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
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)