oversight

Office of Higher Education Programs Needs To Improve its Oversight of Parts A and B of the Title III Program.

Published by the Department of Education, Office of Inspector General on 2000-12-27.

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

                Office of Higher Education Programs Needs
                To Improve its Oversight of Parts A and B
                          Of the Title III Program


                                  FINAL AUDIT REPORT




                      Control Number ED-OIG/A04-90013
                                 December 2000




Our mission is to promote the efficient            U.S. Department of Education and
effective use of taxpayer dollars                  Office of Inspector General in
support of American education                      Atlanta, Georgia
                               NOTICE

  Statements that management practices need improvement, as well as other
conclusions and recommendations in this report, represent the opinions of the
 Office of Inspector General. Determination of corrective action to be taken
       will be made by 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, if requested, 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


                                                                                           THE INSPECTOR GENERAL

                                                December 27, 2000


MEMORANDUM


TO:              A. Lee Fritschler
                 Assistant Secretary for Postsecondary Education


FROM:            Lorraine Lewis /S/

SUBJECT:         FINAL AUDIT REPORT
                 Office of Higher Education Programs Needs to Improve Its Oversight of Parts A
                 and B of the Title III Program
                 Control Number ED-OIG/A04-90013

Attached is our subject final audit report that covers the results of our review of Office of Higher
Education Programs oversight of Parts A and B of the Title III Program. We received your
comments concurring with the findings and recommendations in our draft report.

Please provide the Post Audit Group, Financial Improvement, Receivables and Post Audit
Operations, Office of Chief Financial Officer and the Office of Inspector General, Audit Services
with quarterly status reports on promised corrective actions until all such actions have been
completed or continued follow-up is unnecessary.

In accordance with the Freedom of Information Act (Public Law 90-23), reports issued by the
Office of Inspector General are available, if requested, to members of the press and general
public to the extent information contained in therein is not subject to exemptions in the Act.
Copies of this audit report have been provided to the offices shown on the distribution list
enclosed in the report.

If you have any questions, please contact Carol Lynch, Regional Inspector General for Audit, at
(404) 562-6462.


Attachment




                            400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510
      Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
CN: ED-OIG/A04-90013                                                 Final Report


Table of Contents

Office of Higher Education Programs Needs To Improve Its
Oversight of Parts A and B of the Title III Program


Executive Summary                                                        1


Finding No. 1 - Systematic Monitoring Approach Needed                    4
Finding No. 2 - Systematic Resolution and Enforcement                    9
Approach Needed
Background                                                              14

Objectives, Scope and Methodology                                       15

Statement on Management Controls                                        16
Attachments - 3
     Summary of Issues Identified in Non-federal Audit Reports and
     Other SFA Data

     Potential Title III Liabilities

     Auditee's Response
CN: ED-OIG/A04-90013                                                            Final Report


                                 EXECUTIVE SUMMARY

We performed an audit of Parts A and B of the Title III program at the U. S. Department of
Education's (ED) Office of Higher Education Programs (HEP) in Washington, D.C. The
objectives of our audit were (1) to evaluate whether Parts A and B of the Title III program were
being monitored in an efficient and effective manner and (2) to determine whether adequate and
effective enforcement action was being taken to resolve problems and issues of grantees that
participate in Parts A and B of the Title III program.

Our audit disclosed that HEP needs a systematic approach to effectively and efficiently monitor
institutions receiving grants under Title III of the Higher Education Act of 1965 (hereafter
referred to as "Title III grantees"). Also, HEP needs to develop a systematic approach for
resolving and enforcing compliance and program performance issues that arise with grantees.

Systematic Monitoring Approach Needed

HEP is responsible for providing technical assistance to grantees and monitoring them for
compliance and program performance. HEP needs a systematic approach to carry out its
responsibilities effectively and efficiently. Without a systematic approach for monitoring, federal
funds may not be appropriately monitored and protected.

In recent years, HEP has decreased its technical assistance and compliance monitoring on-site at
Title III institutions and has not used a systematic approach to carry out these activities. Factors
cited by HEP staff for the lack of technical assistance and compliance monitoring include
reduction in staff and travel funds, assumption of additional Grants Officer duties by Program
Officers for all HEP's grant programs, and changes in work priorities. HEP staff advised ED's
Office of Inspector General (OIG) auditors that conducting grant competitions and awarding
grant funds are the priorities of Title III staff.

During our audit, we were advised that HEP was implementing a peer review process that
includes the use of faculty experienced in grant administration to conduct performance
evaluations at grantee institutions. This process did not include monitoring for compliance with
laws and regulations. Therefore, developing a systematic monitoring approach would
complement the peer review process and help improve Title III grantee performance. Further,
coordination is needed with other ED components that have oversight and enforcement
responsibilities such as Student Financial Assistance (SFA), Office of the Chief Financial Officer
(OCFO) and others. Sharing information and coordinating monitoring activities among ED
components will help ED achieve Goals 3 and 4 in its Strategic Plan.

We recommend that HEP develop and implement a technical assistance, compliance, and
program performance monitoring system that includes:

   •   Collecting, analyzing and managing information about Title III grantees available in HEP
       and other ED components.
   •   Using information collected to develop and implement a risk model for identifying Title
       III grantees that need technical assistance or may be placing federal funds at risk.

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CN: ED-OIG/A04-90013                                                               Final Report

   •       Developing and following a formal technical assistance and monitoring plan based on
           information derived from the risk model.
   •       Utilizing the expertise and abilities of the staff in HEP's service area for Program
           Monitoring and Information Technology (PMIT) to help accomplish HEP's technical
           assistance and monitoring responsibilities.
   •       Developing and following a uniform monitoring guide.
   •       Developing written policies and procedures for providing technical assistance to grantees
           and monitoring them.
   •       Implementing the peer review process.
   •       Sharing and coordinating monitoring plans and activities with other ED components.

Systematic Resolution and Enforcement Approach Needed

HEP is responsible for resolving and enforcing compliance and program performance issues
when they occur. However, during our audit, we identified that HEP lacked formal written
policies and procedures for resolving enforcement issues. HEP needs a systematic approach to
take action and use its existing enforcement authority when needed.

We identified compliance and performance issues such as grantees who were unable to account
for the use of grant funds and who spent grant funds for unallowable purposes. HEP knew about
some of the Title III issues, but it did not take resolution actions to correct them. We also
determined that HEP was unaware of other Title III grantee findings and liabilities. Until HEP
develops a systematic approach for managing and resolving compliance and program
performance issues, federal funds may be at risk and grant objectives may remain unmet.

To ensure that corrective actions are taken and funds are recovered when appropriate, we
recommend that HEP establish and implement a tracking and resolution system that includes:

       •    Obtaining and tracking non-federal audit reports and audit resolution data maintained by
            SFA and the OCFO.
       •    Using its Audit Liaison Officer (ALO) to provide assistance to the OCFO in resolving
            findings and liabilities identified by non-federal audit reports and ED reviews.
       •    Developing and following written policies and procedures for resolving and enforcing
            compliance and program performance issues when they occur.
       •    Using existing enforcement authority cited in 34 CFR 74.62 when appropriate. This
            authority includes temporarily withholding cash payments pending correction of the
            deficiency, disallowing all or part of the cost of the activity or action not in compliance,
            wholly or partly suspending or terminating the current award or withholding further
            awards for the project or program.
       •    Following up on audit resolution actions to help ensure that findings and liabilities are
            properly resolved.




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CN: ED-OIG/A04-90013                                                        Final Report

Auditee's Response and Auditor Comments

On November 17, 2000, we received comments from HEP officials. The comments show
concurrence with the findings and recommendations in our draft report. The comments, in their
entirety, are included as Attachment 3. The Office of Inspector General finds the draft report
responses satisfactory to begin addressing our recommendations. We have modified
recommendation 2.5 to acknowledge that the Institutional Development and Undergraduate
Education Service (IDUES) does not have the authority to enforce or resolve audit resolutions of
OCFO or SFA.




                                               3
CN: ED-OIG/A04-90013                                                       Final Report

                                   AUDIT RESULTS

FINDING NO. 1 - Systematic Monitoring Approach Needed

HEP is responsible for providing technical assistance to grantees and monitoring them for
compliance and program performance. However, HEP needs a systematic approach to
effectively and efficiently monitor Title III grantees for compliance and program performance.
Without a systematic approach for monitoring, federal funds may not be appropriately monitored
and protected.

Factors Affecting HEP’s Ability to Provide Technical Assistance and Monitoring

Two service areas within HEP are responsible for technical assistance and monitoring - IDUES
and PMIT.

       IDUES

       IDUES is responsible for the grant administration processes of the Title III program,
       including providing technical assistance to grantees and monitoring them for compliance
       and program performance. Certain factors resulted in IDUES decreasing its technical
       assistance and compliance monitoring on-site at Title III institutions. IDUES is
       responsible for administering other programs such as Byrd Scholarships, Minority
       Teacher Recruitment and Minority Science Improvement. In recent years, IDUES
       assumed additional Grants Officer duties for all its grant programs. Further, IDUES
       lacked formal written policies and procedures for the grant administration processes
       which include providing technical assistance to grantees and monitoring them for
       compliance. HEP staff advised ED's OIG auditors that conducting grant competitions
       and awarding grant funds were and remain the priorities of Title III staff.

       PMIT

       PMIT is responsible for (1) providing logistical support for HEP grant competitions and
       maintenance of a database of grant application readers, (2) providing information
       technology support for Higher Education program offices, and (3) monitoring HEP grant
       recipients. PMIT provides technical assistance to IDUES and other HEP service areas in
       training sessions and to Title III and other program grantees at workshops.

       Although PMIT has overall responsibility for monitoring Higher Education programs, it
       has not conducted technical assistance or compliance monitoring on-site at Title III
       institutions since 1995. PMIT has changed its focus from monitoring for program
       compliance by individual grantees to reviewing for grantee performance. Consequently,
       PMIT has not placed an emphasis on reviewing Title III institutions for compliance.
       PMIT still performs compliance monitoring when requested by IDUES. However, a HEP
       official advised us that IDUES has not requested assistance in the past.




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CN: ED-OIG/A04-90013                                                                      Final Report

Other factors affecting HEP’s ability to monitor and provide technical assistance included loss of
staff through retirement, buy-outs and transfers, inexperienced new staff, a decrease in full-time
equivalent staff, an addition of five new programs, an increase in grant administration
responsibilities and reduced travel funds. Also, there was no process for sharing information
about grantees within HEP or with other ED components. We noted that both SFA and the
OCFO have information HEP needs to effectively monitor Title III grantees.

For these reasons, HEP has not provided adequate technical assistance to Title III grantees or
performed adequate compliance monitoring of them. HEP needs to implement a systematic
approach for performing these responsibilities. This approach will allow HEP to perform its
duties more efficiently, institutions will accomplish more with their federal funds, and the Title
III program will be managed more effectively.

HEP Needs to Obtain Information Available from Other ED Components

HEP can use existing information that is available in other ED components to identify
institutions that may need technical assistance or monitoring. Case Management and Oversight
in SFA maintains non-federal audit reports for institutions participating in the student financial
assistance programs, which would include Title III grantees.

We obtained and reviewed non-federal audit reports and/or other SFA data for 45 judgmentally
selected Title III grantees. Our review of the data identified many instances of non-compliance
with ED’s regulations, many repeat findings and some large liabilities that may still be
outstanding (see Attachment 1). We identified the following issues in these reports indicating
that Title III funds are at risk for misuse:

    •   Accounting weaknesses.
    •   Accreditation.
    •   Administrative capability.
    •   Cash flow/cash management or ED's requirement for a Letter of Credit.
    •   Internal control weaknesses.
    •   Payroll distribution.
    •   No opinion or an adverse opinion on financial statements.
    •   Financial stability/going concern.
    •   Unallowable grant costs/Title III costs exceed award.
    •   Questioned costs/misuse of funds.
    •   The reimbursement method of payment 1 .
    •   Title IV liabilities.
    •   Repayment agreement with ED (Title III or Title IV).
    •   Repeat findings/prior findings unresolved.
    •   Possible excess Title III cash.

Although the Title III program is not a major program for coverage in all grantee non-Federal
audits, HEP should have a process for obtaining and reviewing the audit reports. Findings in
1
 Under the reimbursement method of payment an institution must first make disbursements to students prior to the
Secretary's providing Title IV HEA program funds.

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CN: ED-OIG/A04-90013                                                            Final Report

these reports, related to other ED programs, could also indicate that Title III grant funds are at
risk for misuse.

Case Management and Oversight conducts compliance monitoring of the HEA Title IV Student
Financial Assistance Programs at institutions that may participate in Title IV, Title III and other
Higher Education programs. Title IV program reviews identify issues such as poor accounting
systems, other internal control weaknesses and lack of financial stability and administrative
capability. While these reviews cover only Title IV, issues reported in these reviews could be
used to identify grantees needing Title III technical assistance or compliance monitoring.

HEP needs to work with other ED components to establish a system to consistently exchange
information related to Title III grantees. Once information is collected, HEP needs to organize,
manage and share the information to administer Title III and other Higher Education programs
more efficiently.

A benefit HEP can derive from information known by other ED components is the ability to
identify institutions that may need technical assistance or monitoring more than others. Based on
the nature and severity or repetitiveness of issues that occur, HEP can decide which institutions
need the most help.

HEP Needs a Systematic Approach to Monitoring

An effective Title III oversight approach includes collecting, analyzing and managing
information to identify grantees most in need of technical assistance and where federal funds are
at greatest risk for misuse. With such a system, HEP could then develop annual technical
assistance and monitoring plans that would direct its limited resources toward those grantees.

HEP should use the expertise and abilities of the PMIT staff in developing an efficient and
effective monitoring system. PMIT staff could prepare a uniform monitoring guide, provide
training to HEP staff and develop written policies and procedures for providing technical
assistance and monitoring. Procedures need to include standards for documenting the work done
and the results, requirements for written monitoring reports detailing the conditions noted,
corrective action plans agreed to by grantees and follow-up plans or actions by HEP to ensure
corrective actions are taken. PMIT staff could also coordinate HEP monitoring activities, as well
as lead combined reviews at grantees where risk factors are identified that impact more than one
program.

These activities would not only benefit the Title III program, but could also be applied
throughout HEP to benefit other programs as well. These activities would also assist
inexperienced IDUES staff and help assure continuity when there is staff turnover.

Finally, HEP needs to review the previous ED OIG audit report entitled Process Enhancements
in the HEA, Title III, Institutional Aid Program Would Increase Program Efficiency, Despite
Limited Resources (ED-OIG/A04-60001, dated March 1996) that included recommendations for
improving certain grant administration processes, as well as grantee monitoring. HEP needs to
implement recommendations still outstanding from that report.


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CN: ED-OIG/A04-90013                                                                       Final Report

New Monitoring Initiatives

During our audit, we were advised that HEP was developing a peer review process that included
the use of university faculty personnel to conduct performance evaluations at grantee institutions.
HEP planned to complete development of the peer review process first and then conduct the first
reviews. The Graduate Assistance in Areas of National Need was the first program to be
reviewed using the peer review process. The Title III and TRIO 2 programs were the next
programs to be included in the peer review process. These reviews do not include compliance
monitoring.

PMIT was also developing a Title III monitoring and technical assistance site visit guide and a
Title III monitoring plan. PMIT was planning to train Title III staff on how to conduct technical
assistance and compliance monitoring site visits. PMIT was also implementing an executive
information system. The system is designed to tie other database systems together in order to
manage information about programs. Every Program Officer should have access to this system.

Coordination of Oversight Among ED Components Needed

Effective monitoring of the ED's programs should include sharing information and coordinating
monitoring activities among the ED components with oversight and enforcement responsibilities.
HEP needs to coordinate the information and monitoring activities in all its service areas and
with the peer review process. PMIT could take the lead in ensuring this coordination. Further,
coordination is needed with other ED components that have oversight and enforcement
responsibilities including SFA, OCFO and others. Sharing information and coordinating
monitoring activities among ED components will help ED achieve Goals 3 and 4 in its Strategic
Plan. 3




2
 Federal Trio Programs include: Upward Bound, Talent Search, Student Support Services, Educational Opportunity
Centers, and Ronald E. McNair Postbaccalaureate Achievement Programs
3
 Goal 3 is entitled "Ensure access to postsecondary education and lifelong learning." Goal 4 is entitled "Make ED a
high-performance organization by focusing on results, service quality, and customer satisfaction."



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CN: ED-OIG/A04-90013                                                          Final Report

RECOMMENDATIONS

Targeted technical assistance and compliance monitoring site visits could help assure that Title
III funds are protected and grantees correct systemic problems. Therefore, we recommend that
the Assistant Secretary for Postsecondary Education require HEP to develop and implement a
technical assistance, compliance and program performance monitoring system that includes:

   1.1. Collecting, analyzing and managing information about Title III grantees available in
        HEP and other ED components.
   1.2. Using information collected to develop and implement a risk model for identifying
         Title III grantees who need technical assistance or may be placing federal funds at
        risk.
   1.3. Developing and following a formal technical assistance and monitoring plan based
         on information derived from the risk model.
   1.4. Utilizing the expertise and abilities of the PMIT staff to help accomplish HEP’s
        technical assistance and monitoring responsibilities.
   1.5. Developing and following a uniform monitoring guide.
   1.6. Developing written policies and procedures for providing technical assistance to
        grantees and monitoring them.
   1.7. Implementing the peer review process.
   1.8. Sharing and coordinating monitoring plans and activities with other ED components.

We also recommend that the Assistant Secretary for Postsecondary Education require HEP to:

    1.9. Implement outstanding recommendations for grantee monitoring previously made by
         the OIG. (Refer to ED OIG audit report entitled Process Enhancements in the
         HEA, Title III, Institutional Aid Program Would Increase Program Efficiency,
         Despite Limited Resources ED-OIG/A04-60001, dated March 1996)
   1.10. Reassess other grant administration processes to determine whether other
         recommendations from the prior ED OIG audit report need to be implemented.
   1.11. Ensure that HEP staff has the necessary knowledge, skills and training needed to
         accomplish oversight responsibilities efficiently and effectively.
   1.12. Determine whether additional resources are necessary to accomplish its oversight
         responsibilities.


Auditee's Response and Auditor Comments

We reviewed the comments from the Director of IDUES provided in the Executive Summary.
The comments show concurrence with the findings and recommendations in our draft report.
The Office of Inspector General finds the draft report responses satisfactory to begin addressing
our recommendations.




                                                8
CN: ED-OIG/A04-90013                                                           Final Report

FINDING NO. 2 – Systematic Resolution and Enforcement Approach Needed

HEP is responsible for resolving and enforcing compliance and program performance issues
when they occur. However, HEP lacked formal written policies and procedures for resolving
enforcement issues. HEP needs a systematic approach for taking action and using its existing
enforcement authority when appropriate.

Factors Affecting HEP’s Ability to Resolve and Take Enforcement Actions on Non-
Compliance Issues

HEP is responsible for resolving and taking enforcement actions on compliance and program
performance issues when they occur. In our review of non-federal audit reports and other SFA
data, we identified issues that were unknown to HEP. In our review of IDUES' grantee files, we
also identified issues that were known to HEP. However, HEP did not use its existing
enforcement authority to take appropriate actions.

Certain factors made it difficult for HEP to resolve and take enforcement actions on Title III non-
compliance issues. The Title III Office did not have a tracking system to alert the Title III staff
about the receipt and status of an institution’s non-federal audit reports. HEP did not
consistently receive data from the OCFO about audit resolution actions because the role of HEP's
Audit Liaison Officer (ALO) was not functioning. When asked, HEP’s assigned ALO was
unaware of his responsibilities as an ALO. The ALO also said that he had not attended any ALO
meetings regarding audit resolution matters. Furthermore, HEP lacked formal written policies
and procedures for resolving and taking enforcement actions on compliance and program
performance issues when they occurred.

HEP can accomplish more if it makes some operational changes in the way it addresses
resolution and enforcement of non-compliance issues.

HEP Needs to Obtain Information Available from Other ED Components and Utilize Its ALO
to Help Resolve Non-Compliance Issues

HEP can use existing information available in other ED components to assist in resolution and
enforcement efforts. As previously reported, SFA maintains non-federal audit reports for
institutions participating in the student financial assistance programs, which would include Title
III grantees. HEP needs to obtain and track non-federal audit reports of Title III grantees and
determine if they have been submitted. During our audit period, we were unable to determine if
audit reports were submitted by all grantees in our sample. HEP could accomplish this task by
using its ALO as a tracking agent to determine whether Title III grantees are complying with
audit requirements.

As previously reported, OCFO files contain information related to the resolution of non-federal
audits that contain Title III findings. While the OCFO is responsible for resolving non-federal
audits, HEP should take an active role in determining whether findings identified by non-federal
audits are properly resolved. HEP could accomplish this task by using its ALO as a tracking
agent to ensure that findings are properly addressed and do not remain outstanding.


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CN: ED-OIG/A04-90013                                                                           Final Report

According to ED's Audit Resolution System Departmental Directive dated July 11, 1983, the
ALO is responsible for acting as the central control point for all audit reports, audit resolution
data and audit clearance documents relating to the Principal Action Official's (PAO's) area of
responsibility. The ALO is also responsible for maintaining proper tracking of the resolution
process, establishing the PAO's official audit files and logs, and maintaining records necessary
for the timely and accurate monitoring of resolution activity. Utilizing the ALO in the audit
resolution process would improve HEP's ability to resolve non-compliance issues.

OIG Review of Non-Federal Audit Reports and/or Other SFA Data

We obtained and reviewed non-federal audit reports and/or other SFA data for 45 Title III
grantees. The data identified many instances of non-compliance with Title III and other ED
regulations. Many had repeat findings 4 and 16 had liabilities that may still be outstanding (see
Attachment 2). For example, our review of audit reports and other pertinent SFA data disclosed
the following:

      •    One grantee had reportable conditions that had a direct bearing on its ability to manage
           federal programs. The conditions included a lack of supporting documentation for grant
           costs, accounting and internal control weaknesses, inadequate retention and maintenance
           of records, repeat findings, and possible misappropriation of funds. The grantee was also
           on the reimbursement of payment. The auditor stated that persistent internal control
           weaknesses signal the possibility that federal funds and interests are not being protected
           and are at risk. This grantee was awarded $7,128,884 and $10,442,145 in Part B Title III
           funds for an undergraduate grant and a graduate grant, respectively, for fiscal years 1994
           through 1998.

      •    Another grantee had findings that included fiscal accountability of Title III funds
           (improper transfers of $13,257 from Title IV to Title III), unallowable grant activity costs
           (improper transfer of $5,913 from Title III to Title IV resulting in questioned Title III
           costs of $5,913), and additional issues that resulted in significant Title IV liabilities. This
           grantee was awarded $1,616,613 in Part A Title III funds for fiscal years 1994 through
           1998.

      •    Another grantee had findings that included significant internal control and accounting
           weaknesses, and lack of administrative capability, fiscal accountability and financial
           stability. The grantee was also on the reimbursement method of payment, owed ED $13
           million of SFA liabilities (prior audit issue), and had a 1997 settlement agreement with
           ED for $907,904. The auditor stated that this grantee was not adequately administering
           two SFA programs (FFEL and Federal Pell Grant) which had combined expenditures of
           over $41.5 million. The auditor also stated that the grantee's continued participation in
           SFA programs may be at risk due to the material weakness in the control environment
           and other unresolved compliance issues. This grantee was awarded $11,135,943 in Part
           B Title III funds for fiscal years 1994 through 1998. Due to the material weakness in the
           control environment, Title III funds may also be at risk for misuse.


4
    Twenty-three (52 percent) of the 44 grantees' audit reports we reviewed had repeat findings.

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CN: ED-OIG/A04-90013                                                            Final Report

HEP Needs to Use Information in a Systematic Approach for Resolution and Enforcement

HEP needs to develop and follow written policies and procedures for resolving and taking
enforcement actions on compliance and program performance issues when they occur. These
policies and procedures should include requirements for written responses, corrective action
plans from grantees and follow-up actions by HEP.

OIG Review of IDUES' Grantee Files

We reviewed official grant files in IDUES for 15 Title III grantees and noted eight instances
where HEP did not use its authority to take appropriate enforcement actions when grantees failed
to comply with various laws and regulations. For example:

   •   During an IDUES site visit, the President of a grantee college expressed concern that the
       college’s $772,788 in Title III funds were spent for “purposes not intended.” In addition,
       the site visit identified where the college had an unstable financial condition and did not
       make financial records and personnel data available for review during the site visit. HEP
       required the grantee to provide specific documentation on the $772,788 and to develop
       accounting and fiscal procedures. There was no evidence in the file that the grantee
       responded to the site visit report or that the issues were ever resolved. The grantee was
       also awarded a grant for the next year based on the Program Officer's certification that
       substantial progress was being made. However, we noted that there was no evidence in
       the files that the grantee was making substantial progress. This grantee was awarded
       $3,075,012 in Part B Title III funds for fiscal years 1994 through 1998.

   •   A grantee's non-federal audit report for fiscal year 1994 identified significant internal
       control issues which could affect the grantee's ability to report, process and summarize
       financial data. It did not appear that IDUES took immediate action to determine the
       impact that this finding had on the grantee's Title III activities.

       Furthermore, Program Officers responsible for approving the school's initial and
       continuing grant applications did not question two grant objectives that were
       unallowable, but instead recommended the objectives be funded. However, when one of
       the same Program Officers conducted a site visit, the activities were then identified as
       unallowable.

       In addition, during the site visit, the Program Officer was also unable to determine
       whether several other grant objectives were being accomplished. However, the Title III
       Office did not question the grant expenditures or follow-up to verify if corrective actions
       were taken and the funding of the grant was continued. This grantee was on the
       reimbursement method of payment and was awarded $6,442,335 for fiscal years 1994
       through 1998.

In addition, the IDUES files for the two grantees above contained no information regarding the
required results/reports of the mandatory Title III annual external evaluation of the grantee, Title
IV program reviews, HEP/PMIT reviews or other outside entity reviews.


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CN: ED-OIG/A04-90013                                                             Final Report

   •      The Title III Office conducted a grantee site visit October 31-November 2, 1994, which
          covered the 1994-95 grant award of $500,000. The site visit report contained three
          findings regarding fiscal operations: (1) accounting and fiscal procedures needed to be
          developed, (2) time and effort records needed to be reviewed to reflect the immediate
          supervisor's certification, and (3) Title III funds of $220,902 (adjusted to $193,292) were
          spent on an unallowable grant activity (dormitory renovation). HEP files contained
          correspondence from the grantee and IDUES about the above concerns. However, we
          noted these files did not indicate whether the Title III Program Officer followed up on the
          unallowable activity or whether the grantee either repaid the $193,292 to ED or funded
          an allowable activity. This grantee was on the reimbursement method of payment and
          was awarded $3,565,609 for fiscal years 1994 through 1998.

In the example above, the IDUES files contained no documentation of external Title III
evaluations or PMIT reviews and limited information regarding non-Federal audit reports and
Title IV program reviews.

HEP did not use its existing authority to ensure that corrective actions were taken and liabilities
were collected. This enforcement authority is cited in 34 CFR 74.62 and specifies the actions
available to HEP. These actions include temporarily withholding cash payments pending
correction of the deficiency, disallowing all or part of the cost of the activity or action not in
compliance, wholly or partly suspending or terminating the current award or withholding further
awards for the project or program. In addition, other remedies may be legally available. For
example, HEP could contact the Office of the General Counsel (OGC) to determine if fines can
be assessed or other actions taken against Title III grantees who either do not submit audit
reports or submit late audit reports.

Title III Grant Funds Remain at Risk

Based on our review of grantee files and interviews of HEP staff, we concluded that there were
no consequences if grantees do not comply with the program regulations regarding use of funds,
implementation of programs, submitting non-federal audits and other requirements.

Until HEP takes a systematic approach to manage and deal with compliance and program
performance issues, federal funds remain at risk for misuse and grant objectives may remain
unmet.

RECOMMENDATIONS

We recommend that the Assistant Secretary for Postsecondary Education require HEP to develop
and implement an effective system for resolving Title III grantee non-compliance issues,
including taking appropriate enforcement actions that include:

   2.1.     Obtaining and tracking non-federal audit reports and audit resolution data maintained
            by SFA and the OCFO.
   2.2.     Using its ALO to provide assistance to the OCFO in resolving findings and liabilities
            identified by non-federal audit reports and ED reviews.


                                                  12
CN: ED-OIG/A04-90013                                                       Final Report

   2.3.   Developing and following written policies and procedures for resolving and enforcing
          compliance and program performance issues when they occur.
   2.4.   Using existing enforcement authority cited in 34 CFR 74.62 when appropriate.
   2.5.   Following-up on audit resolution actions with OCFO and SFA to help ensure findings
          and liabilities are properly resolved.


Auditee's Response and Auditor Comments

We reviewed the comments from the Director of IDUES provided in the Executive Summary.
The comments show concurrence with the findings and recommendations in our draft report.
We have modified recommendation 2.5 to acknowledge that IDUES does not have the authority
to enforce or resolve audit resolutions of OCFO or SFA. The Office of Inspector General finds
the draft report responses satisfactory to begin addressing our recommendations.




                                              13
CN: ED-OIG/A04-90013                                                            Final Report

                                        BACKGROUND

The Title III Institutional Aid Program is intended to equalize educational opportunity for
disadvantaged students by assisting eligible colleges and universities. Eligible institutions
include Historically Black Colleges and Universities (HBCUs), Historically Black Graduate
Institutions and other institutions with limited financial resources that serve a high percentage of
students receiving need-based federal financial assistance.

The Strengthening Institutions Program (Part A) assists eligible institutions of higher education
to become self-sufficient by providing funds to improve and strengthen their academic quality,
institutional management, and fiscal stability. One-year planning grants and five-year
development grants are awarded. Funds may be used for faculty development, funds and
administrative management, development and improvement of academic programs, and joint use
of facilities and student services.

Grants to Hispanic-Serving Institutions under the Strengthening Institutions Program (Part A)
assist eligible Hispanic-Serving Institutions of higher education to expand their capacity to serve
hispanic and low-income students. Five-year development grants are awarded. Funds may be
used for scientific or laboratory equipment for educational purposes, the renovation of
instructional facilities, faculty development, funds and administrative management, development
and improvement of academic programs, acquisition of equipment to strengthen funds
management and academic program, joint use of facilities, academic tutoring, counseling
programs, and student support services.

The Strengthening HBCUs Program (Part B) provides financial assistance to establish or
strengthen the physical plants, financial management, and academic resources and endowments
of undergraduate HBCUs. Funds may be used for the: (1) purchase, rental or lease of scientific
or laboratory equipment for educational purposes-- instructional and research; (2) construction,
maintenance, and renovation of instructional facilities; (3) faculty development and exchanges;
(4) academic instruction in disciplines where blacks are underrepresented; (5) purchase of
educational material; (6) student services; (7) funds and administrative management and
acquisition of equipment for use in strengthening management; and (8) joint use of facilities.
Support is also provided to 16 graduate HBCUs that are making a substantial contribution to the
legal, medical, dental, veterinary, or other graduate education opportunities of African-
Americans.




                                                 14
   CN: ED-OIG/A04-90013                                                                              Final Report

                                                 UNIVERSE DATA

                   Number
Type of            of                                                                                                 TOTAL
Grantees           Grantees     FY 1994         FY 1995             FY 1996        FY 1997           FY 1998         AWARDS
Regular (Part A)   499   $    86,257,376   $ 88,349,325    $    79,753,722    $ 55,448,302    $    55,450,000   $ 365,258,725
HSIs (Part A)       37                 0              0         11,932,600      10,800,000         10,800,000      33,532,600
HBCUs (Part B)     101        98,208,000    100,860,000        108,990,000     108,989,926        107,990,000     525,037,926
Undergraduate
HBCUs (Part B)      16        11,501,000     15,858,998         19,606,000      20,106,000         19,606,000      86,677,998
Graduate

Total Grantees     653   $ 195,966,376     $ 205,068,323   $ 220,282,322      $ 195,344,228   $ 193,846,000     $1,010,507,249



                               OBJECTIVES, SCOPE AND METHODOLOGY

   The objectives of our audit were to (1) evaluate whether Parts A and B of the Title III program
   are being monitored in an efficient and effective manner and (2) determine whether adequate
   and effective enforcement action is being taken to resolve problems and issues of grantees that
   participate in Parts A and B of the Title III program. Our audit covered the period October 1,
   1993 through September 30, 1998. To accomplish the audit objectives, we

        •    reviewed applicable federal laws and regulations,
        •    reviewed a recent ED OIG Title III Audit Report (ED-OIG/A04-60001),
        •    interviewed staff in OGC,
        •    interviewed officials in HEP, IDUES and PMIT,
        •    obtained and analyzed IDUES and PMIT data pertinent to their policies and procedures
             for monitoring Title III grantees and using authorized enforcement actions to resolve
             grantees' problems and issues,
        •    reviewed official grant and program files for selected grantees,
        •    interviewed staff in SFA,
        •    interviewed staff in the OCFO,
        •    reviewed and analyzed audit reports and other documentation provided by SFA staff for
             45 judgmentally selected Title III grantees,
        •    reviewed documentation provided by OCFO staff, and
        •    reviewed and analyzed selected audit reports and other SFA data.

   Our fieldwork was performed February 8, 1999 through June 18, 1999, primarily at the HEP
   office in Washington, D.C. An exit conference was held on October 29, 1999. On February 2,
   2000, we briefed the incoming Assistant Secretary for Postsecondary Education on the results of
   our audit. We also discussed monitoring issues, including the results of our audit, at a meeting
   with HEP staff and managers, in April. Our audit was performed in accordance with government
   auditing standards appropriate to the scope of the audit described above.




                                                               15
CN: ED-OIG/A04-90013                                                        Final Report

                     STATEMENT ON MANAGEMENT CONTROLS

As part of our audit, we assessed ED's controls over monitoring and use of enforcement actions
to resolve problems and issues of grantees that participate in Parts A and B of the Title III
program.

Because of the limited nature of our audit, the overall system of management controls was not
reviewed and we cannot express an overall opinion on the controls. However, we identified
weaknesses in HEP's monitoring of Title III grantees and in HEPs resolving and enforcing
compliance and program performance issues when they occur. These weaknesses are discussed
in further detail in the AUDIT RESULTS section of this report.




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CN: ED-OIG/A04-90013                                                                                               Final Report
Attachment 1
                    ISSUES                                                               TOTAL BY
                                                                                           YEAR
                                                     FY 1994            FY 1995           FY 1996        FY 1997    FY 1998**

            Accounting Weaknesses                       11                 16                 11           9            1

                 Accreditation                          1                  2                   2           0            0

           Administrative Capability                    2                  5                   7           3            0

Cash Flow/Cash Mgmt. Or ED's Requirement for            6                  6                   6           5            0
              a Letter of Credit

         Internal Control Weaknesses                    17                 23                 16           13           4

              Payroll Distribution                      2                  0                   2           2            0

  No Opinion or Adverse Opinion On Financial            2                  2                   2           1            0
                  Statements

       Financial Stability/Going Concern                3                  4                   5           4            0

 Unallowable Grant Costs/Title III Costs Exceed         2                  2                   2           1            0
                   Award

       Questioned Costs/Misuse of Funds                 4                  7                   3           3            0

      Reimbursement Method of Payment*

               Title IV Liabilities                     2                  7                   6           6            0

        Repayment Agreement with ED                     0                  1                   2           2            1
            (Title III or Title IV)

   Repeat Findings/Prior Findings Unresolved            7                  17                 14           10           0

         Possible Excess Title III Cash                 5                  6                   6           1            0

* Seventeen of the 47 grantees in our sample either have been or are on ED's reimbursement of payment.
** Incomplete data for Fiscal Year 1998.
CN: ED-OIG/A04-90013                                                                     Final Report

                 ATTACHMENT 2 - POTENTIAL TITLE III LIABILITIES


$1,737,223 of potential Title III liabilities identified during our review of 15 IDUES' grantee
files.

$2,093,411 of potential Title III liabilities identified during our review of 45 grantees' non-
federal audit reports and/or other SFA data.



$3,830,634 - Total potential Title III liabilities identified during our audit.
CN: ED-OIG/A04-90013                              Final Report




                ATTACHMENT 3 – AUDITEE RESPONSE
The Institutional Development and Undergraduate Education Service (IDUES) concurs with the
Office of Inspector General findings and recommendations. The two main goals of our “ Urgent
Action Plan to Resolve Findings of the Inspector General with regard to IDUES” [March 9,
2000] are:
• To resolve the current lack of substantial and systematic information gathering, analysis, and
     evaluation about : program achievements; customer service; and grantee, program, and
     IDUES compliance with GPRA and other legislative requirements.
• To build staff capacity in order to increase IDUES responsiveness and service to institutions.
This Action Plan has been endorsed by the Deputy Assistant Secretary for Higher Education
Programs, as well as by the Assistant Secretary for Postsecondary Education.
A continuing priority for IDUES Director is to address the findings of IG audits related to Title
III and, by extension, to Title V programs, by collaborating with other ED offices, and requesting
the necessary resources to achieve our corrective action plans.

IDUES Response To Finding No. 1 - Systematic Monitoring Approach Needed
We concur with this finding. The following corrective actions are planned or being
implemented:

1.1    IDUES has been working closely with the Program Monitoring and Information
       Technology Service Area (PMIT) to develop and implement an electronic information
       collection model for all of HEP, with IDUES as its pilot site and model for office-wide
       deployment. The information collection model, HEP Information and Communication
       System, will constitute a national knowledge-base resulting from the collection, analyses,
       reporting, and exchange and dissemination of information related to Title III and Title V
       project performance, program outcomes and impact on grantee institutions. This will be
       an outstanding monitoring tool. A complete business case to substantiate the request for
       funding for this project was developed by PMIT and submitted to the Department’s
       Information Technology Review Board [ITIRB] in July 2000. A decision is expected by
       October 2000. Once funds are allocated for HEP Info we expect implementation will be
       completed within 12 months. The HEP Info “business case,” and the corresponding
       IDUES Action Plan are attached for your review.

1.2    Discussions are underway between PMIT and IDUES officials to develop a risk model to
       identify grantees that may be placing federal funds at risk or be in urgent need of
       technical assistance. At present, IDUES is being assisted by PMIT regional
       representatives [ARs] in monitoring Title V and Title III institutions. IDUES is working
       closely with PMIT to develop blueprints for collaborative monitoring efforts. PMIT
       monitoring staff have conducted more than 10 monitoring visits since May 1, 2000 of
       Title V and Title III institutions. A Title III and Title V risk model will be developed in
       collaboration with other ED Offices and Divisions within OPE; we expect the risk model
       to be available following implementation of HEPInfo.

1.3    Over the course of this year, PMIT staff developed a training guide to monitoring and site
       visits in preparation for a 2-day workshop on Grant Monitoring held in June 2000 for
       IDUES program officers. This monitoring workshop will be repeated in November 2000
       for new IDUES staff and other HEP officers. Besides sharing the guide with IDUES staff,
       PMIT staff are revising and broadening it to increase its usefulness throughout OPE.
       Grants Policy and Oversight [GPOS] has expressed interest in making these materials
       available in an even wider scale to ED program officers. IDUES will continue to work
       with PMIT to develop and follow a formal technical assistance and monitoring plan,
       based on progress made toward the development of a risk model.

1.4    IDUES management is working in collaboration with PMIT to meet technical assistance
       and monitoring responsibilities. As a follow up to the June training workshop, ARs have
       begun to link up with IDUES program officers assigned to their same states, in order to
       share information about grantee institutions, and determine the feasibility of making site
       visits.

1.5    A uniform monitoring guide is expected to be completed during the fourth quarter of
       fiscal year (FY) 2001.

1.6    PMIT and IDUES staff are collaborating to produce policy guidance on technical
       assistance and monitoring.

1.7    PMIT developed a peer review model for the GAANN program, and conducted initial
       training sessions, but sufficient resources were not available for full implementation.
       PMIT is evaluating the feasibility of using a similar model in order to broaden it’s
       capacity to visit more projects. Again, the ability to accomplish this is always limited by
       the amount of available resources. We see this as a capacity building as a preventive
       action, to reduce at an early stage the chance for mismanagement of federal funds.

1.8     IDUES is looking to coordinate monitoring plans and activities with other ED
       components. In addition to PMIT, we have begun conversations with SFA/PPI officials
       through the Quality of Education Collaboration Task Force, and we intend to share with
       GPOS the documents we produce. However, we have a concern about taking on more
       than we can handle appropriately, which is explained in our response to Finding 2.

1.9    Attached is the most recent Corrective Action Plan for ED-OIG/A04-60001 and IDUES’
       March 9, 2000 memorandum addressing the urgent need to resolve all findings of past IG
       audits.

1.10   IDUES has begun to address and implement recommendations from the prior ED OIG
       audit reports. IDUES must continue to assess its internal administrative processes to
       meet ED performance goals and program mission objectives. IDUES was successful
       during FY2000 in obtaining a portion of the necessary funds to evaluate IDUES
       administrative grant processes. $325,000 of the estimated $1.3 million was allocated to
       IDUES in FY2000 to address the findings of the four previous IG audits that pertain to
       the Title III program.

1.11   IDUES is using the services of [a contractor] to address work load issues and develop
       “Individual Development Plans” for IDUES staff. IDUES will use [contractor] data to
       pinpoint the training needs and capabilities of IDUES staff to perform successfully.
1.12 IDUES agrees with the findings of this audit that existing personnel levels are not
appropriate to carry out the additional Grant Officer duties for all IDUES programs. At present,
IDUES has increased its workforce through personnel on MAP assignments [4], reassignments
[1], and staff recruited through the Outstanding Scholars Program [1, with more to come]. We
intend to request that the MAP staff be allowed to stay at IDUES permanently. IDUES has set
in motion a concerted effort to address and resolve oversight responsibilities. IDUES March 9,
2000 memorandum, attached to this document, the HEPInfo business case, and budget planning
documents are reflective of our call for additional resources.

IDUES Response To Finding No. 2 – Systematic Resolution and Enforcement Approach Needed
We concur with this finding. The following corrective actions are planned or being
implemented:

2.1    IDUES is willing to initiate a dialogue with SFA and OCFO with a view toward Program
       Specialist obtaining a copy of audit reports and audit resolution data for their respective
       grantees. However, IDUES does not have the authority to resolve finding on the behalf
       of OCFO or OSFA, nor do we have at present the capacity to track and monitor audit
       resolution.

2.2    We have no objection to asking our ALO to assist OCFO in these matters.

2.3    We will request the guidance and assistance of the following offices: the Immediate
       Office of the Deputy Assistant Secretary for Higher Education Programs; GPOS; and
       PMIT.

2.4    The EDGAR enforcement authority for non compliance will be utilized as appropriate.

2.5    IDUES does not have the authority to enforce or resolve audit resolutions of OCFO or
       OSFA but IDUES will collaborate with OCFO and OSFA as needed.
                                       FINAL
                             REPORT DISRIBUTION LIST
                           Control Number ED-OIG/A04-90013

                                                                             No. Of
                                                                             Copies
Auditee

       Dr. Claudio Prieto                                                   Original
       Deputy Assistant Secretary
       Higher Education Programs
       U.S. Department of Education
       1990 K Street, N.W., 6th Floor
       Washington, D.C. 20006

Action Official

       A. Lee Fritschler                                                          1
       Assistant Secretary
       Office of Postsecondary Education
       U.S. Department of Education
       1990 K Street, N.W., 6th Floor
       Washington, D.C. 20006

Other ED Offices (via e-mail, except OGC & OPA

       Deputy Secretary                                                           1
       OUS - Under Secretary                                                      1
       HEP - IDUES Director; PMIT Director                                        2
       OPE - Policy Planning and Innovation Staff; Audit Liaison Officer;
       Policy, Budget and Analysis Staff                                          3
       OCFO - Grant Policy and Oversight Staff Director                           1
       OGC - General Counsel and Assistant General Counsel                        3
       OPA - Director of Public Affairs                                           1
       OCFO - Post Audit Group Supervisor                                         1

Office of Inspector General (via e-mail)

       Inspector General                                                          1
       Deputy Inspector General                                                   1
       Acting Assistant Inspector General for Audit                               1
       State and Local Advisory & Assistance Director and Staff                   2
       Assistant Inspector General for Analysis & Inspection Services             1
       Counsel to the Inspector General                                           1
       Regional Inspectors General for Audit                                 1 each