oversight

The Virgin Islands Government Lacks Adequate Management Controls Over the Administration of Its IDEA, Part B Grant Program Salary Costs.

Published by the Department of Education, Office of Inspector General on 2001-07-27.

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

           The Virgin Islands Government Lacks
  Adequate Management Controls Over the Administration
     of Its IDEA, Part B Grant Program Salary Costs




                                  FINAL AUDIT REPORT




                               Control Number ED-OIG/A04-A0015
                                            July 2001




Our mission is to promote the efficient                  U.S. Department of Education
and effective use of taxpayer dollars in                 Office of Inspector General
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.
           The Virgin Islands Government Lacks Adequate
          Management Controls Over the Administration of Its
             IDEA, Part B Grant Program Salary Costs
                    Control Number ED-OIG / A04-A0015

                            Table of Contents
                                                                      Page
EXECUTIVE SUMMARY……………………………………………………….                                1
Background………………………………………………………………………..                                3
Scope and Methodology…………………………………………………………..                          3
Scope Impairment…………………………………………………………………                              4
Statement on Management Controls……………………………………………..                    5

AUDIT RESULTS

FINDING NO. 1 – The VI Department of Finance could not provide the
detailed salary expenditures charged to the Department’s fiscal year
1998 grants………………………………………………………………………… 8
        Recommendations………………………………………………………… 10

FINDING NO. 2 – VIDE used at least $149,257 of its IDEA Part B grant
funds to pay employees who did not work for Special Education………………... 11
       Recommendation.………………………………………………………… 12

FINDING NO. 3 – VIDE charged $2.55 million of payroll expenses to
accounting codes that did not appropriately identify them as Special
Education grant expenditures……………………………………………………... 13
      Recommendations………………………………………………………… 14

FINDING NO. 4 – Special Education employees, who received $871,000
in pay from IDEA Part B funds, did not meet the position requirements
set by both federal and VI regulations nor did the employees receive
adequate training so that they could meet the standards…………………………. 15
        Recommendations………………………………………………………… 18

FINDING NO. 5 – VIDE did not provide an adequate or appropriate
education to students by relying on paraprofessionals to substitute
for Special Education teachers……………………………………………………. 19
       Recommendations………………………………………………………… 20

FINDING NO. 6 – VIDE drew down $394,000 in IDEA grant funds to pay
salary costs, but VI Finance did not record the deposit………………………….. 21
        Recommendations………………………………………………………… 22
Control Number: ED-OIG / A04-A0015                                            Final Report




                              EXECUTIVE SUMMARY


The U.S. Department of Education (Department or ED), Office of Inspector General (OIG)
performed an audit to determine whether the Virgin Islands Department of Education (VIDE)
properly administered Part B salary costs for its Individuals with Disabilities Education Act
(IDEA) grant. To accomplish our audit, we reviewed the financial, payroll, and personnel
functions performed by VIDE and other Virgin Islands (VI) Government offices affecting the
salary payments to VIDE Special Education employees during the period January 1998 through
June 2000.

Due to a lack of adequate management controls, we determined the Department cannot rely on
the financial management and personnel practices used by the VI Government offices in
administering salary costs for the IDEA, Part B grant program. The VI Government offices
administered the grant activities without accurate, complete, or actual financial and personnel
information to support the salary costs charged to the grant. Specifically, our audit revealed the
following deficiencies:

•   The VI Department of Finance could not provide the detailed salary expenditures charged to
    the Department’s fiscal year 1998 grants. VIDE only provided budgetary figures of about
    $3.7 million for fiscal year 1998 salary expenditures.
•   VIDE used at least $131,542 of its IDEA, Part B grant funds to pay employees who did not
    work for Special Education.
•   VIDE charged $2.55 million of payroll expenses to accounting codes that did not
    appropriately identify them as Special Education grant expenditures. At the time of our
    audit, about $150,000 of the $2.55 million remained uncorrected.
•   Special Education employees, who received about $871,000 in pay from IDEA, Part B funds
    during fiscal years 1999 and 2000, either did not meet the position requirements set by both
    federal and VI regulations or their personnel files did not document that they met these
    requirements. In addition, the employees did not receive adequate training, so that they
    could meet the standards.
•   VIDE may not have provided an adequate or appropriate education to students since it relied
    on paraprofessionals to substitute for Special Education teachers.
•   VIDE drew down $394,000 in IDEA grant funds to pay salary costs, but the VI Department
    of Finance (VI Finance) did not record the deposit until we identified the error.

To correct these deficiencies, we recommend the Assistant Secretary for Special Education and
Rehabilitative Services require:

•   VIDE to provide evidence that costs were appropriately expended or repay to the Department
    the approximately $3.7 million in unsupported salary and fringe benefit costs for the Special
    Education program for calendar year 1998.


                                                 1
Control Number: ED-OIG / A04-A0015                                             Final Report

•   VI Finance to have the capability to restore data prior to archiving any financial data in the
    future as it is required to maintain and provide evidence of the detailed expenditures.
•   VIDE to repay to the Department at least $131,542 in IDEA, Part B grant funds used to pay
    salaries of employees who did not work or provide direct services for Special Education.
•   VIDE to ensure all required adjustments, including the $150,000 of the $2.55 million we
    identified as not corrected, are identified and recorded by VI Finance.
•   VIDE to repay to the Department at least $871,000 in IDEA grant funds that were used to
    pay 31 Special Education employees who either lacked the required credentials or
    appropriate evidence of required credentials for the positions they held.
•   VIDE Division of Human Resources and VI Division of Personnel to follow prescribed
    employment procedures and ensure that employees receive appropriate training.
•   VI Finance and VIDE to provide evidence that all draws of the Department’s grant funds
    were recorded in the Financial Management System (FMS) during the entire time period of
    our audit.
•   VI Finance to ensure all financial and accounting transactions are recorded accurately and
    timely in the FMS, so that agencies like VIDE can rely on and use the information.

The VI generally concurred with our findings and recommendations with the exception of
Finding No 1. The VI response to our draft report stated that it did not concur with this finding
because the archived payroll data referred to in the finding was now available. The VI response
also stated that time and attendance reports, payroll registers, and hours of entry information
needed to support the allowability of the 1998 payroll expenditures were available for our
review.

However, in meetings held with VI officials in May and June 2001, we were advised that the
archived payroll data had not been restored. Further, when we returned to the VI in June 2001,
only a small portion of the additional supporting documentation referred to in their response was
available for our review. The documentation was not adequate to enable us to reach a conclusion
concerning the allowability of the payroll costs. As a result, our finding remains unchanged.

Virgin Islands officials were able to provide additional documentation on the qualifications for
some of the employees questioned in Finding No. 4 and we have reduced the number of
employees and the amount in question accordingly.

The Virgin Islands’ response is included in its entirety as an attachment to the report.




                                                 2
Control Number: ED-OIG / A04-A0015                                           Final Report



                                        Background


According to VIDE’s records, the Department awarded about $4.8 million for fiscal year 1998,
$7.8 million for fiscal year 1999, and $8.8 million for fiscal year 2000 to administer their IDEA,
Part B grant. VIDE budgeted over 70 percent of these funds to pay salaries and related fringe
benefits to its Special Education employees during our audit period. Employees involved
included: resource specialists, special education teachers, paraprofessionals, speech therapists,
school bus drivers, and administrative personnel.

As a recipient of IDEA grant funds, VIDE is the state education agency (SEA) for the VI that is
responsible for administering all state educational programs for children with disabilities. The
Virgin Islands has two local education agencies: the school districts of St. Thomas/St. John and
St. Croix.

The main VI Government offices providing financial, payroll, and personnel services for the
administration of IDEA grant funds included VI Finance, the VI Division of Personnel (VI
Personnel), VIDE and VIDE’s Division of Human Resources (VIDE Personnel). VI Finance
was the official record keeping entity for the Virgin Islands Government. VI Finance was
responsible for accounting for all expenditures of federal grants received from the Department.
VIDE was the agency responsible for delivering educational services to students with disabilities
in accordance with the terms of the grant. VI Personnel was responsible for determining
employment eligibility for VIDE non-professional staff hired. VIDE Personnel, with the
assistance of the VI State Board of Education, was responsible for determining employment
eligibility for VIDE professional staff hired.



                                  Scope and Methodology


The purpose of our audit was to determine whether VIDE administered IDEA, Part B salary
costs properly. We reviewed financial, payroll, and personnel functions affecting the payment of
salaries to Special Education employees. The specific objectives of our audit were to determine
whether VIDE adequately maintained:

    (1) Internal accounting controls over the payroll process for Special Education.
    (2) Documentation regarding whether Special Education employees charged to the grant
        only worked on Special Education projects.
    (3) Documentation that Special Education employees charged to the grant existed and were
        valid and qualified employees of VIDE.
    (4) Documentation and support for Special Education personnel actions taken.


                                                 3
Control Number: ED-OIG / A04-A0015                                          Final Report

To achieve our objectives, we performed the following tasks:

   •   Reviewed applicable federal and VI laws and regulations.
   •   Interviewed VI Government officials to determine and review VI policies and procedures
       covering the financial, payroll, and personnel functions affecting the payment of salaries
       to Special Education employees.
   •   Reviewed and tested VIDE salary and related fringe benefit expenditures and related cost
       center charges recorded by VI Finance for the period January 1999 through June 2000.
   •   Reviewed personnel files, including the qualifications, for all Special Education
       employees paid with IDEA grant funds.
   •   Reviewed and compared the salary and cost center charges recorded for Special
       Education employees by VI Finance’s FMS and VIDE.
   •   Reviewed the classroom hours covered and additional payments made to
       paraprofessionals for substituting in Special Education teachers’ classrooms.
   •   Reviewed selected payroll expenditure draws from the Department to determine whether
       they were recorded as received and deposited by VI Finance.
   •   Reviewed various monitoring and audit reports prepared by the U.S. Department of
       Education, the U.S. Department of Interior Office of Inspector General, and the non-
       federal audit firm for the VI.

We randomly selected 10 payroll periods during our audit period. For each pay period, we
compared financial, payroll, and personnel data that we collected from each VI Government
office involved for each Special Education employee. We also randomly selected and reviewed
payroll expenditure draws from the Department for six pay periods during our audit period.

Our audit covered VIDE’s funds awarded by the Department for fiscal years 1998, 1999, and
2000 (the payroll periods occurring between January 1998 through June 2000). We performed a
total of five, two-week, on-site visits at VI Government offices in St. Thomas and St. Croix, VI
from June 20, 2000 through December 7, 2000.

   Scope Impairment

Our audit responsibilities required us to determine whether the VI Government’s management
controls were adequate to assure IDEA grant salary funds were spent properly. However, we
found VI Finance did not maintain adequate fiscal and accounting controls over VIDE’s 1998
salary expenditures. Thus, VI Finance could not provide the detailed salary expenditures for
fiscal year 1998 charged to the Department’s grants for our review. The lack of sufficient
evidence imposed significant constraints on our audit approach and impaired the scope of our
audit. Because sufficient data could not be provided by VI Finance, we were unable to trace
funds and draw conclusions on whether salary costs were appropriately charged to the grant.

Guidance under Government Auditing Standards, 1999 Revision, Chapter 6, Field Work
Standards for Performance Audits, section 6.46 states:

       Sufficient, competent, and relevant evidence is to be obtained to afford a reasonable
       basis for the auditors' findings and conclusions.

                                                4
Control Number: ED-OIG / A04-A0015                                              Final Report


Further, under section 6.53:

       Evidence is sufficient if there is enough of it to support the auditors' findings.

Government Auditing Standards also provide guidance to auditors for reporting on evidence
problems that affect the scope of the audit. Under Chapter 7, Reporting Standards for
Performance Audits, Section 7.14 states:

       In reporting the scope of the audit, auditors should... report the kinds and sources of
       evidence and explain any quality or other problems with the evidence. Auditors should
       also report significant constraints imposed on the audit approach by data limitations or
       scope impairments.

Therefore, irregularities may have occurred, but we would be unable to detect them because of
our inability to review the data. As discussed in Finding No. 1, we consider the grant funds
involved to be unsupported costs because we could not adequately trace funds to satisfy
ourselves that funds were spent properly according to VI’s official financial records.

Our review was conducted in accordance with generally accepted government auditing standards
appropriate to the scope of our review described above. However, the scope of our audit was
significantly impaired, as discussed above and in Finding No. 1, by our inability to review fiscal
year 1998 payroll expenditures.



                       Statement on Management Controls


Prior to beginning our audit, we planned and determined the nature, timing, and extent of tests to
be performed by assessing the management controls over VIDE’s IDEA, Part B grant program.
Management controls, in the broadest sense, include the plan of organization, methods, and
procedures adopted by management to ensure that its goals are met. Management controls
include the processes for planning, organizing, directing, and controlling program operations.
They include the systems for measuring, reporting, and monitoring program performance.

To assess the management controls, we evaluated VIDE’s ability to assure:

       •   Effectiveness and efficiency of operations.
       •   Reliability of financial reporting.
       •   Compliance with applicable laws and regulations.

Our assessment revealed material management control weaknesses existed in VIDE’s
implementation of the IDEA grant program prior to our audit. The U.S. Department of
Education and the U.S. Department of Interior Office of Inspector General (DOI-OIG) have
previously identified material management control weaknesses. Also, for several years, the VI

                                                  5
Control Number: ED-OIG / A04-A0015                                         Final Report

has failed to meet the Single Audit requirements of U.S. Office of Management and Budget
(OMB), Circular A-133.

On June 29, 1998, ED issued a final monitoring report that documented serious problems with
VIDE's compliance with Part B of IDEA. As a result of these findings, ED declared VIDE a
"high risk" grantee and imposed special conditions on its fiscal year 1998 grant award. The
special conditions required VIDE to provide ED with monthly reports on its efforts to come into
compliance with Part B of IDEA. Those reports did not demonstrate significant progress by
VIDE in meeting the requirements of Part B of IDEA. Consequently, ED proposed to VIDE a
voluntary compliance agreement as a means of ensuring a continued flow of Part B of IDEA
funds while VIDE implemented a structured plan to come into full compliance with the statute.

VIDE accepted this proposal and prepared a compliance agreement that became effective
December 12, 1999. The following compliance goals were included in the agreement:

   1.   Timely evaluations and eligibility determinations.
   2.   Free and appropriate public education.
   3.   Least restrictive environment.
   4.   Sufficient qualified personnel.
   5.   Complaint resolution.
   6.   General supervision.
   7.   Fiscal accountability.

As presented in the AUDIT RESULTS section of the report, our audit determined and
documented that significant deficiencies were occurring in VIDE’s administration of its IDEA
grants involving compliance agreement goals 2, 4, and 7.

DOI-OIG has performed a number of reviews of the Virgin Islands Government. In September
1998, DOI-OIG issued the audit report, “Interfund Loans and Federal Grant Balances,
Government of the Virgin Islands” (No. 98-I-670). The report stated that complete, current, and
reliable information on the balances of Federal grants awarded to the Government was not
readily available and that the Government had not taken adequate actions to correct long-
standing financial management problems that had an adverse impact on its financial condition.

In a September 1999 audit report on U.S. Department of Education grants, DOI-OIG reported
that VIDE did not:

   1. Adequately identify the source or the application of funds.
   2. Adopt procedures to determine cost allowability.
   3. Have adequate source documents.
   4. Ensure that personal services costs were properly supported and were charged to the
      correct accounts.
   5. Prepare and submit accurate grant financial reports within the required time frames.
   6. Always use competitive procurement procedures when making purchases.

Further, the Virgin Islands Government has been historically late in submitting Single Audit
reports to the Department. The VI had audits completed covering fiscal years 1994 and 1995,

                                                6
Control Number: ED-OIG / A04-A0015                                         Final Report

but the 1995 report was not issued to the Department until February 28, 1999. In addition, no
Single Audits of the VI Government have been performed for fiscal years 1996 and 1997. Work
on the FY 1998 Single Audit was still being conducted when our audit began. The report was
issued July 7, 2000. The 1999 audit was still on going at the end of our fieldwork.

Based on this evidence, we determined that the VI Government lacked adequate management
controls over its operations that provide financial, payroll, and personnel services for the
administration of IDEA, Part B grant funds. Thus, the available information related to the
financial and program results of the grant could not be relied upon for accuracy. This
necessitated that we perform substantive testing to determine whether the VI complied with the
program and financial requirements of the IDEA, Part B grant.

Because of inherent limitations, a study and evaluation made for the limited purposes described
above would not necessarily disclose all material weaknesses in the control structure. However,
during our audit, we identified significant management control weaknesses as discussed in the
AUDIT RESULTS section of this report.




                                               7
Control Number: ED-OIG / A04-A0015                                          Final Report




                                   AUDIT RESULTS


FINDING NO. 1 – The VI Department of Finance could not provide the detailed
            salary expenditures charged to the Department’s fiscal year
            1998 grants.
During our initial survey work in the Virgin Islands in March and April 2000, the OIG requested
that data for our audit period be extracted from VI Finance’s system FMS, including 1998, 1999,
and 2000 payroll data. After we made numerous attempts to obtain the data, VI Finance advised
us in June 2000 that it could not restore its archived 1998 detail payroll data. Subsequent
requests were made and conversations were held about the issue with both VI Finance and VI
contractor personnel through February 2, 2001, but the data was not provided.

VI Finance could not restore its archived 1998 payroll data detail because restoration
applications could not be completed on the FMS. As a result, VI Finance could not provide the
detailed 1998 salary and related expenditures charged to the IDEA, Part B grant for our review.
This impaired the scope of our audit. Because we could not determine the 1998 salary and
related expenditures charged to the IDEA, Part B grant we used the budgeted expenditures to
approximate the unsupported actual expenditures.

The following facts also intensified our concerns over whether federal funds were expended
properly. On June 29, 1998, the Department issued a final monitoring report documenting
serious problems with VIDE's compliance with Part B of the IDEA grant. As a result of these
findings, ED declared VIDE a "high risk" grantee and imposed special conditions on its fiscal
year 1998 grant award. The special conditions required VIDE to provide ED with monthly
reports on its efforts to come into compliance with Part B of the IDEA grant. Those reports did
not demonstrate significant progress by VIDE in meeting the requirements of Part B of the IDEA
grant. Consequently, ED proposed and VIDE accepted a voluntary Compliance Agreement as a
means of ensuring a continued flow of Part B of IDEA grant funds, while VIDE implemented a
structured plan to come into full compliance with the statute.

We reviewed the budgetary figures that VIDE provided for its salary costs for fiscal year 1998.
However, because VI Finance could not provide the detailed accounting records for its
expenditures, we consider the budgetary figures as potential salary expenditures representing
approximately $3.7 million in unsupported costs. By not providing detailed expenditures for our
review, our ability to carry out our audit responsibilities was adversely affected. We were unable
to conclude whether salary funds were expended properly for the Department’s grants.
Therefore, irregularities may have occurred, but we would be unable to detect them.




                                                8
Control Number: ED-OIG / A04-A0015                                            Final Report

Cause of the Finding

VI Finance's FMS did not have sufficient data storage space to maintain the detailed FY 1998
payroll expenditure data. Because of these system limitations, VI Finance elected to retain only
two years’ of detailed payroll data on the FMS. Therefore, VI Finance's Management
Information Systems (MIS) Division archived the detailed FY 1998 payroll data to magnetic tape
and removed that data from its system.

When we requested the 1998 payroll data detail, MIS was unable to restore the data to the FMS
because restoration applications could not be properly run on the system. VI Finance had
upgraded the FMS operating system, and the new operating system was not able to properly
restore the 1998 detail payroll data. Thus, MIS could not provide the data for the 1998 payroll
expenditures.

The General Education Provision Act (GEPA) and Departmental regulations require a state to
have fiscal and accounting controls to ensure grant funds can be adequately traced to determine
whether they were properly spent. GEPA states at 20 USC §1232f:

       (a) Each recipient of Federal funds under any applicable program through any grant,
       subgrant, cooperative agreement, loan, or other arrangement shall keep records which
       fully disclose the amount and disposition by the recipient of those funds, the total cost of
       the activity for which the funds are used, the share of that cost provided from other
       sources, and such other records as will facilitate an effective financial or programmatic
       audit. The recipient shall maintain such records for three years after the completion of
       the activity for which the funds are used.

The Department’s regulations state at 34 CFR §80.20:

       (a) A State must expend and account for grant funds in accordance with State laws and
       procedures for expending and accounting for its own funds. Fiscal control and
       accounting procedures of the State, as well as its subgrantees... must be sufficient to:

              (1) Permit preparation of reports required by this part and the statutes
                  authorizing grant, and

              (2) Permit the tracing of funds to a level of expenditures adequate to establish
                  that such funds have not been used in violation of the restrictions and
                  prohibitions of applicable statutes.

VI is a state within the meaning of 34 CFR § 80.3, which includes “any territory or possession
of the United States.”

Since VI Finance did not maintain adequate fiscal and accounting controls over VIDE’s 1998
salary expenditures, sufficient evidence of expenditures did not exist. Thus, we were unable to
trace funds and draw conclusions on whether salary funds were properly spent. Also, the lack of
sufficient evidence imposed significant constraints on our audit approach and impaired the scope


                                                 9
Control Number: ED-OIG / A04-A0015                                                        Final Report

of our audit. This scope impairment is reported in the Scope and Methodology section of the
report.


Recommendations
We recommend the Assistant Secretary for Special Education and Rehabilitative Services
require:

    1.1 VIDE to provide evidence that costs were appropriately expended or repay to the
        Department the approximately $3.7 million1 in unsupported salary and fringe benefit
        costs for the Special Education program for 1998.

    1.2 VI Finance to maintain and provide evidence of the detailed expenditures charged to
        grants for the Department’s review, as required by federal records retention and access
        requirements. Also, require VI Finance to have the capability to restore data prior to
        archiving any financial data in the future.

VI Comments
The VI response to our draft report stated that it did not concur with this finding because the
archived payroll data referred to in the finding was now available. The VI response also stated
that time and attendance reports, payroll registers, and hours of entry information needed to
support the allowability of the 1998 payroll expenditures were available for our review.

OIG Response
However, in meetings held with VI officials in May and June 2001, we were advised that the
archived payroll data had not been restored. Further, when we returned to the VI in June 2001,
only a small portion of the additional supporting documentation referred to in their response was
available for our review. The documentation was not adequate to enable us to reach a conclusion
concerning the allowability of the payroll costs. As a result, our finding remains unchanged.




1
 Because VI Finance could not provide the detailed accounting records for 1998 salary and fringe benefit costs
charged to the grant, we are using the 1998 budgetary figures for salary costs provided by VIDE as the unsupported
costs.

                                                        10
Control Number: ED-OIG / A04-A0015                                            Final Report

FINDING NO. 2 – VIDE used at least $131,542 of its IDEA, Part B grant funds
               to pay employees who did not work for Special Education.
VIDE failed to ensure salary costs charged to the IDEA, Part B grant were paid only to
employees who did work for Special Education. Through VIDE Personnel, we determined that
four employees did not work for Special Education. However, the four employees were paid
salaries and related benefits from Special Education grant funds.

Regarding one of the four employees, a VIDE Personnel official stated that the employee was
supposed to work for Special Education, but became ill and never actually transferred to or
worked for Special Education. We informed the official that the employee’s salary costs were
charged to Special Education. The official said that the employee’s salary costs should not have
been charged to Special Education; the costs should have been charged to the Commissioner of
Education’s office.

In addition, a Special Education SEA official told us that the employee who became ill and one
other employee charged to the grant did not work for Special Education. The official stated she
was unaware that their salaries were charged to the IDEA, Part B grant. Later, VIDE Personnel
identified two other employees who did not work for Special Education whose salaries were
incorrectly charged to the grant.

For all four employees, their Notice of Personnel Action (NOPA) assigned their salary costs to
the Special Education cost center. The cost center on a NOPA tells VI Finance to which federal
grant program to charge an employee’s salary costs. VI Finance’s records also confirmed that all
four employees were paid with Special Education grant funds.

Cause of the Finding

VIDE and VI Personnel created NOPAs for these four employees with Special Education’s cost
center as the source of funds, but they failed to ensure that these employees did work for Special
Education. Since these employees did not start to work for Special Education, the NOPAs
should have been cancelled and VIDE should have instructed VI Finance not to charge the salary
costs to the grant.

34 CFR §80.22, entitled “Allowable costs,” states:

        (a) …Grant funds may be used only for: (1) The allowable costs of the grantees, sub-
        grantees and cost-type contractors... (b) For each kind of organization, there is a set of
        Federal principles for determining allowable costs. For the costs of a State, local, or
        Indian tribal government, the Secretary applies the cost principles in OMB Circular A-
        87...

OMB Circular A-87, amended August 29, 1997, Attachment A, General Principles for
Determining Allowable Costs states that directs costs are those that can be identified specifically
with a particular final cost objective, including compensation of employees for the time devoted
and identified specifically to the performance of those awards. OMB Circular A-87 also defines


                                                11
Control Number: ED-OIG / A04-A0015                                                       Final Report

a state as “…any territory or possession of the United States…”

The Department’s Special Education regulations address a state’s use of grant funds. 34 CFR
§300.370, entitled “Use of SEA allocations,” states:

        (a) Each State shall use any funds it retains under §300.602 (State level activities for
        State administration) and does not use for administration under §300.620 for any of the
        following:

          (1) Support and direct services, including technical assistance and personnel
        development and training.

Based on information provided by VIDE officials, the four employees in question did not work
for Special Education. Since they did not work for Special Education, the payment of their
salary and fringe benefits was not an allowable use of IDEA, Part B grant funds.

During January 1999 through June 2000, salary and fringe benefits totaling $119,641 for the four
employees who did not work for Special Education were improperly charged to IDEA, Part B
grant funds. However, as described in Finding No. 1, we were unable to determine all salary
costs charged to the grant for these employees for 1998 because VI Finance was unable to
provide this information for our review. From VIDE payroll records for the five pay periods in
1998 we reviewed, we identified at least $11,901 in IDEA salary and fringe benefits2 paid to the
four employees from grant funds. Therefore, we consider the total salary costs we could
determine, $131,542, as disallowed costs.


Recommendation
2.1 We recommend the Assistant Secretary for Special Education and Rehabilitative Services
require VIDE to repay to the Department $131,542 in IDEA, Part B grant funds used to pay
salaries of employees who did not work for Special Education and determine the liability for the
remaining pay periods in 1998.

VI Comments
The VIDE concurred that four employees paid from IDEA, Part B grant funds were improperly
paid and that it would reimburse the IDEA, Part B account.




2
 This $11,901 would be included in the total amount of unsupported costs that we could not determine for
Recommendation 1.1 above.

                                                       12
Control Number: ED-OIG / A04-A0015                                           Final Report


FINDING NO. 3 – VIDE charged $2.55 million of payroll expenses to
            accounting codes that did not appropriately identify them as
            Special Education grant expenditures.
VIDE charged $2.55 million of payroll expenses to accounting codes that did not appropriately
identify them as Special Education grant expenditures because proper accounting codes were not
established in the FMS timely. The incorrect coding of grant expenditures impedes the VI
Government’s use of the FMS to provide management oversight of the grant.

Both the St. Thomas and the St. Croix VIDE business offices identified the incorrect coding
problem and sent correcting adjustments to VI Finance. In May, August, and September 1999,
the St. Croix office sent to VI Finance $1.11 million in adjustments, which covered pay periods
from January 1999 through September 1999. However, none of these adjustments were reflected
in the FMS at the time of our audit. A possible reason this occurred was because the appropriate
accounting codes were not established in the FMS timely. Since the expenses were not
accurately posted, the VI Government would not have been able to rely on its official accounting
records.

The St. Thomas adjustments of $1.28 million were for pay periods from February 1999 to
January 2000. However, the St. Thomas business office did not send the actual adjustments to
VI Finance until the July 2000 through September 2000 period, well over a year after some of
the St. Thomas salary costs were incurred. Consequently, VI Finance would not have been able
to use the proper accounting codes to determine the actual salary costs for the Special Education
programs until the adjustments were made. Without that capability, the FMS has little
management value to the VI Government or other agencies, like the U.S. Department of
Education, that have a responsibility to assure that proper expenditures of federal funds occur.

Further, the St. Croix and St. Thomas adjustments did not include all the coding errors. The
payroll offices missed approximately $150,000 in additional coding errors that we identified.

The problems associated with the coding errors indicate that the FMS would not be able to
generate required reports or permit someone to easily trace funds to determine their allowability.
The lack of accurate and timely FMS data has forced the VIDE to maintain its own accounting
records to track grant expenses. This is a costly and duplicative effort.

Cause of the Finding

Based upon discussions with VIDE personnel, the coding errors were caused by several factors
including the creation of a new cost center for Special Education, the late finalization of the
fiscal year 1999 budget, and the subsequent late submission of new NOPAs to VI Personnel for
inclusion into the FMS. In addition, the VI Finance MIS accounting code system was structured
so that a specific combination of three key fields identified a Special Education expenditure.
However, if one of these fields was valid, the system would accept the expenditure even though
the combination of the three fields did not properly identify it as Special Education.



                                                13
Control Number: ED-OIG / A04-A0015                                          Final Report

34 CFR §80.20, entitled “Standards for financial management systems,” states:

       (a) A State must expand [sic] and account for grant funds in accordance with State laws
       and procedures for expending and accounting for its own funds. Fiscal control and
       accounting procedures of the State, as well as its subgrantees and cost-type contractors,
       must be sufficient to:

              (1) Permit preparation of reports required by this part and the statutes
              authorizing the grant, and

              (2) Permit the tracing of funds to a level of expenditures adequate to establish
              that such funds have not been used in violation of the restrictions and prohibitions
              of applicable statutes.


Recommendations
We recommend the Assistant Secretary for Special Education and Rehabilitative Services
require:

   3.1 VIDE to ensure appropriate budgets and personnel change notifications are created and
       forwarded, so the information can be entered promptly into the FMS.

   3.2 VIDE to ensure all required adjustments, including the $150,000 of the $2.55 million
       we identified as not corrected, are identified and recorded by VI Finance.

   3.3 VI Finance to ensure all adjustments are recorded in a timely fashion.

   3.4 VI Finance to ensure that its FMS has a functioning control that will only accept a
       combination of codes relating to specific grant programs.

   3.5 VI Finance to ensure accurate and timely data is available in the FMS so that agencies
       like VIDE and the U.S. Department of Education can rely on and use the information.

VI Comments
The VIDE concurred with the finding and recommendations 3.1 and 3.2. The VIDE also stated
that VI Finance had concurred with recommendation 3.3.

A separate response to recommendations 3.4 and 3.5 to be provided by VI Finance has not been
received.




                                               14
Control Number: ED-OIG / A04-A0015                                           Final Report


FINDING NO. 4 – Special Education employees, who received $871,000 in pay
            from IDEA, Part B funds, either did not meet the position
            requirements set by both federal and VI regulations or their
            personnel files did not document that they met these
            requirements.
Thirty-one of 186 Special Education employees whose files we reviewed either did not meet the
position requirements set by VI regulations and the VI’s own position standards, or their files did
not document that they met these requirements. Neither VI Personnel nor VIDE Personnel could
provide evidence that these employees had the required qualifications for the positions they held.
Since these employees did not meet state requirements, federal requirements were also not met.
Therefore, we concluded that VIDE could not support the proper expenditure of at least
$871,000 in Part B Special Education grant funds for salaries and fringe benefits for 31
employees during fiscal years 1999, and 2000. To determine the questioned costs for 1999 and
2000, we extracted the actual salary and related costs from VI Finance's FMS. However, as
described in Finding No. 1, we were unable to determine salary costs paid to these employees for
1998 because VI Finance's payroll records were unavailable.

These employees either did not meet or may not have met the requirements for their positions.
The types of employees involved included: resource specialists, special education teachers,
paraprofessionals, clerk typists, speech therapists, school bus drivers, and an administrative
secretary.

Lack of required qualifications

To determine whether Special Education employees were qualified, we reviewed the personnel
files maintained by VI Personnel and VIDE Personnel. For 8 of the 31 employees, we found that
the credentials documented in the files indicated that the employees did not meet the educational
requirements for their jobs and were, therefore, not qualified according to VI standards. For the
other 23 employees, the files did not document, nor were the personnel offices able to provide
any evidence that the employees met the educational requirements for their positions. For
example, according to VI position standards, special education teachers should have a Master’s
degree in special education, and paraprofessionals should have a high school diploma.

Inadequate training

We also learned that some employees did not receive adequate training for providing Special
Education services. We visited 16 schools on St. Thomas, St. John, and St. Croix between May
9, 2000 and May 18, 2000. During these visits, we interviewed 15 school principals, 60 Special
Education teachers, and VIDE Special Education personnel concerning their ability to implement
Part B of the VI IDEA grant. Of the 60 Special Education teachers interviewed, 26 stated that
paraprofessionals could use more training.

Paraprofessionals assist Special Education teachers in the care of children with disabilities.
Despite the extensive role of the paraprofessionals in Virgin Island schools, we were told most

                                                15
Control Number: ED-OIG / A04-A0015                                              Final Report

have only received limited training in providing services to children with disabilities. Teachers
also stated that additional training in instructing children with disabilities, including dealing with
behavioral problems, would be useful.

VIDE Special Education teachers told us they also have had limited opportunities to receive
training in their field of work. On St. Thomas, workshops were provided, but many of the
teachers stated that the workshops focused more on administrative matters than on providing
training related to specific conditions of children with disabilities. On St. Croix, many teachers
were concerned about not obtaining training related to their field of work. Due to Virgin Island’s
financial difficulties, off-island training was extremely rare, and many teachers stated that the
low salaries did not allow them to finance their own training.

Federal requirements exist for qualified personnel. 34 CFR §300.135, entitled “Comprehensive
system of personnel development,” states:

       (a) General. The State must have in effect … a comprehensive system of personnel
       development that--
          (1) Is designed to ensure an adequate supply of qualified special education, regular
       education, and related services personnel;

34 CFR §300.23 defines “qualified personnel” as:

       [P]ersonnel who have met SEA-approved or SEA-recognized certification, licensing,
       registration, or other comparable requirements that apply to the area in which the
       individuals are providing special education or related services.

The Department’s Special Education regulations also require state agencies to provide for an
appropriate education. According to 34 CFR §300.13, “Free and appropriate public education”
means:

       [S]pecial education and related services that—

           (a) Are provided at public expense, under public supervision and direction, and
               without charge; and

           (b) Meet the standards of the SEA, including the requirements of this part.

Based on the lack of evidence regarding the qualifications and training of Special Education
employees, we concluded that VIDE could not support the proper expenditure of Special
Education grant funds by hiring employees who were not qualified to provide the services
needed by students with disabilities.




                                                  16
Control Number: ED-OIG / A04-A0015                                            Final Report

State and VI Division of Personnel Requirements

According to the Virgin Islands Code for Title III, Chapter 25, Section 526: Certification and
appointment of lists, documentation for educational and other requirements for non-
professional personnel positions such as a paraprofessional are collected at the Division of
Personnel (DOP). When hiring VIDE employees, VI Personnel reviews job descriptions for
positions to determine the educational requirements and work experience needed. When a
candidate applies for a position, DOP evaluates the candidate’s education and experience to
determine not only employment eligibility, but eligibility to be placed on a position list. DOP
should not place a candidate on a position list unless he/she has been found qualified for the
position.

Cause of the Finding

We found that VI Personnel did not follow established procedures for collecting and maintaining
documentation of applicants’ education. After reviewing Special Education employees’ files, we
notified VI Personnel that documentation of many employees’ education was missing from their
files. As stated above, VI Personnel is responsible for collecting and reviewing employment
eligibility documentation for non-professional staff, such as paraprofessionals. However, VI
Personnel had to request the needed documentation from VIDE Personnel. VIDE Personnel
could not provide evidence of employees’ education, either.

VIDE Division of Human Resources and VI State Board of Education Requirements

According to a VIDE Personnel official, in the past, VIDE Personnel did not follow prescribed
procedures for assuring that professional staff were qualified when hired. However, VIDE
Personnel recently instituted a process for assuring that professional staff are qualified when they
apply for a position. When hiring VIDE employees, VIDE Personnel collects and evaluates
qualifications for professional staff, such as Special Education teachers. The process requires
VIDE Personnel to send details of potential employees’ education to the VI State Board of
Education, which determines whether employees meet the qualifications for the position.

The same VIDE personnel official told us that they recently began using a panel of school
principals and VIDE managers to interview potential employees to assure they are qualified.
The VIDE Personnel official also told us that currently they hire professional staff as temporary
employees until their qualifications are verified or they have met the qualifications for the
position. Employees who do not meet the qualifications for their position are provided up to
three years to acquire them. The VIDE Personnel office advised us that they were designing a
training program for Special Education teachers.

We concluded that until VIDE ensures that employees hired are adequately qualified and trained
for their jobs, it may not meet IDEA, Part B’s requirements.




                                                 17
Control Number: ED-OIG / A04-A0015                                             Final Report

Recommendations
We recommend the Assistant Secretary for Special Education and Rehabilitative Services
require:

   4.1 VIDE to provide documentation to show that the 31 employees in question have the
       required qualifications for the positions they held or repay to the Department at least
       $871,000 in IDEA grant funds that were used to pay the 31 Special Education
       employees. Also, require VIDE to repay the Department the funds that were paid to
       these employees in 1998.

   4.2   VIDE Personnel and VI Personnel to follow prescribed procedures to hire and
         document that employees possess required qualifications and receive adequate training
         for the positions they hold or services they provide.

VI Comments
The VIDE provided additional documentation for the 72 employees referred to in
recommendation 4.1 in our draft report, and stated that officials were still researching the issue to
try and obtain the additional documentation required. VIDE concurred with recommendation
4.2.

OIG Response
We reviewed the additional documentation provided by VIDE and have reduced the number of
employees and the amount in question accordingly.




                                                 18
Control Number: ED-OIG / A04-A0015                                             Final Report


FINDING NO. 5 – VIDE did not provide an adequate or appropriate education
            to students by relying on paraprofessionals to substitute for
            Special Education teachers.
VIDE used paraprofessionals who were not adequately trained or supervised to substitute for
Special Education teachers. We identified 900 instances where a paraprofessional was paid to
cover classes during a pay period. This accounted for 17,080 hours of substitutions and $59,000
in additional expense. Out of the 31 employees we identified without the required, or properly
documented, qualifications in Finding No. 4, 17 were paraprofessionals. Furthermore, of these
17 paraprofessionals, we found that 16 were substituting for Special Education teachers during
the period we reviewed. They accounted for over $14,000 of the additional expense.

Cause of the Finding

Even though federal and VI regulations required VIDE to employ qualified and adequately
trained personnel, VIDE still relied on unsupervised paraprofessionals who were not qualified
for their own positions to substitute for Special Education teachers. VI officials stated this
occurred because there was a limited number of special education teachers.

Federal requirements allow for the use of paraprofessionals who are adequately trained and
supervised to assist in providing services, but not to substitute for qualified Special Education
teachers. 34 CFR §300.136(f), entitled “Use of paraprofessionals and assistants”, states:

       (f) A State may allow paraprofessionals and assistants who are appropriately trained and
       supervised, in accordance with State law, regulations, or written policy... to be used to
       assist in the provision of special education and related services to children with
       disabilities under Part B of the Act”

By not meeting this requirement, VIDE may not be fulfilling the needs of students with
disabilities and providing an appropriate education.




                                                 19
Control Number: ED-OIG / A04-A0015                                       Final Report


Recommendations
We recommend the Assistant Secretary for Special Education and Rehabilitative Services
require:

   5.1 VI Personnel to follow the VI’s prescribed procedures to hire paraprofessionals having
       adequate qualifications for their positions and to document their qualifications.

   5.2 VIDE to ensure paraprofessionals hired are adequately trained and supervised to
       provide appropriate services to students with disabilities.

VI Comments
The VIDE concurred with this finding. The VIDE responded that it would follow VI prescribed
procedures in hiring paraprofessionals to ensure they have adequate qualifications for their
positions. The VIDE also stated that it had developed a training plan to ensure that
paraprofessionals are adequately trained and supervised.




                                             20
Control Number: ED-OIG / A04-A0015                                            Final Report


FINDING NO. 6 – VIDE drew down $394,000 in IDEA grant funds to pay
            salary costs, but VI Finance did not record the deposit.
VIDE requested a $394,000 draw of IDEA, Part B grant funds to pay salary costs on January 13,
2000. After VIDE received a bank receipt acknowledgement for the draw’s deposit on January
13, 2000, VIDE sent the acknowledgement and draw information to VI Finance to post the draw.
Despite this, VI Finance never posted the deposit of the draw to the FMS. Further, when VI
Finance reconciled the bank statement with the FMS records, it failed to notice that the draw was
not posted. Also, VIDE personnel did not verify that the draw had been posted. Nearly 10
months later, on November 29, 2000, VI Finance recorded the transaction after we identified the
error.

We reviewed six draws of IDEA, Part B grant funds during our audit period to determine if they
were properly posted and accounted for in VI ’s FMS. During the audit period, VIDE drew
down funds from the Department 62 times for payrolls. Because the six draws that we reviewed
represented only 9.67 percent of the total draws, we concluded there could be a significant
problem with VI Finance not recording and accounting for funds drawn down from the
Department.

34 CFR §80.20 (a), entitled “Standards for financial management systems,“ states:

       A State must expand [sic] and account for grant funds in accordance with State laws and
       procedures for expending and accounting for its own funds. Fiscal control and
       accounting procedures of the State, as well as its subgrantees and cost-type contractors,
       must be sufficient to:

              (1)   Permit preparation of reports required by this part and the statutes
                    authorizing the grant, and

              (2)   Permit the tracing of funds to a level of expenditures adequate to establish
                    that such funds have not been used in violation of the restrictions and
                    prohibitions of applicable statutes.

If funds are not properly applied to grant fund accounts, financial management activities and
reporting of expenditures to the Department could be negatively affected. VI Finance could have
improperly disallowed legitimate expenses to be paid if it thought that VIDE did not have
sufficient funds on hand. We were told by the school principals, Special Education teachers and
VIDE Special Education personnel we interviewed that services, supplies, and equipment were
often requisitioned by VIDE, but payment problems within the Virgin Islands Government
impacted the delivery of those services and goods.




                                                 21
Control Number: ED-OIG / A04-A0015                                        Final Report


Recommendations
We recommend the Assistant Secretary for Special Education and Rehabilitative Services
require:

   6.1 VIDE to verify that all draws of IDEA grant funds have been posted in the FMS and
       that future draws are posted timely.

   6.2 VI Finance to provide evidence that all draws of the Department’s grant funds were
       recorded in the FMS during the entire time period of our audit.

   6.3 VI Finance to ensure all future draws and deposits of the Department’s grant funds are
       recorded into its FMS in a timely and accurate fashion.

VI Comments
Both VIDE and VI Finance concurred with the finding and recommendations. VIDE stated that
the noted draw had been posted, a reconciliation would be conducted, and any other
discrepancies reported to VI Finance in accordance with recommendation 6.1. The VI response
also stated that VI Finance was working on the remaining recommendations.




                                              22
           ATTACHMENT

Virgin Islands’ Response to Draft Report