oversight

Monitoring of Grant Award Lapsed Funds by the Office of the Chief Financial Officer, the Office of Elementary and Secondary Education, the Office of Special Educational and Rehabilitative Services, and the Office of Vocational and Adult Education during fiscal years 1998, 1999, and 2000.

Published by the Department of Education, Office of Inspector General on 2004-08-02.

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

                                UNfI'ED STATES DEPARTMENT OF EDUCATION 

                                               OFFICE OF INSPECTOR GENERAL 





                                                         AUG        2 2004

TO: 	               Jack Martin
                    Chief Financial Officer

FROM: 	             Helen Lew               /;~Le..J
                    Assistant Inspector General for Audit

SUBJECT: 	 F'mal Audit Report
                    Monitoring Grant Award Lapsed Funds
                    Control Nwnber ED-OIG/A04-DOO15


This fmal audit report presents the resalts of our review of the monitoring of grant award lapsed
funds by the Office of the Chief Financial Officer (OCFO), the Office of Elementary and
Secondary Education (OESE), the Office of Special Educational and Rehabilitative Services
(OSERS), and the Office of Vocational and Adult Education (OV AE) during fiscal years (FY)
1998, 1999, and 2000. An electronic copy of this report has been provided to yow- Audit Liaison
Officer. We received your comments concurring with the fmdings and reoommendations in our
draft report.
  -	                 -~---.--




                                                 BACKGROUND
                     - - - - - ---_.. 	                                                     -   --




ConglCss adopted the Tydings Amendment as incorporated in the General Education Provisions
Act. The amendment provided education agencies additional time to spend the Federd.! funds
they receive. Based on the Tydings Amendment, the Education Department Generd.!
Administrative Regulations (EDGAR) allows grantees to carryover for one additional year any
Federal education funds that were not obligated in the period for which they were appropriated.
For grants that are forward-funded, grantees can have up to 27 months to obligate appropriated
funds beginning as early as July 1 of the Federal fIscal year. Unless an extension is approved,
grantees must liquidate obligations within 90 days or the end of the funding period.

Appropriation law limits the amount of time that Federal funds are available to grantees to the
5th fiscal year after the period of availability. After the 5th year, the U.s. TrcasllI')' automatically
withdraws funds from use. As a result of the Tydings Amendment and appropriation law,
gI antees have np to 24 or 27 months to obligate grant funds (depending on the program and
timing of awards), and five years to use obligated funds for approved purposes (Le., obligations
incurred during the Tydings period).

For fonnula grants, the program offices are responsible for monitoring compliance with the
Tydings Amendment The GAPS Branch ofOCFO handles the requests from the program
offices to reopen GAPS after the end of the liquidation period. OCFO does not actively monitor
                                 ~MARYL&.NDAVE . ,          S.W. WASHINGTON, D.C 201Q:!·tS10
           Ow- .... iWorr is IQ promoIe the eifrciertcy. e1feClj~nef.(, and mlrgn"'Y of lhie DePCUTIIftlUII J- programs and ~



            •   •                                                                                                               •
grantee adhCience to statutory and regulatory requirements, but relies on the applicable program
offices to monitor compliance with the Tydings Amendment. OESE and OSERS monitor
grantee compliance with the Tydings Amendment for Title I, Part A of the Elementary and
Secondary Education Act, as amended (Title I), and the Individuals 'W;th Disabilities Education
Act (IDEA), Part B (Special Education), respectively. OVAE monitors grantee compliance for
the Carl D. Perkins Vocational and Technological Education Act of 1998, as amended
(Perkins III), and the Workforce Investment Act of 1998, as amended (WIA).
                     --           -               --..                                ._­


                                      AUDIT RESULTS 

               -                          ---_.                                - --   --      ­

We found that the Department's procedures and controls were adequate for monitoring grant
award balances and identifying funds for which the Tydings Amendment timeframe was about to
lapse, re-opening closed grants to allow grantees to use obligated fund balanees, and monitoring
the restoration of grant balances and other adjustments in GAPS. However, we found that the
Depootment did not have procedures and controls for notifying gIwltees when grant award
balances are about to become 1loavailable as a result of the funds not being obligated and used
within the required timeframes. Although it is not a statutory req1lirement to notify gIantees
when giant award balances are about to become unavailable, it would be a good business
practice for the Depat Iment 10 do so. OCFO officials agl ccd that controls are needed to notify
gxantees when gIant award balances are about to become unavailable.

FINDING I-Grantees Were Not Notified When FOimula Grant Funds 

           Were About to Bet:ome Unavaibble 

  Our review disclosed that the OCFO, OESE, OSERS, and OVAE did not have a mechanism to
  monitor and notify grantees of gIOOll award balances that were about to become unavailable for
  program use as a resull of not being obligated during the Tydings Amendment timeframe. Grant 

  funds not obligated during the Tydings Amendment timeframe evenmally revert to the U.s.
  Treasury. Although there is no requirement to notify grantees when grant award balances are
  about to become unavailable, it would be a good business practice to do so since grant funds
. revert to the U.S. Treasury when grantees do not obligate and use them within the required
  tirnefrarnes. We identified approximately $156.6 million ofTitle I, Special Education,
  Perkins III, and WIA fOllnuia grant funds that were allocated to grantees during FY's 1998,
  1999, and 2000 that will become unavailable as a result of not being obligated and used within
  the specified timeframes.

Under the "Tydings Amendment," §421(b) of the General Education Plovisions Act
(20 U.S.c. § 1225(b», any funds not obligated and expended during the period for which they
were awarded become carryover funds and may be obligated and expended during the
succeeding fiscal year. Any such carryover funds must be obligated and expended in accordance
with the Federal statutory and regulatory provisions in effect during the peliod in which such
funds are to be expended. In addition, if the Department determines that a State plan is
substantially approvable on or before the date that the funds are first available for obligation by
the Secretary, the State may begin to obligate funds as soon as the funds are first available for
obligation by the Secretary (EDGAR §76.703 (e)(1) (2003»). For grants that are forward-funded,



 ED-OIGJA04-DO015                         FlNAL REPORT                                 Page 2 of9 

    grantees can have up to 27 months to obligate appropriated funds beginning as early as July I of
    the Fede.tal fiscal year (EDGAR 76.703(b)(3)(ii».

    EDGAR §80.23(b) (2003), LiquidatWn ofobligations, states that a gHlIltee must liquidate all
    obligations incwred under the award not later than 90 days after the end of the funding period.
    This section a Iso states that the Federal age.tlCY may extend this deadline at the request of the
    grantee. However, pursuant to 31 U.S.C. §1552(a), on Septe.tnber 30lh ofthe 5th fiscal year after
    the period of availability for obligation of a fixed appropriation account ends, the account shall
    be closed and any remaiuing balance (whether obligated or unobligated) in the account shall be
    canceled and thereafter shall not be available for obligation or expenditure for any purpose.

    We found that for FY's 1998 through 2000, approximately $156.6 million in fOimula grant funds
    were shown in GAPS as still being available ($87.6 million of Title 1, $56 million ofSpecial
    Education, and $13 million of Perkins            m
                                                 and WIA). Since the Tydings Amendment timefiame
    for the obligation of funds has lapsed, it is likely that these funds will become unavailable.
    Although these amounts are less than one percent of the funds allocated to these programs, they
    represent millions of dollars in program funds that could be better used to achieve the
    Department's educational goals. Table 1.1 below illusuates the amount ofFY 1998, 1999, and
    2000 fOI!IlUIa grant funds that probably will not be used for their intended purposes.

              Table 1.1 -Formula GraDt Fund Balances Available To States Per GAPS
                                                           Vocational and I                         •
                                                                             I
                            Title I    SpeciaJ Education Adult Education 

             Grant Year 
 Grantees         Grantees           Grantees          TOTAL

                1998              $ 6,658,123            $ 8,695,456 
              $ 4,289,156          $ 19,642,735

                1999              21,590,252              14,996,352 
                4,948,990             41,535,594

                2000              59,330,734              32,351,164 
                3,786,399             95,486,297
        !I
        I     TOTAL             $ 87,579,109*         $ 56,042,972*              $ 13,024,.545*          $156,646,626
                        •   •                   •                •                        • •                       •
        -of the $87.6 millIon reported as available balance ror TItle I programs. $52.4 nullion related to Puerto Ru:o . 

        Of the $56 million reporlLd as available balance fur Special Education programs, $3t million related tD Puerto
        Rico. Of the $13 miIJion leported as available babmce for Perkins ill and WIA programs. $6 million related to
        Puerto Rico.

    Millions of dollars have reverted to the U.S. Treasury because grant funds were not obligated
    during the approved grant award periods. These funds could have been put to better use in
    meeting educational goals. The amount of unavailable funds increased annually during FY's
    1998 through 2000. Grant funds totaling ovec $95 million could have been put to better use in
    FY 2000. By establishing procedures and controls to provide grantees with sufficient
    notification offunds that are subject to lapsing as a result of not being obligated within the
    Tydings Ame.ttdrnent timeframe, the Depruunent could better ensure the use of educational
    funds.

    IProblems with lapsed funds were receutly ooted in Puerto Rico, which is being I"e¥lewcd and reported KpUately
    by the Office of Inspector General (OIG) New YOlk Regional Office.



    ED-OIGfA04-DOO15                                    FINAL REPORT                                           Page 3 of9
•




                                                                                                                -   _   ... 

OIG Interim Audit Memorandum (State and Local No. 04-02, dated December 9,2003) reported
to OCFO the potential loss of grant funds for PuertO Rico. In response to the interim audit
memorandum, the Chief Financial Officer stated that this was a serious matter since intended
beneficiaries would be denied access to financial support in an economic envirowm;nt WhCIC
acCOllntability for every dollar is paramount.

RECOMMENDATION

We recommend that the Chief Financial Officer, in conjunction with the Assistant Secretaries for
OESE, OSERS, and OV AE:

I. 	 Develop and implement procedures and controls to give advance warning to grantees of grant
     award balances that are about to become unavailable because the funds have not been
     obligated within the required timefi"ames.

OCFO RESPONSE

The OCFO written ICsponse to the draft         (attached) concurred with the recommendation.
The response stated that the OeFO is drafting a memorandllm for the Deputy Secretary's
signature to the Deprubnent's Assistant Secretaries with grant-making authority that will:

• 	 Require, at least 90 days prior to the end of the funding period (Tydings period), progr'am
    staffs to contact grantees with grant accounts that show any balances that are about to
    become unavailable because the funds have not been obligated within the required
    timeframes. Program staff must document any such contacts in the official grant file .
                                                                            .
• 	 Require progrrun stafF.; to review grantee financial data in GAPS at least. quarterly, and to
    provide technical assistance, where appropriate, to assist the grantee in complying with
    effective cash management practice, particularly time drawdown offunds. All contacts must
    be documented in the official grant file.

• 	 Require program staffs to use the GAPS Disbursement Report and the Award History Report
    as tools for fiscal monitoring.

• 	 Require the timely close out of grants with performance periods that have expired.

The OCFO response also stated that on June 24, 2004, the Chief Financial Officer notified the
Chief State School Officers of IT 2002 unexpended balances that will no longer be available for
obligation after September 30, 2004, and to let them know that Depatbnent program officexs will
contact them regarding funds that may revert to Treasury on October 1,2004.

The           stated that OCFO is committed to working with the Assistant Secretaries for
OESE, OSERS, and OVAE to ensure that all grantees, particularly State Education Agencies, are
made aware of and have the opportunity to take the appropriate action to obligate and use grant
funds within required tirnefi"ames. OCFO will also explore methods for notifying grantees of
potential lapsed funds that will fully utilize the GAPS system so as to minimize the aIllount of
resources that would be expended by the various program offices in managing this task.


ED-OIGlA04-DO015                          FINAL REPORT 	                                 Page" 0(9 


           •        •
OlG COMMENTS

OCFO's planned cOllective actions should provide advance warning to grantees of grant award
balances that are about to become unavailable because Ihe funds have not been obligated within
the required timeframes.
         --        ~- --- -- -           ----     -   --   ---	             --­

              OBJECTIVES, SCOPE, AND METHODOLOGY
                   -   -                 - -- ---          ---              -                 -

Our initial objectives were to evaluate the adequacy ofDepat tmental procedures and controls
for (1) monitoring grant award balances and identifying funds for which the Tydings
Amendment timefratne for the obligation of funds was about to lapse, (2) re-opening closed
grants to allow grantees to use obligated fund balances, and (3) monitoring the restoration of
grant balances and olher adjustments in GAPS. During our review, we included a fourth
objective (4) to determine whether Depattmental procedures and controls were adequate to notify
grantees when grant funds are about to become unavailable as a result of the funds not being
obligated and used within the required timeframes.

We focused our review on OCFO and the largest fOillulla grants program offices, OESE,
OSERS, and OVAE. Audit coverage included the Title 1, Special Education, and
Perkins IIlIWIA formula grants for FY's 1998, 1999, and 2000.

To accomplish our objectives, we­

(\) 	Reviewed Depattment procedures and controls for monitoring fOifflula grant award
     balances, re-opening closed grants to allow grantees to obligate unused fund balances, and
     mouitoring restoration of grant balances and GAPS data

(2) 	 Reviewed Depattmentai procedures and controls regarding the notification of grantees of
    grant funds that are about to lapse.

(3) 	 Interviewed progtWIl officials to dete" nine whether they were aware of the use of grant
      funds beyond the allowable Tydings Amendment timeframe and whether they had approved
      the use of grant funds beyond the timeframe.

(4) 	 Reviewed GAPS reports related to the fOIll1ula grant programs of Title I, Special Education,
      and Perlrins IllJWIA to determine if grantees had drawn down funds beyond the allowable
      Tydings Amendment timer. arne.

(5) 	 Requested a detailed award history report for each gtantee that drew down beyond the
      Tydings Amendment timefi'ame to detenuine the amount of funds drawn down.

(6) 	 Reviewed GAPS reports related to the fOllllula grant programs of Title I, Special Education,
      and Perkins IIIIWIA to determine the amount of grant funds about to lapse as a result ofnot
      being obligated during the Tydings timefiame.



ED-OIGfA04-DOO15                             FINAL REPORT 	                            Page 5 of,} 



                           .. -- .   -_. . . 	                                            -       --   -­
(7) 	 Reviewed GAPS and U.S. Treasury reports \() detentJine if there were a significant amount
      of unexpended grant funds.

We requested detailed infOlmation from OCFO regarding unexpended funds by program. OCFO
officials infoilned US that the U.S. Treasury reports did not provide sub-program information like
Title I and Special Education GllUlts to States, but only provided infonnation at the major
program level. The OCFO officials stated that the new Oracle reports provide infOllllation at the
sub-program level; however, the infOimation was only available for grant award year 200 I and
afterwards. To detennine the amount of unexpended funds for the Title I, Special Education, and
Perkins IIUWIA fonnula grants for FY's 1998 through 2000, we compared the reported available
balances in GAPS to the total grant awards. We did not test the reliability of the GAPS data
during this audit. PIevious OIG audit worlc did not disclose any reportable matteIs regarding the
reliability of GAPS data (e.g., U.S. DepaItment of Education Financial Statement Audit).

Audit work was perfonned during the period September 2003 through January 2004. An exit
conference was held with OCFO officials on March 25, 2004. This audit was perfonned in
accordance with generally accepted government auditing standards appropriate to the scope of
the review described above.
.. _ - ---                   ----	         ~-   .--   ~   .-.   ---   _     .   --------        -    ..


                   STATEMENT ON MANAGEMENT CONTROLS 

---                          -   - -     ._----             ..        -   _.-   - --"   ---         ---­
                        .

As part of our review, we assessed the system of management controls, policies, and prncrices
applicable to OCFO, OSES, OSERS, and OVAE monitoring of grantees' compliance with
regulatory timeframes for the use of fOi mula grant funds. For the purposes of Ibis report, we
assessed and classified significant controls into the following categories: Identification of funds 

for which the Tydings Amendment timef.allle for the obligation of funds was about to lapse;
re-opelling closed gr ants to allow grantees to obligate unused fund balances; restoration of grant
balances and other adjustments in GAPS; and notifying grantees when grant award balances are
about to become unavailable as a result of the funds not being obligated and used within the
required timeflames.

Due t	o inherent limitations, an evaluation made for the limited purpose described above would
not necessarily disclose all material weaknesses in the management controls. Our overall
assessment disclosed a management control weakness in notitying grantees when grant award
balances are about to become unavailable as a result oflhe funds not being obligated and used
within the required timeframes. This weakness is discussed in the AUDIT RESULTS section of 

Uris 	report.
       -           --                  --- -    ----	                                               ...


                                   ADMINISTRATIVE MATTERS 

             ..   -	    --~            _ . _- -   ---             .



Corrective actions proposed (resolution phase) and implemented (closure phase) by your office 

will 	b e monitored and tracked through the Department's Audit AccoWltability and Resolution 

Tracking System (AARTS). ED policy requires that you develop a fmal conective action plan 




ED-OIGIA04-DOO15                                      FINAL REPORT 	                                Page 6 0(9 



                                                                                           •

(CAP) for our review in the automated system within 30 days of the issuance of this report. The
CAP should set forth the specific action items, and targeted completion dates, necessary to
implement final corrective actions on the finding/' and recommendations contained in this final
audit I eporL

In accordance with the Inspeclor General Act of 1978, as amended. the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

In accordance with the            ofInfOlUlation Act (5 U.S.c. §552), reports issued by the Office
of Inspector General are available to members of the press and general public to the extent
infolmation cont. ined therein is not subj eet 10 exemptions in the Act.

We appreciate the cooperation given us during this review. If you have any questions, please
call Regional Inspector General J. Wayne Bynum at 404-562-6477 or Assistant Regional
Inspeetor General Mary Allen at 404-562-6465.




cc:
Raymond J. Simon, Assistant Secretary, Office of Elementary and Secondary Education
Susan Sclafani, Assistant Secretary. Office of Vocational and Adult Education
Troy Justesen, Acting Assistant Secretary, Office of Special Education and Rehabilitative
   Services




ED-OlG/A04-DOO15                          FlNAL REPORT                                 Page 7 of9 


       _... 
                                    _._.

WRITIEN RESPONSE TO '1B.<: DRAFT REPORT 




                                                                                                                                              •



                                           tmITJ!:D STA1")!:S DEPARI"MElfT OF EDUCAltuN
                                                              WILE OF 1& CJfIEJ'" .f1lIl.__ 'IM. Of.lCEa

                                                                                                                          'DIK CHJJ:I' .PDrAlllCIAL O. FKKR


                                                                         JUl 12. 3Xl4
       .m:MORANDUM

       TO                                    Hel... Lcw
                                             Assistanl Ins".,t.,.. Gm>er:aI fOr Audit
                                                                             •
                              ,
       fROM                   •              JackMmin


       SUDJECf                ,
                              •              n...ft               Ikpon
                                             Mooitoring (if=t Award I ap"od Fumb
                                             Control Num"'.;r ED-OJGtAD4-DOO 1S

        I am pI.... ooIlO 1m" Ihc oppomm"y In =pond In tbc: draft ..,dit '",hlt wtitl r d "Moni""UI
        Ot W Award LapoctI Fuod. The Offi<:. of the: Cbi.rFin,nciaJ 0fIi= (OCFO) boo DO
                                                      M
                                                          _


        (;01 "'hc:nt OD    me obj:-.. tivca" "'Cope,.              findings in the: lttp--. L We coeg"r wich the
                                                                   jj   -.!Ih.:=;dology Of"
        t cpon~! sing)c- I aCo!IwDUJdal'iOJl that this office. !n canjunction with lhc::: A.. i... "t Sa::..... rei ia fw

        the Oftirn of Elementary and Srl ood l r)' Edut'iltioo (OESE); V-o;a' jooei mel Adult Education
        IOVAE); and Special EducOllOD ami Rehabilitati"" Serv> ..... (mtER S). develop ,prJ implement
        proccclwes and <OIllrOl. to give advo""" wami"ll to gnntees ~f JIIo,'1 award baJmcn lb.....
         ron to bo..onx umvailable because the funds bave nDl bet Ii obligated (by the IP ,n" @ ; ) within
        required timef.taJWJ

        In pippert of the I ccommcndat;on, this office is drafti.ng a mcmw +odum tOr the TXtI'my
        SICCfCWy':I! :sl1P'n-lllT'C W ,he. DeploJ'lmcnl'S A""";-sw:.l Scetel:m1.a. with s:ran:m-kina •• ru..,.--it)" that
        wiD:

            1.) Require, atlca.! ninety (90) days prior to the end ofthc n",dj~pcriod (e.g.• l)"b'",
                Period I. progr4m -stzLfb to ccmaa gafl(ec:5 wilb gnu:u accowns mil abow any balances
                that are aboulro bWJme una...-:ai iablr: because the funds ha\.'e not bu::n obligate'" within
                the Rqulrcd timcfi 8iUC$.. PI Gg1 am sraffmus.t docu.m.a1t any stich conlpct, in the o:ftkial
                  grant IiIe.

             2.) Require program staffs                        '0 le"iew grantee financial d... in GAPS at least """,'cdy. and 1<>
                  pm.id. t<Chnica1 ..sistmc.. who", appropriate, !<> assist lb. gwJIee in .... uipl)li1l8 with
                  c:fTeetivc: .=uiJ managc.mcnt 'Pr:aclicc., partie"; uiy ti mc:iy dn.wdowa of r\ii"'~IIo. All w"t'C....
                  mlld be: doa htiull..:d in the offici... 1grant tile.

            1.) Require p1<>g1 am 51af!' to lise: the GAPS Disbursemc:a! Ro-._ and !he Award Hi*l...- y
                  Rqrort u 1001, for fiSC31 mmururing.

             4.) 8..cquirc Ute Limdy clo! c ou[ ofgrants w.ilh pcrroflNlCtCC po I i.odl !h.n:I: have """pUoi




                0I&r oj" 3' t-,.   ... ~, 'IL"'" 7,,, IT • -7 7, , TIl    -, '                    • mrt. _~._""._m' ~
                                                                                 TiFF o?IftI!!IlO ......            _               -,......_ Yl1IV8:l1kIn.
                                                                                                                        ..•....-~7 u~_




ED-OIGJA04-DOOlS                                                            FINAL REPORT                                                                      Page8of9 

WRlTfEN RESPONSE TO 'I'Hl;: DRAFT REPORT 





                                          tim .... "'" _ng for ,be DepUly Secn:tay'. lipll>le. on
      Jun~ 24. 2004. I '11u.cd lO the ChlefS'atc SclIool        orne,,,.
                                                                    metjAaMlUU 'M DOCitylhe en of
      Firat Year lOO2 IDI.CXPClw1cd ba1entes thaL will DO longer be.avmleble for obliptioa .r.. ­
      5............' 3~ 2004 and to let them know rhl1 DepwCuu:ot llfOl5IiUii officas wiU '" iih"lCt "'an
      ~ I\md. that m~y !:Vert to T...·""Y on O<:loba 1,2004.

      OCFO i. cOlmllitted to working witb I"" Asrutant ~ .. for Elementary omcI!t, CODlb')'
      l:d"c_ir:n: VOf:ltiQ"lal aad Adult F'dtlC?tioDj and Special Edue,tjOQ aad Rllbahilitative Scrvica
      10 .'H"n;:""t..u ~ ~y S~ an: mld, awarcof IIDII have die OW'*h'nity to catc
                              10 obIiple ..... ""'IlJUII·                                          In RIIKlI*




                      nmds

      OUl" pt... for the m    hiD Ai w;fum   to   he hsnt 1 "y 1hc Deputy 5e L rellir'y" my lena to a.; rrS"'e
      Sc;tQOl Qf60 bol" and
                                                                                                   , •   • I   •   ,




       IrYOIl hue Ill)' qurstioJ-u ,cgwdina this h '9O"se, plee:sc: feel Uec So OO'll"ct          . RorIri....ul
      202·245-6121.


      ce:     RaYlDond SUI ..... A..;""nt Sex'''•• 'Y, OESE
              Sa"n Sc1afmi., A"ie',nt SeL1t'·ry. OVAE
              TlIlY JQItcR:n, Ed n" Acting ,. mltant Sene.,. OSERS




ED-OIGlA04-DOOI5                                         FlNAL REPORT