUSED
                                    (1-800-647-8733)

                                Inspector General Hotline
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