oversight

Puerto Rico Department of Education's Administration of Title I Services Provided to Private School Students

Published by the Department of Education, Office of Inspector General on 2008-10-09.

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

  Puerto Rico Department of Education’s Administration of
     Title I Services Provided to Private School Students




                              FINAL AUDIT REPORT




                                        ED-OIG/A04H0017
                                          October 2008




Our mission is to promote the efficiency,                 U.S. Department of Education
effectiveness, and integrity of the Department’s          Office of Inspector General
programs and operations.
                               NOTICE


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

 In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports
issued by the Office of Inspector General are available to members of the press
 and general public to the extent information contained therein is not subject to
                             exemptions in the Act.
                                 UNITED STATES DEPARTMENT OF EDUCATION
                                                       OFFICE OF INSPECTOR GENERAL

                                                                                                                           Audit Services
                                                                                                                              Region IV

                                                                 October 9, 2008
                                                                                                                Control Number
                                                                                                              ED-OIG/A04H0017

Honorable Rafael Aragunde-Torres
Secretary
Puerto Rico Department of Education
P.O. Box 190759
San Juan, Puerto Rico 00919-0759

Dear Secretary Aragunde-Torres:

Enclosed is our final audit report, Control Number ED-OIG/A04H0017, entitled Puerto Rico
Department of Education’s Administration of Title I Services Provided to Private School
Students. This report incorporates the comments you provided in response to the draft report. If
you have any additional comments or information that you believe may have a bearing on the
resolution of this audit, you should send them directly to the following Education Department
official, who will consider them before taking final Departmental action on this audit.

                                           Kerri L. Briggs
                                           Assistant Secretary
                                           Office of Elementary and Secondary Education
                                           U.S. Department of Education
                                           400 Maryland Avenue, SW
                                           Washington, D.C. 20202

It is the policy of the U. S. Department of Education to expedite the resolution of audits by
initiating timely action on the findings and recommendations contained therein. Therefore,
receipt of your comments within 30 days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.

                                                                 Sincerely,

                                                                 /s/

                                                                 Denise M. Wempe
                                                                 Regional Inspector General for Audit
Enclosures
 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
                                              TABLE OF CONTENTS


                                                                                                                                Page


EXECUTIVE SUMMARY ...........................................................................................................1

BACKGROUND ............................................................................................................................3

AUDIT RESULTS .........................................................................................................................4

          FINDING NO. 1 – Inadequate Monitoring of Title I Contracts...................................4

          FINDING NO. 2 – Improper Allocation of Title I Funds for Parental
                          Involvement Activities for Parents of Participating
                          Private School Students..................................................................12

          FINDING NO. 3 – Unrecorded Title I Property and Equipment...............................14

          FINDING NO. 4 – Inconsistent Consultations with Private School
                          Officials Prior to Providing Title I Services .................................17

OBJECTIVE, SCOPE, AND METHODOLOGY ....................................................................20


ENCLOSURE 1                            Summary of Costs Billed by COSEY Under Administrative
                                       Expenses Not Adequately Supported

ENCLOSURE 2                            Puerto Rico Department of Education's Response to Draft Audit
                                       Report
Puerto Rico Department of Education’s
Administration of Title I Services                                               Final Audit Report
Provided to Private School Students                                             ED-OIG/A04H0017


                                     EXECUTIVE SUMMARY


The objective of the audit was to determine if the Puerto Rico Department of Education (PRDE)
administered Title I services provided to private school students, their teachers, and their parents
through contracts awarded to NETS, 1 Braxton, 2 and COSEY, 3 in compliance with Title I
requirements. Specifically, we determined if PRDE 1) monitored the contractors for compliance;
2) ensured that the costs claimed by the contractors were allowable and followed contract
requirements; 3) properly allocated Title I funds for services to eligible private school students;
4) properly accounted for Title I funds used to purchase property and equipment; and 5)
consulted with private school officials to determine the needs of eligible children and the
services to be provided.

We found that PRDE did not adequately administer Title I services provided to private school
students, their teachers, and their parents through contracts awarded to NETS, Braxton, and
COSEY during the 2006-2007 award year in compliance with Title I requirements. Specifically,
PRDE 1) did not properly monitor the contractors for compliance before paying them
$17,998,543 and, as a result, paid at least $365,089 in costs that were not supported with
adequate and reliable documentation, $16,800 in excessive charges, and $892 in unallowable
costs; 2) allocated $430,897 in Title I funds for services to parents of participating private school
students in excess of the entitlement for parental involvement; 3) did not account for $8,036 in
Title I property and equipment purchased by the contractors during the 2006-2007 award year;
and 4) did not consistently consult with private school officials prior to providing services.

We recommend that the Assistant Secretary for Elementary and Secondary Education (OESE)
require PRDE to—

ƒ   Review the contractors’ supporting documentation to ensure compliance with Title I
    requirements for payments made without proper contract monitoring, including the $365,089
    identified in Finding No. 1 as not supported with adequate and reliable documentation; and
    return to the U.S. Department of Education (Department) all unallowable costs paid;

ƒ   Return to the Department the $16,800 in excessive charges and $892 in unallowable costs
    paid;

ƒ   Ensure that proper supporting documentation and reports submitted by contractors are
    reviewed prior to making payments to ascertain that the services reported were actually
    provided and funds were used in compliance with contract deliverables and Title I
    regulations; and develop adequate internal controls and assign the staff necessary to properly
    monitor the contractors;



1
  National Educational and Technological Services, Inc.
2
  Braxton School of Puerto Rico, Inc.
3
  Corporación de Servicios Educativos de Yabucoa.
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Puerto Rico Department of Education’s
Administration of Title I Services                                                          Final Audit Report
Provided to Private School Students                                                        ED-OIG/A04H0017
ƒ   Return to the Department the $430,897 in Title I funds allocated for services to parents of
    participating private school students in excess of the entitlement for parental involvement
    activities for the 2006-2007 award year; re-calculate the amount of Title I funds that should
    have been properly allocated for all years back to 2001, and return to the Department the
    amount allocated for parental involvement for parents of participating private school students
    in excess of the entitlement during those years; and implement adequate internal controls and
    develop standard written procedures to ensure that future parental involvement allocations
    for parents of both public and private school students are made in compliance with Title I
    requirements;

ƒ   Implement adequate internal controls to ensure proper review, receipt, and recording of
    property and equipment purchased with Title I funds; and

ƒ   Implement adequate internal controls and develop standard written procedures to ensure that
    the consultation process with private school officials is consistent and includes all the issues
    required by the Title I regulations prior to providing services.

In its response to the draft audit report, PRDE did not concur with our findings and
recommendations and requested that the findings be reconsidered, revised, and that the
recommendations for repayment be withdrawn before the issuance of a final audit report. PRDE
submitted additional supporting documentation to account for $202,103 of the expenditures
questioned in Finding No. 1 of the draft audit report. 4 Prior to responding to the draft, PRDE
acknowledged that the additional documentation in support of the $202,103 was not available for
our review during the audit.

We considered PRDE’s response and, based on our review of the additional documentation,
revised 5 Finding No. 1 and Recommendations 1.1 and 1.2. However, the reduction to the
unsupported payments did not substantially change our finding or recommendations. PRDE
lacked adequate internal controls and the necessary staff to properly monitor the contractors and
did not properly review the contractors’ supporting documentation before paying them
$17,998,543. As a result, PRDE made payments without ensuring that services were rendered
and funds were used in compliance with Title I requirements and contract deliverables. PRDE
did not provide any additional information that would warrant a change to Finding No. 2;
Finding No. 3; Finding No. 4, or any of their related recommendations.

PRDE’s comments and our responses to the comments are summarized at the end of each
finding. The full text of PRDE’s response is included as Enclosure 2. Copies of the attachments
that were included with the response are available upon request.




4
  The expenditures originally questioned as unallowable and inadequately documented in Finding No. 1 of the draft
audit report totaled $584,884.
5
  The additional documentation provided by PRDE supported $202,103 of the $584,884 questioned in Finding No. 1
of the draft audit report. As a result, we reduced the amounts in our finding and the related recommendations,
accordingly. In reviewing the documentation, we also identified $16,800 in excessive charges that we had originally
questioned as inadequately supported.
                                                     2 of 24
Puerto Rico Department of Education’s
Administration of Title I Services                                                          Final Audit Report
Provided to Private School Students                                                        ED-OIG/A04H0017


                                             BACKGROUND


Section 1120 of Title I, Part A of the Elementary and Secondary Education Act of 1965 (ESEA),
as amended by the No Child Left Behind Act of 2001, requires a participating Local Educational
Agency (LEA) to provide eligible children attending private elementary and secondary schools,
their teachers, and their parents with Title I services or other benefits that are equitable to those
provided to eligible public school children, their teachers, and their parents. The Title I services
provided by the LEA for private school participants are designed to meet their educational needs
and supplement the educational services provided by the private school. The Title I regulations
allow the LEAs to contract with third parties to provide the services.

During the 2006-2007 award year, 6 PRDE awarded $27,448,528 in professional services
contracts to NETS, Braxton, and COSEY to provide Title I services to eligible private school
children, their teachers, and their parents throughout the ten school regions that comprised the
public school system of Puerto Rico − $5,932,079 to NETS, $13,693,725 to Braxton, and
$7,822,724 to COSEY. NETS was contracted to provide services to students in 51 private
schools from three school regions, Braxton to students in 133 private schools from three other
school regions, and COSEY to students in 77 private schools from the remaining four school
regions. 7

According to the terms of the contracts, each contractor was required to provide a Title I
program to private school children in the three core subjects – English, Spanish, and
mathematics, based on the educational needs of the students selected to participate in the
program. The services contracted included, but were not limited to (1) determining and
coordinating the educational needs of the students by staff certified to provide instruction; (2)
providing instruction in reading and language skills in the three core subjects; (3) providing
computer-assisted instruction; and (4) providing equitable participation to parents and teachers of
private school participants in parental involvement and professional development activities.




6
 The contract period covered from November 1, 2006, through June 30, 2007.
7
 According to the Department’s Office of the General Counsel, the three contracts were fixed-fee contracts for
services.
                                                     3 of 24
Puerto Rico Department of Education’s
Administration of Title I Services                                                             Final Audit Report
Provided to Private School Students                                                           ED-OIG/A04H0017


                                              AUDIT RESULTS


PRDE did not adequately administer Title I services provided to private school students, their
teachers, and their parents through contracts awarded to NETS, Braxton, and COSEY during the
2006-2007 award year in compliance with Title I requirements. Specifically, PRDE 1) did not
properly monitor the contractors for compliance before paying them $17,998,543 and, as a result,
paid at least $365,089 in costs that were not supported with adequate and reliable documentation,
$16,800 in excessive charges, and $892 in unallowable costs; 2) allocated $430,897 in Title I
funds for services to parents of participating private school students in excess of the entitlement
for parental involvement activities; 3) did not account for $8,036 in Title I property and
equipment purchased by the contractors during the 2006-2007 award year; and 4) did not
consistently consult with private school officials prior to providing services.


FINDING NO. 1 – Inadequate Monitoring of Title I Contracts

PRDE lacked adequate internal controls and the necessary staff to properly monitor the three
contractors that provided Title I services to private school students during the 2006-2007 award
year. In addition, PRDE did not properly review the contractors’ supporting documentation prior
to making payments totaling $17,998,543 − $4,402,543 to NETS, $8,807,198 to Braxton, and
$4,788,802 to COSEY. As a result, PRDE paid COSEY $365,089 in costs that were not
supported with adequate and reliable documentation, $16,800 in excessive charges, and $892 in
unallowable costs.

According to 34 C.F.R. § 76.702, a State and a subgrantee shall use fiscal control and fund
accounting procedures that insure proper disbursement of and accounting for Federal funds.8

Pursuant to 34 CFR § 80.40, grantees must monitor grant and subgrant activities to ensure
compliance with applicable Federal requirements.

According to OMB Circular A-87, Attachment A, Paragraph C.1, to be allowable under Federal
awards, costs must be, among other things, necessary and reasonable for proper and efficient
performance and administration of Federal awards, and adequately documented. 9

Under the terms of the contracts, the contractors were required to submit monthly invoices
accompanied with monthly and bi-monthly status reports describing the tasks and activities they
performed during the contract period. PRDE did not provide evidence showing that it reviewed
the reports to ensure that the services were actually provided. In addition, PRDE’s monitoring
activities did not include routine site visits to the participating private schools and activities
offered by the contractors. PRDE’s Monitoring Unit provided evidence of only two monitoring
visits made during the contract period – one parental involvement activity held by NETS and one
by Braxton. Also, PRDE provided evidence of only three meetings held with the contractors
8
    CFR citations in this report are from the July 1, 2005 edition.
9
    OMB Circular A-87 citations in this report are from the revised version of May 10, 2004, effective June 9, 2004.
                                                        4 of 24
Puerto Rico Department of Education’s
Administration of Title I Services                                                     Final Audit Report
Provided to Private School Students                                                   ED-OIG/A04H0017
during the contract period. 10 In general, the issues discussed during the three meetings held
served as orientation and technical assistance to the contractors mainly for the Title I services to
be provided during the 2007-2008 award year.

The contract terms did not require the contractors to submit to PRDE specific source
documentation supporting the costs claimed, such as cancelled checks, paid bills, detailed
payrolls, and time and attendance records. However, they were required to maintain
documentation that showed how the contract funds were used. The contractors were also
required to bill PRDE under four expense categories − 1) Administrative, 2) Parental
Involvement, 3) Professional Development, and 4) Instructional Services. PRDE agreed to pay
the contractors for the allowable costs incurred, up to a maximum amount established per
expense category.

Since PRDE did not require the contractors to submit specific source documentation with their
invoices, in general, the supporting documentation we found consisted of an itemization of the
costs incurred under each of the four expense categories identified in the contracts. They also
included tables identifying the expense code and description, the check number of the payments
made to third parties, the third parties’ names, and the amount of the checks. For salaries and
fringe benefits, the contractors submitted payroll summaries in table format identifying the
expense category, an employee identification number and/or employee name, the payroll period,
date of payment, payment type (regular, sick, vacation), amount of hours worked, gross salary
deductions, employers’ contributions, and the net amount paid. However, the documentation did
not specify the employees’ positions, or the schools or offices where the employees worked. The
only exception was COSEY, which, in addition to the breakdown of expenses, payroll
summaries, and tables, submitted source documentation for $1,472,625 in costs billed under the
Administrative expense category.

We reviewed all 24 invoices submitted by the three contractors to PRDE for services rendered
during the period of November 2006 through June 2007, totaling $17,998,543 11 – NETS
submitted eight invoices totaling $4,402,543, Braxton eight totaling $8,807,198, and COSEY
eight totaling $4,788,802. We found that PRDE’s review of the costs claimed was restricted to
verifying that the contractors correctly charged the expenses according to the four expense
categories identified in their contracts. In addition, PRDE did not monitor the contractors
sufficiently to ensure that services were rendered and funds were used in compliance with Title I
requirements and contract deliverables before paying the $17,998,543 invoiced by the three
contractors.

We also reviewed the source documentation submitted by COSEY for the $1,472,625 in costs
billed under the Administrative expense category and found that PRDE paid $365,089 in costs
that were not supported with adequate and reliable documentation, $16,800 in excessive charges,
and $892 in unallowable costs.



10
  The evidence consisted of minutes of the issues discussed during the meetings.
11
  Of the $27,448,528 PRDE awarded to the three contractors, they invoiced $17,998,543. According to PRDE
officials, Title I funds that are not used by the contractors are carried over to the next award year.
                                                  5 of 24
Puerto Rico Department of Education’s
Administration of Title I Services                                                            Final Audit Report
Provided to Private School Students                                                          ED-OIG/A04H0017
Table 1.1 summarizes the amounts invoiced by the three contractors and the questioned costs
found.

Table 1.1                                   Summary of Questioned Costs

                                                                          Questioned Costs
                                                                                                         Total
                                                                                                      Questioned
                                                    Costs                                                Costs
                                                     Not                                               Based on
                 Amount           Amount          Adequately       Excessive       Unallowable       Documentation
 Contractor     Contracted     Invoiced/Paid      Supported         Charges           Costs            Reviewed
 NETS            $5,932,079       $4,402,543     Undetermined     Undetermined     Undetermined                 $0
 Braxton        $13,693,725       $8,807,198     Undetermined     Undetermined     Undetermined                 $0
 COSEY           $7,822,724       $4,788,802         $365,089          $16,800             $892           $382,781
    Total       $27,448,528      $17,998,543         $365,089          $16,800             $892           $382,781


NETS submitted to PRDE eight invoices totaling $4,402,543. PRDE did not monitor NETS
sufficiently and did not properly review the contractor’s supporting documentation to ensure that
services were rendered and funds were used in compliance with Title I requirements and contract
deliverables before making the payments.

Braxton submitted to PRDE eight invoices totaling $8,807,198. PRDE did not monitor the
contractor sufficiently and did not properly review the contractor’s supporting documentation to
ensure that services were rendered and funds were used in compliance with Title I requirements
and contract deliverables before making the payments. From the invoices we reviewed, we
found that, of the $8,807,198 invoiced, Braxton billed PRDE $40,074 for the purchase of trailers
without providing PRDE recommendations, specifications, and price quotes prior to purchase.12
According to the contract terms, PRDE authorized the contractors to purchase, lease, and refurbish
real and personal property (including, but not limited to, mobile educational units and leasing of
neutral sites or spaces), insurance and maintenance costs, transportation, and other comparable goods
and services. However, the contractors were required to present to PRDE their recommendations,
specifications, and prices of the property prior to purchase. Although PRDE officials stated that
they orally authorized Braxton to purchase the trailers, PRDE did not require Braxton to submit
the required documentation prior to purchase. Therefore, PRDE did not enforce the contract
terms.

COSEY submitted to PRDE eight invoices totaling $4,788,802. PRDE did not monitor the
contractor sufficiently and did not properly review the contractor’s supporting documentation to
ensure that services were rendered and funds were used in compliance with Title I requirements
and contract deliverables before making the payments. However, we found that COSEY
submitted specific source documentation for the $1,472,625 in costs billed under the
Administrative expense category. As a result, we were able to determine the adequacy and
reliability of the documentation for charges against that expense category. We reviewed the
source documentation and found that COSEY did not provide adequate and reliable
12
  Of the total $40,074 in costs billed by Braxton for the purchase of trailers, $20,037 pertained to the January 2007
invoice, and $20,037 to the April 2007 invoice.
                                                       6 of 24
Puerto Rico Department of Education’s
Administration of Title I Services                                                          Final Audit Report
Provided to Private School Students                                                        ED-OIG/A04H0017
documentation for $365,089billed under that category – $31,597 in non-personnel costs and
$333,492 in salaries. The source documentation supporting the $31,597 in non-personnel costs
was not adequate or sufficient to determine if the invoiced costs were allowable. The $333,492
in salaries was not supported with adequate and reliable documentation because, although
COSEY submitted payroll summaries and copies of the checks issued, the documentation did not
specify the employees’ positions, or the schools or offices where the employees worked.
Enclosure 1 shows a summary of the costs COSEY billed under the Administrative expense
category that were not adequately supported.

COSEY billed a total of $350,292 in salaries under the Administrative expense category that
were not supported with adequate and reliable documentation. In its response to the draft audit
report, PRDE provided additional documentation for the salaries. Our review of the additional
information identified excessive charges of $16,800 billed by COSEY for three management
positions. According to COSEY’S proposal, which was incorporated in the contract, COSEY
would pay $42,000 to the Executive Director, $31,800 to the Auxiliary Executive Director, and
$31,800 to the Administrative Director. However, COSEY billed PRDE $48,000 for the
Executive Director, $37,200 for the Auxiliary Executive Director, and $37,200 for the
Administrative Director, resulting in excessive charges of $6,000, $5,400, and $5,400,
respectively. The excessive payments could have been used for providing additional Title I
services to eligible students.

We also found that COSEY billed PRDE $892 in unallowable costs under the Administrative
expense category. The unallowable costs consisted of (1) a charge of $342 for a late insurance
payment, 13 and (2) $550 billed for recording a video of an activity provided to Title I teachers. 14

In addition, we found that COSEY billed $5,136 for the purchase of a trailer for which PRDE did
not provide authorization, as required by the contract terms. 15 According to PRDE officials,
COSEY did not request authorization to purchase the trailers; and they did not notice that
COSEY billed for the unauthorized purchase, since it was billed under the “Equipment Repairs”
account instead of the “Acquisition of Trailers” account. PRDE was unaware of the trailer
purchase until it was identified in our audit. According to PRDE’s response to the draft audit
report, it cancelled the purchase and COSEY returned the money. COSEY also billed for $1,466
in costs that were incurred outside the contract period, consisting of (1) $1,166 billed for rental
car costs (rent paid from October 6, 2006, through November 7, 2006, although the contract was
awarded on November 1, 2007); and (2) $300 billed for a month’s rent of a trailer, incurred in
October 2006. 16 Failure to identify unauthorized purchases under contract requirements, and
costs claimed that were incurred outside the contract period placed Title I funds at risk of abuse
and misuse.

13
   The unallowable cost billed for the late insurance payment ($342) was billed in the November 2006 invoice. The
late insurance payment was considered unallowable under OMB Circular A-87, Attachment B, Number 5, which
states that bad debts, including losses arising from uncollectible accounts and other claims, are unallowable.
14
   The unallowable cost billed for video services ($550) was billed in the June 2007 invoice. It was considered
unallowable under OMB Circular A-87, Attachment A, Paragraph C.1, because the expense was not necessary for
the proper and efficient performance and administration of Title I funds.
15
   The unauthorized trailer purchase ($5,136) was billed in the June 2007 invoice.
16
   The rental car costs ($1,166) incurred outside the contract period was billed in the November 2006 invoice. The
trailer rental costs ($300) incurred outside the contract period was billed in the June, 2007 invoice.
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Puerto Rico Department of Education’s
Administration of Title I Services                                              Final Audit Report
Provided to Private School Students                                            ED-OIG/A04H0017
The lack of proper monitoring of the Title I services provided by the contractors to private school
students during the 2006-2007 award year precluded PRDE from identifying: (1) costs claimed
by the contractors that were not adequately documented; (2) excessive charges billed; (3) costs
claimed by the contractors that were not allowable uses of Title I funds; (4) unauthorized
purchases; and (5) costs claimed that were incurred outside the contract period. The lack of
proper monitoring may have affected PRDE’s ability to fully and effectively comply with Title I
program requirements. Specifically, PRDE could not ensure that participating private school
children, their teachers, and their parents received the full level of services contracted, and that
Title I funds were used for their intended purposes.

Recommendations:

We recommend that the Assistant Secretary for OESE require PRDE to—

1.1    Review the contractors’ supporting documentation to ensure compliance with Title I
       requirements for payments made without proper contract monitoring, including the
       $365,089 identified in the finding as not supported with adequate and reliable
       documentation, and return to the Department all unallowable costs paid;

1.2    Return to the Department the $16,800 in excessive charges and $892 in unallowable costs
       paid;

1.3    Ensure that proper supporting documentation and reports submitted by contractors are
       reviewed prior to making payments to ascertain that the services reported were actually
       provided and funds were used in compliance with contract deliverables and Title I
       regulations; and

1.4    Develop adequate internal controls and assign the staff necessary to properly monitor the
       contractors.

PRDE’s Comments

In its response to the draft audit report, PRDE did not concur with our findings and
recommendations and requested that the findings be reconsidered, revised, and that the
recommendations for repayment be withdrawn before the issuance of a final audit report. PRDE
contended that the audit failed to review the voluminous documentation that supported the Title I
expenditures at issue and failed to analyze harm to the Federal interest, as required, in making
findings. PRDE also disagreed with Recommendation 1.1 to review the contractors’ supporting
documentation for the payments made without monitoring to ensure compliance with Title I
requirements. It contended that we based our recommendation on a perceived lack of adequate
and reliable documentation. PRDE also stated that with the additional documentation it provided
in its response, it had proved that it had adequate, reliable documents for its contractors, and
therefore, it would be unnecessary and unduly burdensome for PRDE to review all $17,998,543
in payments made to NETS, Braxton and COSEY for the 2006-2007 award year.

Summarized in the following pages are PRDE’s comments regarding specific costs questioned in
the draft audit report.
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Puerto Rico Department of Education’s
Administration of Title I Services                                                       Final Audit Report
Provided to Private School Students                                                     ED-OIG/A04H0017


Inadequately Documented Non-Personnel Costs Charged by COSEY in the Administrative
Expense Category
PRDE submitted additional documentation in its response for $31,597 in non-personnel costs
paid to COSEY that were not adequately documented. It also included a brief explanation on
how the funds were used for the specific costs questioned, and concluded that the documents
submitted in its response demonstrated that PRDE adequately documented the expenses in
accordance with the cost principles in OMB Circular A-87.

Inadequately Documented Salaries Charged by COSEY in the Administrative Expense Category
According to PRDE, the documentation provided in its response provided evidence of the
employees’ positions and the facilities in which they worked, and demonstrated that PRDE
adequately documented these expenses in accordance with the cost principles in OMB Circular
A-87. In addition, PRDE stated that the documents also demonstrated that PRDE’s Title I
program received a benefit from this expenditure, and therefore, the salary costs were allowable.

Unallowable Costs Charged by COSEY in the Administrative Expense Category
PRDE did not provide documentation or specific comments in its response related to the $342 in
unallowable late payment insurance costs charged by COSEY. Regarding the $550 in
unallowable costs billed by COSEY for recording a video, PRDE stated that the purpose of these
costs was to use the videotaping as a means to foster professional development, and therefore,
the Title I program received a demonstrable benefit as a result of these expenditures.

Unauthorized Trailer Purchase
PRDE stated in its response that the purchase of a trailer in the amount of $5,136 was cancelled
and the money was returned by COSEY to PRDE.

Costs Incurred Outside the Contract Period
According to PRDE’s comments, the purpose of the $1,166 billed for rental car costs incurred by
COSEY outside the contract period was to pay for the rental car that COSEY primarily used to
deliver equipment and materials to various colleges, correspondence, and reports to the Office of
Federal Affairs (OFA) under a prior contract that was extended until October 2006. PRDE also
stated that the Title I program received a demonstrable benefit as a result of these expenditures.
PRDE did not provide documentation or specific comments in its response related to the $300
billed for a month’s rent of a trailer incurred in October 2006.

OIG’s Response

We considered PRDE’s response and, based on our review of the additional documentation,
revised 17 Finding No. 1 and Recommendations 1.1 and 1.2. However, the reduction to the

17
  The additional documentation provided by PRDE supported $202,103 of the $584,884 questioned in Finding No.
1 of the draft audit report. As a result, we reduced the amount in our finding and the related recommendations,
accordingly. In reviewing the documentation, we also identified $16,800 in excessive charges that had been
originally questioned as inadequately supported.
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Puerto Rico Department of Education’s
Administration of Title I Services                                              Final Audit Report
Provided to Private School Students                                            ED-OIG/A04H0017
unsupported payments did not substantially change our finding or recommendations. PRDE
lacked adequate internal controls and the necessary staff to properly monitor the contractors and
did not properly review the contractors’ supporting documentation before paying them
$17,998,543. As a result, PRDE made payments without ensuring that services were rendered
and funds were used in compliance with Title I requirements and contract deliverables. Our
findings are not based on a perceived lack of adequate and reliable documentation, but on the
issues identified in our review regarding PRDE’s lack of monitoring and review of adequate
supporting documentation before paying contractors’ invoices.

Prior to responding to the draft, PRDE acknowledged that the additional documentation provided
in support of payments was not available for our review during the audit. The additional
documentation was requested by PRDE from the contractors in order to respond to the draft
report. However, after considering all the additional supporting documentation PRDE provided
in its response, we revised Finding No. 1 and Recommendations 1.1 and 1.2. PRDE provided
support for $202,103 of the $584,884 in expenditures questioned as unallowable and
inadequately documented in the draft audit report. The additional supporting documentation
consisted of (1) $153,327 in non-personnel costs billed by COSEY that were questioned as
inadequately documented; (2) $8,702 in costs billed by COSEY that were questioned as
unallowable, and (3) $40,074 in costs billed by Braxton that were questioned as unallowable.
Our revision of the documentation also led to the addition in Finding No. 1 of $16,800 in
excessive charges that had been originally questioned as inadequately supported.

In addition, the documentation submitted by PRDE in its response was generally in support of
the questioned costs related to costs billed by COSEY under the Administrative expense
category. However, our finding involves all the costs claimed by the three contractors. Below is
an explanation of the costs that were questioned in the draft audit report for which PRDE
provided additional documentation in its response, but remained questioned in the final audit
report.

Inadequately Documented Non-Personnel Costs Charged by COSEY in the Administrative
Expense Category
We reviewed the documentation submitted by PRDE in its response concurrently with the
documentation already provided during the course of the audit and determined that PRDE did not
provide sufficient documentation in its response to determine that the $31,597 in non-personnel
costs paid to COSEY were allowable.

Inadequately Documented Salaries Charged by COSEY in the Administrative Expense Category
PRDE provided additional documentation in its response consisting of employee contracts and
attendance sheets, a list of all teachers contracted by school, and payroll records that showed the
names of the employees, their identification number, and amounts paid, with each employee
divided by category – Management, Administration, and Instructional, and all other employees
by educational region served. However, PRDE did not submit supporting documentation or
payroll records for the salary costs billed that consolidated this information, clearly showing the



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amounts billed by employee, the employee positions, and the schools where each employee
worked. This information is necessary to determine if COSEY correctly billed PRDE for the
employee positions and related contracted salaries, and to properly monitor the level of services
provided and billed by the contractor.

The payroll records submitted by PRDE in its response identified only the positions of three
management staff− the Auxiliary Executive Director, the Administrative Director, and the
Executive Director of the project. We used that information to determine if COSEY correctly
billed PRDE for the employee positions and related contracted salaries. As stated in the finding,
we determined that of the $350,292 billed by COSEY in salaries, it billed PRDE $16,800 in
excessive charges related to the salaries of the three management positions. Without the
information of these employee positions, we could not have made such a determination. Since
the payroll records submitted by COSEY as supporting documentation for the invoices did not
include this information, PRDE could not determine if the $350,292 in salaries billed by COSEY
were allowable.

In addition, the payroll records submitted by PRDE in its response were insufficient to determine
if the remaining $333,492 in salaries billed by COSEY were allowable. As a result, we maintain
that $333,492 billed by COSEY in salaries was not supported with adequate and reliable
documentation; and we added the $16,800 in excessive charges paid to Finding 1 and
Recommendation 1.2 of the final audit report.

Unallowable Costs Charged by COSEY in the Administrative Expense Category
PRDE provided additional supporting documentation in its response to properly account for the
$40,074 paid to Braxton and $8,702 of the $9,594 paid to COSEY. We revised our finding and
recommendations as a result of the additional support. However, the remaining $842 of the
$9,594 remained questioned as unallowable. Specifically,
    • PRDE did not provide documentation or specific comments in its response showing that
       the $342 in late payment insurance costs charged by COSEY was allowable.
    • PRDE did not provide additional documentation evidencing that the $550 billed by
       COSEY for recording a video of an activity provided to Title I teachers was allowable.
       According to PRDE’s response, COSEY used the $550 for recording the Achievement
       Day of the San German Region, which showcased the efforts and achievements of
       schools in accordance with Title I objectives. However, PRDE did not provide evidence
       showing how the videotape was used for the professional development of the Title I
       teachers, or provide evidence that the expense was necessary for the proper and efficient
       performance and administration of Title I funds.

Without any evidence to the contrary, these expenditures are unallowable.

Unauthorized Trailer Purchase
We questioned COSEY’s purchase of a trailer in the amount of $5,136 as unallowable in the
draft audit report. PRDE provided documentation in its response showing that it cancelled this
purchase and that COSEY returned the money. As a result, we revised our finding and
recommendation, accordingly. However, PRDE’s failure to identify this unauthorized purchase

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shows a weakness in PRDE’s internal controls and lack of proper monitoring of the contractor
that could have placed Title I funds at risk of abuse and misuse.

Costs Incurred Outside the Contract period
We questioned $1,166 billed for rental car costs and $300 billed for a month’s rent of a trailer
incurred by COSEY outside the contract period as unallowable in the draft audit report. PRDE
provided documentation in its response that showed that the expenses were incurred by COSEY
during the 2005-2006 contract period, which had just expired. However, PRDE should have
paid the contractor for services rendered under the correct contract period to ensure that grant
funds were used only for expenses that were allocable and allowable under the particular grant
and contract agreement. As a result, we did not question these expenses as unallowable, but as
expenses incurred outside the contract period.

FINDING NO. 2 – Improper Allocation of Title I Funds for Parental Involvement
                Activities for Parents of Participating Private School Students

PRDE lacked adequate internal controls and did not have standard written procedures in place to
ensure that it allocated Title I funds for parental involvement activities for parents of
participating public and private school students in compliance with Title I requirements. As a
result, PRDE improperly allocated $430,897 in Title I funds for services to parents of
participating private school students in excess of the entitlement for parental involvement
activities for the 2006-2007 award year. This prevented the parents of 38,729 children 18 in
public schools from receiving Title I services during that award year.

Pursuant to 34 CFR § 200.64(a)(2)(i)(B), the amount of funds available to provide equitable
services from the applicable reserved funds must be proportionate to the number of private
school children from low-income families residing in participating public school attendance
areas.

For the 2006-2007 award year, PRDE allocated $5,271,000 in Title I funds for parental
involvement activities – $783,000 for parents of participating private school students and
$4,488,000 for parents of participating public school students. PRDE based the allocation on a
cost per school of $3,000, 19 instead of an amount proportionate to the number of private school
students from low-income families residing in participating public school attendance areas, as
required by the regulations. According to PRDE officials, the incorrect method of allocation
dated back to 2001, when a former Director of the OFA decided to assign an equal amount of
Title I funds to both public and private schools for parental involvement activities by establishing
a cost per school of $3,000.

After that year, they continued to use the same cost per school to make the allocation of parental
involvement activities for parents in both private and public schools. Table 2.1 shows the correct
allocation PRDE should have made for services to parents of participating private school

18
   The equivalent public school students who could have been served by the amount excessively allocated for private
school parents, as shown in Table 2.2.
19
   261 private schools at $3,000 per school; and 1,496 public schools at $3,000 per school
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students for parental involvement activities for the 2006-2007 award year compared to the actual
allocation made.

Table 2.1                     Title I Allocation for Parental Involvement Activities
     A               B              C                D                  E                 F                   G

  Amount          Number        Number of     Proportion of           Correct       Actual Parental         Excess
Reserved for         of         Students in    Students in           Parental        Involvement         Allocated for
  Parental       Students         Private        Private           Involvement      Allocation for        Parents of
Involvement      in Public       Schools      Schools Under       Allocation for      Parents of            Private
 [Public &       & Private        Under       Poverty Level         Parents of      Private School          School
   Private        Schools        Poverty                          Private School       Students            Students
  Schools]         Under           Level                             Students
                  Poverty
                   Level
                                                   (C / B)            (A x D)       (261 x $3,000)         (F– E)
$5,271,000        473,773         31,660            .0668            $352,103         $783,000            $430,897


The excess allocation of $430,897 for parents of participating private school students for parental
involvement activities reduced the amount of funds that public school parents were entitled to
receive for such activities. As a result, the parents of 38,729 students from public schools did not
benefit from the Title I program during the 2006-2007 award year, as detailed in Table 2.2.

Table 2.2
    A               B                   C                    D              E                 F                   G

 Number          Amount         Correct Parental       Correct        Excess Parental      Correct          Number of
    of         Reserved for      Involvement           Parental        Involvement         Parental           Public
 Students        Parental        Allocation for      Involvement       Allocation for    Involvement          School
 [Public]      Involvement        Parents of          Allocation        Parents of      Allocation Per       Students
  Under         [Public &       Private School      for Parents of    Private School    Public School         Whose
 Poverty          Private          Students             Public           Students       Student Under       Parents Did
  Level          Schools                                School                          Poverty Level       Not Benefit
                                                       Students                                              from the
                                                                                                              Title I
                                                                                                             Program

                                                      (B – C)                               (D / A)            E/F
 442,113       $5,271,000          $352,103          $4,918,897          $430,897           $11.13            38,729




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Recommendations:

We recommend that the Assistant Secretary for OESE require PRDE to—

2.1       Return to the Department the $430,897 in Title I funds allocated for activities for parents
          of participating private school students in excess of the entitlement for parental
          involvement activities for the 2006-2007 award year;

2.2       Re-calculate the amount of Title I funds that should have been properly allocated for
          parents of both private and public school students for parental involvement activities for
          all years back to 2001; and return to the Department the amount allocated for parents of
          private school students in excess of the entitlement during those years; and

2.3       Implement adequate internal controls and develop standard written procedures to ensure
          that future parental involvement allocations for parents of both public and private school
          students are made in compliance with Title I requirements.

PRDE’s Comments

In its response to the draft audit report, PRDE disagreed with our findings and recommendations,
and requested that the findings be reconsidered, revised, and that the recommendations for
repayment be withdrawn before the issuance of a final audit report.

OIG’s Response

PRDE provided no additional information that would warrant a change to Finding No. 2 or the
related recommendations.


FINDING NO. 3 – Unrecorded Title I Property and Equipment

PRDE lacked adequate internal controls to properly account for property and equipment
purchased with Title I funds by the contractors. As a result,

      •   PRDE’s Property Division 20 did not account for $8,036 in Title I property and equipment
          purchased by NETS, Braxton, and COSEY during the 2006-2007 award year for 10
          private schools;
      •   The contractors’ inventory records did not include information regarding the Title I
          property and equipment that was moved or relocated, disposed, or in need of disposal;
          and
      •   Property and equipment was not properly labeled or tagged with the name of the Title I
          program.



20
  PRDE’s Property Division is the unit in charge of maintaining the centralized records of all PRDE property and
equipment.
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Pursuant to 34 CFR § 200.67(a), a public agency must exercise continuing administrative control
of all property, equipment, and supplies that the public agency acquires with Title I funds for the
benefit of eligible private school children.

Section X. B. 3 of PRDE’s “Procedures for the Control and Accounting of the Property of the
Puerto Rico Department of Education” specifies that the equipment acquired with Federal funds
shall be identified with the name of the program that funded its purchase. In addition, clause
number 20 of the contracts awarded to NETS, Braxton, and COSEY established that educational and
capital property or equipment acquired with Federal funds granted by virtue of the contracts should be
labeled as “Property of Title I, Part A, Department of Education of Puerto Rico.” Further, the contracts
stated that the contractors “shall not move or relocate such property or equipment without previous
notice and written authorization from the Office of Federal Affairs of the Department of Education.”

We reviewed the inventory records of Title I property and equipment located at 10 private
schools randomly selected for review, served by the three contractors during the 2006-2007
award year − three served by NETS, three by Braxton, and four by COSEY. The records were
prepared by the respective contractors that provided the Title I services at each school. The
property and equipment consisted mainly of trailers, computers, air conditioners, desks, chairs,
blackboards, and filing cabinets. We found that PRDE’s inventory records for the 10 schools
were understated by $8,036. The PRDE records did not reconcile to the contractors’ inventory
records because the Private Schools Unit of the OFA 21 did not send the inventory records to
PRDE’s Property Division to be properly recorded. The PRDE’s Private Schools Unit of OFA
and its Property Division did not properly coordinate and share the information necessary to
account for all the property and equipment purchased by the contractors with Title I funds. We
also found that PRDE did not have documented evidence indicating that it authorized the
contractors’ movement or relocation of Title I property and equipment, as required by the
contract terms.

We performed physical inventories at 3 of the 10 schools selected for review – one served by
NETS, one by Braxton, and one by COSEY − and reconciled the property and equipment listed
in the contractors’ inventory records with the property and equipment at the three schools. 22 We
were able to account for all the property and equipment listed in the contractors’ inventory
records. However, we found that the Title I property and equipment located at two of the three
schools visited – one served by NETS and one by COSEY − had not been properly labeled or
tagged with the name of the Title I program, as required by the contract terms and PRDE’s
written procedures for the control and accounting of PRDE property. The property and
equipment inventoried at the two schools were labeled by the contractors, not by PRDE’s
Property Division.

PRDE’s 2004, 2005, and 2006 Single Audits continually reported that PRDE’s Property Division
lacked internal controls over property and equipment acquired with Federal funds. According to
the single audits, PRDE’s Property Division (1) did not maintain an effective property and
equipment system from which a current and complete subsidiary ledger could be prepared; (2)

21
   PRDE OFA’s Private Schools Unit maintained the inventory records of the property and equipment purchased by
the contractors.
22
   The three schools visited were Colegio San Isidro Labrador, La Escuelita, and Christian Military Academy.
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Administration of Title I Services                                             Final Audit Report
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had not established adequate procedures and controls to ensure that all of the property and
equipment acquired under the different Federal programs and community schools were recorded;
and (3) had not established procedures to immediately update the property records when an item
of property and equipment was, either transferred from one location, or disposed of.

PRDE cannot ensure adequate safeguards to prevent the loss, damage, or theft of property and
equipment acquired with Title I funds because it does not (1) accurately account for all Title I
property and equipment, (2) maintain record of inventory movement, and (3) ensure adequate
labeling of property and equipment. In addition, without a master inventory record that accounts
for all property and equipment acquired with Title I funds and processes for reconciling to the
contractors’ inventory records, PRDE cannot ensure that the property and equipment acquired by
the contractors is necessary.

Recommendations:

We recommend that the Assistant Secretary for OESE require PRDE to—

3.1    Instruct its Property Division to account for the $8,036 in Title I property and equipment
       purchased by NETS, Braxton, and COSEY during the 2006-2007 award year for the 10
       private schools reviewed;

3.2    Implement adequate internal controls to ensure proper review, receipt, and recording of
       property and equipment purchased with Title I funds;

3.3    Establish efficient means of communication between the OFA offices in charge of
       administering Title I and other Federal programs and PRDE’s Property Division, to
       ensure that they properly coordinate and share the information necessary to account for
       the property and equipment;

3.4    Maintain documentation of approval for the movement of inventory; and

3.5    Ensure that Title I property and equipment is appropriately labeled.

PRDE’s Comments

In its response to the draft audit report, PRDE disagreed with our findings and recommendations,
and requested that the findings be reconsidered, revised, and that the recommendations for
repayment be withdrawn before the issuance of a final audit report.

OIG’s Response

PRDE provided no additional information that would warrant a change to Finding No. 3 or the
related recommendations.




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FINDING NO. 4 – Inconsistent Consultations with Private School Officials Prior to
                Providing Title I Services

PRDE did not have adequate internal controls and standard written procedures in place to ensure
that consultations with private school officials were consistent and addressed all the issues
required by the Title I regulations prior to providing Title I services during the 2006-2007 award
year. Specifically, PRDE did not require the contractors to submit written reports documenting
the results of the consultation they performed, and did not maintain written affirmations signed
by the private school officials documenting that the required consultations occurred.

According to 34 CFR § 200.63(a), in order to have timely and meaningful consultation, an LEA
must consult with appropriate officials of private schools during the design and development of
the LEA's program for eligible private school children. In addition, section 200.63(b) provides
that an LEA must consult, at a minimum, on the following issues.

1) How the LEA will identify the needs of eligible private school children;
2) What services the LEA will offer to eligible private school children;
3) How and when the LEA will make decisions about the delivery of services;
4) How, where, and by whom the LEA will provide services to eligible private school children;
5) How the LEA will assess academically the services to eligible private school children in
   accordance with Sec. 200.10, and how the LEA will use the results of that assessment to
   improve Title I services;
6) The size and scope of the equitable services that the LEA will provide to eligible private
   school children, and, consistent with Sec. 200.64, the proportion of funds that the LEA will
   allocate for these services;
7) The method or sources of data that the LEA will use under Sec. 200.78 to determine the
   number of private school children from low-income families residing in participating public
   school attendance areas, including whether the LEA will extrapolate data if a survey is used;
   and
8) The equitable services the LEA will provide to teachers and families of participating private
   school children.

Pursuant to 34 CFR § 200.63(d)(1)(ii), consultation must include a thorough consideration and
analysis of the views of the officials of the private schools on the provision of services through a
contract with a third-party provider.

In addition, 34 CFR § 200.63(e) requires an LEA to maintain written affirmation, signed by
officials of each private school with participating children or appropriate private school
representatives, that the required consultation had occurred.

According to officials from eight of the private schools selected for review 23 and our review of
documentation, PRDE, either directly or through the contractors, consulted with schools on the
Title I services PRDE would provide. 24 In addition, PRDE initiated the consultation process

23
  We were unable to interview the Directors of the remaining two private schools selected for review.
24
  As a contract deliverable under the 2005-2006 and 2006-2007 contracts, PRDE required the contractors to consult
with private schools officials.
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timely. However, neither PRDE nor the contractors consistently consulted with all the private
school officials interviewed on the following required issues.

•      How PRDE was going to identify the needs of eligible private school children;
•      How and when PRDE was going to make decisions about the delivery of services;
•      How, where, and by whom PRDE was going to provide the services;
•      The size and scope of the equitable services that PRDE was going to provide;
•      The method, or the sources of data, that PRDE was going to use to determine the number of
       private school children from low-income families residing in participating public school
       attendance areas; and
•      The services that PRDE was going to provide to teachers and families of participating private
       school children.

The majority 25 of the private school officials also stated that neither PRDE nor the contractors
consulted with them on the following issues.

•      How PRDE was going to use the results of the academic assessment to private school
       children to improve Title I services;
•      Whether PRDE should have contracted with a third-party provider; and
•      The options for using the funds reserved for instructional services: on a school-by-school
       basis or the pooling option.

The lack of consistent consultation with private schools officials reduced the level of assurance
that the Title I services provided by the contractors met the needs of eligible private school
children, their teachers, and their parents. In addition, without sufficient documentation to
support the consultations, PRDE could not support the payments allocated for the contract
requirement or refute contractors’ disagreements or requests for additional funding.

Recommendations:

We recommend that the Assistant Secretary for OESE require PRDE to—

4.1        Implement adequate internal controls and develop standard written procedures to ensure
           that the consultation process with private school officials is consistent and includes all the
           issues required by the Title I regulations prior to providing services;

4.2        Require contractors of Title I services to provide a written report to PRDE on the results
           of the consultation performed, and ensure that written evaluations of the reports are
           performed and maintained to support PRDE’s monitoring of the contractors’ deliverables;
           and

4.3        Obtain and maintain written affirmations from private school officials documenting that
           the required consultation occurred.



25
     We considered a majority to be five or more of the eight private school officials interviewed.
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Administration of Title I Services                                           Final Audit Report
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PRDE’s Comments

In its response to the draft audit report, PRDE disagreed with our findings and recommendations,
and requested that the findings be reconsidered, revised, and that the recommendations for
repayment be withdrawn before the issuance of a final audit report.

OIG’s Response

PRDE provided no additional information that would warrant a change to Finding No. 4 or the
related recommendations.




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Administration of Title I Services                                             Final Audit Report
Provided to Private School Students                                           ED-OIG/A04H0017


                 OBJECTIVES, SCOPE, AND METHODOLOGY


The objective of the audit was to determine if PRDE administered Title I services provided to
private school students, their teachers, and their parents through contracts awarded to NETS,
Braxton, and COSEY, in compliance with Title I requirements. Specifically, our objectives were
to determine if PRDE 1) ensured that the costs claimed by the contractors were allowable and
followed contract requirements; 2) properly allocated Title I funds to private schools; 3) properly
accounted for Title I funds used to purchase property and equipment; 4) consulted with private
school officials to determine the needs of the children and the services to be provided; and 5)
monitored the contractors for compliance. Our audit period was November 1, 2006, through
June 31, 2007.

To accomplish the audit objectives, we reviewed PRDE’s allocation of Title I funds to private
schools, reviewed the contracts awarded to NETS, Braxton, and COSEY during the 2005-2006
and 2006-2007 award years, and interviewed officials from PRDE.

We selected a random sample of 10 private schools from the universe of 261 private schools that
received Title I services during the 2006-2007 award year under the three contracts. We
interviewed the Directors from 8 of the 10 selected private schools and reviewed documentation
for determining if the required consultation occurred – three included site visits and five were
through telephone interviews. We also reviewed inventory records and performed physical
inventories of the Title I property and equipment at the three private schools visited (Colegio San
Isidro Labrador, La Escuelita, and Christian Military Academy). We performed our fieldwork at
PRDE’s OFA and the three schools visited.

Table 3.1 identifies the random sample of private schools selected for review and the scope of
the work performed.




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Administration of Title I Services                                            Final Audit Report
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Table 3.1          Random Sample of Private Schools Selected for Review
  Random
  Sample                 Consultation                   Title I Property and Equipment
                                                                                  Reconciled
                Performed        Performed          Reviewed           Took       Inventory
                 Personal        Telephone          Inventory        Physical       With
   Schools      Interviews       Interviews          Records        Inventory    Contractors’
      1              √                                  √                √            √
      2              √                                  √                √            √
      3              √                                  √                √            √
      4                                 √               √
      5                                 √               √
      6                                 √               √
      7                                 √               √
      8                                 √               √
      9                                                 √
     10                                                 √
    Total            3                  5              10                3            3

We reviewed a total of 24 invoices (8 submitted by each contractor) for the period of November
2006 through June 2007, and the supporting documentation of the expenses billed under each
invoice maintained by PRDE. We also reviewed PRDE’s procedures and activities performed to
monitor the contractors for compliance, including a review of the first two monthly status reports
submitted by each contractor (November and December 2006).

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.




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Puerto Rico Department of Education’s
Administration of Title I Services                                                   Final Audit Report
Provided to Private School Students                                                 ED-OIG/A04H0017
                                              ENCLOSURE 1


     Summary of Costs Billed by COSEY Under Administrative Expenses Not Adequately Supported

                                         Cost
    Notes           Invoice            Category               Non-Personnel Costs        Salaries
                    Nov-06                                                                      $24,536
                    Dec-06                                                                      42,631
      1             Jan-07    Rent – Office                                 1,050               43,700
      2             Feb-07    Travel - Inside PR                            2,400               46,904
                    Mar-07                                                                      39,212
                    Apr-07                                                                      24,167
                    May-07                                                                      38,863
      3                       Travel - Inside PR                            2,303
      4                       Rent – Office                                25,000
      5                       Rent – Other Equipment                         494
      6             Jun-07    Rent – Trailers                                350                90,279


            Total                                  $381,889               $31,597             $350,292


Notes:
1. In the January 2007 invoice, COSEY billed PRDE a total of $2,100 for office rent. COSEY
   provided PRDE source documentation for one month of rent (January 2007), totaling $1,050.
   However, COSEY did not provide source documentation for the remaining $1,050. In its
   response, PRDE provided the same payment order, invoice, and cancelled check supporting
   only the $1,050. As a result, we were unable to determine if the expenses billed for office
   rent were allowable.
2. In the February 2007 invoice, COSEY billed PRDE $2,400 for travel expenses inside PR.
   However, COSEY did not provide documentation to support the charges. In its response,
   PRDE provided a list of three administrative staff to which COSEY paid $800 each for the
   period of November 2006 through January 2007, totaling $2,400. PRDE also provided
   reports of local travel for three COSEY employees that were not the same three employees
   that were paid the $2,400. PRDE did not provide local travel reports for the three employees,
   or any type of travel documentation showing the actual expenses incurred, or the basis for the
   amounts allocated to each employee, either on an actual cost basis, on a per diem or mileage
   basis in lieu of actual costs incurred, or any other basis. As a result, we were unable to
   determine if the expenses billed for travel inside PR were allowable.
3. In the June 2007 invoice, COSEY billed PRDE $2,303 for travel expenses inside PR that
   were not adequately supported. The supporting documentation included a statement
   certifying local travel expenses incurred by three staff members during the period of
   February through June 2007. It also included a copy of the three cancelled checks paid.
   However, COSEY did not provide a justification for the travel or source documentation, such
   as receipts or other travel records. In its response, PRDE stated that the purpose of the trips
                                               22 of 24
Puerto Rico Department of Education’s
Administration of Title I Services                                             Final Audit Report
Provided to Private School Students                                           ED-OIG/A04H0017
   was to pay for staff to visit schools and attend program activities at different educational
   regions. PRDE provided in its response a list of three administrative staff to which COSEY
   paid $2,303 ($767 to two and $769 to one) for the period of February through June 2007.
   PRDE also provided in its response reports of local travel for a COSEY employee that was
   not one of the three employees that were paid the $2,303. However, PRDE did not provide
   local travel reports for the three employees paid, or any type of travel documentation
   showing the actual expenses incurred, or the basis for the amounts allocated to each
   employee, either on an actual cost basis, on a per diem or mileage basis in lieu of actual costs
   incurred, or any other basis. As a result, we were unable to determine if the expenses billed
   for travel inside PR were allowable.
4. In the June 2007 invoice, COSEY billed PRDE $25,000 for office rent costs that were not
   adequately supported. The supporting documentation included purchase and payment orders
   for the rent of facilities of participating private schools during the month of June 2007 to
   provide Title I services during a summer program. It also included copies of ten checks (not
   cancelled) of $2,500 each, issued to the private schools. PRDE did not provide additional
   supporting documentation in its response evidencing that the charges were adequately
   documented and allowable. It provided documentation that showed that the payments were
   made to 10 private schools to which COSEY provided Title I services for the use of their
   own buildings. In its response, PRDE stated that these costs were to pay the rent of the
   buildings used by the various private schools for their summer camp programs. In addition,
   PRDE provided documentation in Enclosure #24 of its response indicating that it had one or
   more trailers at each of the 10 schools that were used to provide the Title I services to
   participating private school children. Further analysis should be made by PRDE to determine
   if the expenses billed for office rent complied with the requirements in 34 CFR § 200.66 to
   ensure that the funds were not used for the needs of the private schools or the general needs
   of the children in the private schools attending their summer programs, and were necessary
   for the proper and efficient performance and administration of Title I funds. According to 34
   CFR § 200.66, Title I funds must be used to provide services to supplement, and in no case
   supplant, the services that would, in the absence of Title I services, be available to
   participating private school children. It further states that Title I funds must not be used for
   the needs of the private school or the general needs of children in the private school.
5. In the June 2007 invoice, COSEY billed PRDE $494 for the rent of equipment. However,
   COSEY did not provide supporting documentation. In our draft audit report, we reported the
   $494 with no supporting documentation as charged to the conservation and repair of
   equipment account, but the expenses were actually charged to the rent of other equipment
   account. PRDE did not provide additional supporting documentation in its response for the
   $494 billed by COSEY for the rent of other equipment. As a result, we were unable to
   determine if the expenses billed were allowable.
6. In the June 2007 invoice, COSEY billed PRDE $350 for the rent of a trailer that was not
   adequately supported. COSEY billed PRDE a total of $3,600 for the rent of trailers. The
   supporting documentation submitted by PRDE included 5 invoices from third party vendors
   − one for $350 for the month of June 2007; two for $250 for the months of May and June
   2007; another for $2,400 for the period of October 2006 through May 2007; and another for
   $350 that did not specify the period rented. This expense was not adequately documented
   because we could not determine if it was incurred inside the contract period. PRDE provided
   supporting documentation in its response for the $350 billed for the month of June 2007

                                             23 of 24
Puerto Rico Department of Education’s
Administration of Title I Services                                        Final Audit Report
Provided to Private School Students                                      ED-OIG/A04H0017
   which was considered adequately documented, but not for the $350 that did not specify the
   period rented. With the documentation provided, we were unable to determine if the expense
   billed was allowable.




                                          24 of 24
                                              ENCLOSURE 2


                                Puerto Rico Department of Education
                          Response to Draft Audit Report: ED-OIG/A04H0017

                                                 Submitted to:
                                            Ms. Denise M. Wempe
                                         U.S. Department of Education
                                          Office of Inspector General
                                                61 Forsyth SW
                                                 Room 18T71
                                              Atlanta, GA 30303


This is the response of the Puerto Rico Department of Education (“PRDE”) to the U.S.
Department of Education’s Office of Inspector General (“OIG”) Draft Audit Report ED-
OIG/A04H0017 (“Draft Audit Report”), issued June 2, 2008, entitled Puerto Rico Department of
Education’s Administration of Title I Services Provided to Private Schools. OIG reviewed Title
I equitable services PRDE provided to private school students, their teachers, and their parents
for the 2006-2007 award year. OIG erroneously concluded that PRDE did not properly
administer Title I-A funds expended over that time period. OIG specifically questioned a
number of PRDE’s Title I expenditures on equitable services provided to private school students,
their teachers, and their parents through contracts awarded to National Educational and
Technological Services, Inc. (“NETS”), Braxton School of Puerto Rico, Inc. (“Braxton”), and
Corporación de Servicios Educativos de Yabucoa (“COSEY”). In addition, OIG recommended
that the Assistant Secretary for Elementary and Secondary Education (OESE) require PRDE to
review the contractors’ supporting documentation for the $17,413,659 paid to ensure compliance
with Title I requirements.

PRDE respectfully submits that the audit methodology used was seriously flawed. It appears
that the audit failed to review the voluminous documentation that supports the Title I
expenditures at issue. In addition, the audit failed to analyze harm to the Federal interest, as
required, in making findings. PRDE’s response below, based on each Draft Audit Report
finding, demonstrates the underlying flaws in the rationales supporting the findings, and explains
the extensive supporting documentation for the expenditures questioned by OIG.

Braxton Expenditure for Trailers

Braxton is a contractor, hired by PRDE, to provide equitable services to private school students.
OIG found that PRDE charged its Title I program $40,074 in unallowable costs for the purchase
of trailers by Braxton. 26 OIG stated that PRDE did not authorize the contractors to purchase,
lease, and refurbish real and personal property (including mobile educational units and leasing of
neutral sites or spaces). As a result, it found the cost unallowable.



26
     See Draft Audit Report, Finding No. 1.
In response, PRDE submits:
       • A letter from Saint Patrick’s Bilingual School requesting the trailers and justifying the
           use for its Title I-eligible students;
       • Three price quotes;
       • A letter explaining why Braxton selected Fox Trailer Company as its vendor to
           purchase the trailers;
       • Purchase order;
       • Receipts of the trailer delivery;
       • Check request form;
       • Two checks (each for $20,036); and
       • Contract with Braxton. 27

OMB Circular A-87, Attachment A, Paragraph C.1 provides that costs must be necessary and
reasonable for proper and efficient performance and administration of federal awards, be
allocable to federal awards, and be adequately documented. In order to recover funds, there must
be an analysis reflecting the value of the program services actually obtained in a determination of
harm to the Federal interest. 20 U.S.C. 1234a(a)(2). The U.S. Department of Education
(“USDE”) may require recipients to return only an amount that is proportional to the extent of
the harm its violation caused to an identifiable Federal interest associated with the program. 34
C.F.R. § 81.32(a)(1).

As OIG acknowledges, “according to the contract term, PRDE authorized the contractors to
purchase, lease, and refurbish real and personal property (including, but not limited to, mobile
educational units and leasing of neutral sites or spaces), insurance and maintenance costs,
transportation, and other comparable goods and services.” 28 OIG also acknowledges that PRDE
officials gave verbal authorization to Braxton officials to purchase the trailer. PRDE’s
authorization is noted in the documents submitted. 29 OIG stated that Braxton was required to
present PRDE with its recommendations, specifications, and prices of the property prior to
purchase.

PRDE acknowledges that it could have created a stronger paper trail documenting this
transaction. However, as the documentation submitted demonstrates, in soliciting three price
quotes, Braxton and PRDE diligently ensured that the trailers were bought for a competitive
price, maximizing the benefit to the Title I program. Furthermore, the documents provided
demonstrate that PRDE adequately documented this expense in accordance with the cost
principles in OMB Circular A-87.

Non-Personnel Costs Incurred by COSEY

COSEY is a contractor, hired by PRDE, to provide equitable services to private school students.
OIG found that PRDE charged non-personnel costs to its Title I program that lacked adequate
and reliable documentation in the amount of $184,924 for fiscal year 2006-2007. OIG stated that
PRDE’s source documentation was not adequate or sufficient to determine if the invoiced costs
were allowable. OIG cited OMB Circular A-87, Attachment A, Paragraph C.1, which requires
27
   See EX 1.
28
   Draft Audit Report, p. 6; See also EX 1, specifically p. 6 of the contract between PRDE and Braxton.
29
   See EX 1, specifically the cover page detailing the submitted documents.
costs charged to Federal grants to be necessary and reasonable for proper and efficient
performance and administration of Federal grant and adequately documented.
OIG questioned a number of specific transactions invoiced to PRDE by COSEY involving non-
personnel charges to Title I for equitable services. 30 PRDE’s response to OIG on each
expenditure follows.

     1) Property Insurance Expenditure

In November 2006, COSEY billed PRDE $13,699 for insurance costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included two payment stubs, two
payment orders, and two cancelled checks. OIG stated that the documentation provided did not
specify the type of insurance paid.

PRDE submits policy documents with Liberty Finance, evidence that the insurance paid for
covered both commercial property liability and commercial general liability.31 Specifically, the
insurance policy covered a number of premises (described in the policy) where private school
students receive equitable services. Therefore, these documents demonstrate that PRDE
adequately documented this expense in accordance with the cost principles in OMB Circular A-
87.

     2) Travel Expenses

In December 2006, COSEY billed PRDE $224 for travel expenses it incurred. As OIG
acknowledges, PRDE submitted supporting documentation, including a purchase order, hotel
bill, and credit card bill. 32 OIG stated that the documentation provided did not detail the purpose
of the travel expenses. The purpose of the travel was to attend the Florida Educational
Technology Conference (FETC) in Orlando, Florida. The conference program presents
educators and administrators with an opportunity to learn how to integrate different technologies
across the curriculum. PRDE submits promotional materials and an agenda explaining the
academic purpose for the conference. 33 As the documents prove, the Title I program received a
demonstrable benefit as a result of these expenditures, and the expenditures are adequately
documented in accordance with the cost principles in OMB Circular A-87.

     3) Equipment Rental Expenditure

In December 2006, COSEY billed PRDE $1,463 for rental equipment costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included a payment stub ($508)
and two invoices ($538 and $417). OIG stated that the documentation provided did not specify
the type of equipment that was rented.

PRDE submits documents indicating that the equipment rented was three photocopiers. 34 In
addition, PRDE submitted two cancelled checks, one in the amount of $508 and one in the
amount of $955 (for the $538 and $417 expenditure). The photocopiers were used at three
locations where students received equitable services. These documents demonstrate that PRDE

30
   See Draft Audit Report, p. 18-21 (Finding No. 1).
31
   See EX 2.
32
   See EX 3.
33
   See EX 4.
34
   See EX 5.
adequately documented this expense in accordance with the cost principles in OMB Circular A-
87.
    4) Property Insurance Expenditure

In December 2006, COSEY billed PRDE $6,850 for insurance costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included a payment stub. OIG
stated that the documentation provided did not specify the type of insurance paid.
PRDE submits documents that demonstrate that the insurance paid to Liberty Finance covered
both commercial property liability and commercial general liability. 35 In addition to the payment
stub, PRDE has also submitted a cancelled check. As noted above, this insurance policy was
purchased in November 2006 for a number of premises where private school students receive
equitable services. These documents demonstrate that PRDE adequately documented this
expense in accordance with the cost principles in OMB Circular A-87.

     5) Automotive Equipment Repair Expenditure

In December 2006, COSEY billed PRDE $240 for automotive repairs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation of this transaction. OIG stated that
the documentation provided did not adequately support the expenditure.

The documents submitted by PRDE including the following: an order form, a requisition form
that describes the services provided a certification of inspection, and a cancelled check. 36 PRDE
owns two trucks that primarily move equipment, materials, and service trailers. The trailers are
used to provide equitable services to private school students. The purpose of these costs was to
renew the registration of these two vehicles. These documents demonstrate that PRDE
adequately documented this expense in accordance with the cost principles in OMB Circular A-
87.

     6) Electricity Costs

In January 2007, COSEY billed PRDE $29,066 for electricity costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation of this transaction, including bills for
electricity costs, individualized to each private schools, checks, and payment orders. 37 OIG
stated that the documentation provided did not provide a justification for the amount billed by
each school.

The documents submitted by PRDE include invoices for various schools where private school
students receive equitable services. COSEY does not pay an electric bill throughout the year, but
rather allocates funds for this particular expense. These documents demonstrate that PRDE
adequately documented this expense in accordance with the cost principles in OMB Circular A-
87.

     7) Rent Expenditures


35
   See EX 2, 6.
36
   See EX 7.
37
   See EX 8.
In January 2007, COSEY billed PRDE $1,050 for office rent it incurred. OIG stated that PRDE
provided no source documentation for this expenditure. The documents submitted by PRDE
include a purchase order, an invoice, and a cancelled check. 38 The rent payment was used to rent
“Alquiler de Centro de Servicios Educativos Ponce” in order to provide equitable services to
private school students. These documents demonstrate that PRDE adequately documented this
expense in accordance with the cost principles in OMB Circular A-87.

     8) Property Insurance Expenditure

In January 2007, COSEY billed PRDE $6,850 for insurance costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included a payment stub. OIG
stated that the documentation provided did not specify the type of insurance paid.

The documents submitted by PRDE evidence that the insurance paid to Liberty Finance for both
commercial property liability and commercial general liability. 39 In addition to the payment stub,
PRDE has also submitted a cancelled check. As noted above, this insurance policy was
purchased in November 2006 for a number of premises where private school students receive
equitable services. These documents demonstrate that PRDE adequately documented this
expense in accordance with the cost principles in OMB Circular A-87.

     9) Travel Expenses

In January 2007, COSEY billed PRDE $1,050 for travel expenses it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included three purchase orders,
three payment orders, and three cancelled checks. 40 OIG stated that the documentation provided
did not provide justification or specified criteria for the amounts billed per staff member, and that
OIG could not determine if the staff worked on the project.

The purpose of the travel was to attend the FETC in Orlando, Florida and the Title I “Avenues of
Excellence” conference in Long Beach, California in January 2007. 41 PRDE has provided the
aforementioned documentation, as well as promotional materials, an agenda, and those whom
attended. These documents demonstrate that PRDE adequately documented this expense in
accordance with the cost principles in OMB Circular A-87.

     10) Postage Expenditures

In February 2007, COSEY billed PRDE $12 for postage costs it incurred. OIG stated that PRDE
provided no source documentation for this expenditure. The documents submitted by PRDE
include a purchase order, an invoice, and a cancelled check. 42 These documents demonstrate that
PRDE adequately documented this expense in accordance with the cost principles in OMB
Circular A-87.

     11) Travel Expenses


38
   See EX 9.
39
   See EX 2, 10.
40
   See EX 11.
41
   See EX 4.
42
   See EX 12.
In February 2007, COSEY billed PRDE $2,400 for travel expenses it incurred. OIG stated that
PRDE provided no source documentation for this expenditure. The documents submitted by
PRDE include a list of employees travelling, including the cost per employee, three cancelled
checks, and an agenda from the trip. 43 The purpose of this trip was to pay for staff to visit
schools and attend program activities at different educational regions. These funds are allocated
for such travel expense within Puerto Rico twice a year. These documents demonstrate that
PRDE adequately documented this expense in accordance with the cost principles in OMB
Circular A-87.

     12) Travel Expenses

In February 2007, COSEY billed PRDE $1,392 for travel expenses it incurred. OIG stated that
PRDE provided no source documentation for this expenditure. The documents submitted by
PRDE include a list of employees travelling to the FETC in Orlando, Florida, including the cost
per employee, purchase orders, and three cancelled checks. 44 In addition, PRDE submitted
promotional materials and an agenda explaining the academic purpose for the conference. 45
These documents demonstrate that PRDE adequately documented this expense in accordance
with the cost principles in OMB Circular A-87.

     13) Property Insurance Expenditure

In February 2007, COSEY billed PRDE $6,850 for insurance costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included a payment stub. OIG
stated that the documentation provided did not specify the type of insurance paid.

The documents submitted by PRDE evidence that the insurance paid to Liberty Finance covered
both commercial property liability and commercial general liability. 46 In addition to the payment
stub, PRDE has also submitted a cancelled check. As noted above, this insurance policy was
purchased in November 2006 for a number of premises where private school students receive
equitable services. These documents demonstrate that PRDE adequately documented this
expense in accordance with the cost principles in OMB Circular A-87.

     14) Electricity Costs

In January 2007, COSEY billed PRDE $267 for electricity costs it incurred. OIG stated that the
documentation provided did not provide a justification for the amount billed by each school.
PRDE submitted supporting documentation of this transaction, including a list of schools served,
a purchase order, and cancelled checks. 47

The documents submitted by PRDE include invoices for various schools where private school
students receive equitable services. COSEY allocated part of its electric bill to the services
provided to Title I students throughout the year and submitted it to PRDE. These documents
demonstrate that PRDE adequately documented this expense in accordance with the cost
principles in OMB Circular A-87.
43
   See EX 13.
44
   See EX 14.
45
   See EX 4.
46
   See EX 2, 15.
47
   See EX 16.
     15) Property Insurance Expenditure

In March 2007, COSEY billed PRDE $6,850 for insurance costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included a payment stub. OIG
stated that the documentation provided did not specify the type of insurance paid.

The documents submitted by PRDE evidence that the insurance paid to Liberty Finance covered
both commercial property liability and commercial general liability. 48 In addition to the payment
stub, PRDE has also submitted a cancelled check. As noted above, this insurance policy was
purchased in November 2006 for a number of premises where private school students receive
equitable services. These documents demonstrate that PRDE adequately documented this
expense in accordance with the cost principles in OMB Circular A-87.

     16) Equipment Rental Expenditure

In December 2006, COSEY billed PRDE $1,496 for rental equipment costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included two payment stubs (one
for $988 and one for $508), two payment orders and two cancelled checks. OIG stated that the
documentation provided did not specify the type of equipment that was rented.

The documents submitted by PRDE evidence that the equipment rented was two photocopiers. 49
In addition, PRDE submitted the two payment orders and the two cancelled checks, one in the
amount of $988 and one in the amount of $508. The photocopiers were used at “Centros
Servicios Educativos Ponce/Humacao” in connection with providing equitable services to
students. These documents demonstrate that PRDE adequately documented this expense in
accordance with the cost principles in OMB Circular A-87.

     17) Rental Expenditure

In April 2007, COSEY billed PRDE $1,050 for costs it incurred by renting an office. As OIG
acknowledges, PRDE submitted supporting documentation that included a payment order
prepared by COSEY and a copy of check that was not cancelled. OIG stated that the
documentation provided did not indicate if the expenses were allowable.

PRDE has submitted documents that include an invoice, a payment authorization, and a copy of
a check ($1,050). 50 The purpose of these costs was to rent an office in the region of Ponce.
These documents demonstrate that PRDE adequately documented this expense in accordance
with the cost principles in OMB Circular A-87.

     18) Equipment Rental Expenditure

In April 2007, COSEY billed PRDE $508 for costs it incurred by renting office equipment. As
OIG acknowledges, PRDE submitted supporting documentation that included a copy of a
payment stub for $508. OIG stated that the documentation provided did not specify the office
equipment rented and if the expenses were allowable.
48
   See EX 2, 17.
49
   See EX 18.
50
   See EX 19.
The documents submitted by PRDE include an invoice, a payment authorization, and a copy of a
check ($507.92). 51 The purpose of this cost was to rent a photocopier for an office in connection
with providing equitable service to students. These documents demonstrate that PRDE
adequately documented this expense in accordance with the cost principles in OMB Circular A-
87.

     19) Electricity Costs Expenditures

In April 2007, COSEY billed PRDE $10,933 for electricity costs it incurred. OIG stated that the
documentation provided did not provide a justification for the amount billed by each school.
PRDE has documents that include a request for services, an invoice for the region of Humacao
($1,866.62), an invoice for the Ponce region ($5,599.86), an invoice for the Fajardo region
($2,133.28), an invoice for the San German region ($1,333.30), and several copies of checks. 52
The purpose of these costs was for electricity used by these 4 regions for various schools where
private school students receive equitable services.

COSEY allocated part of its electric bill to the services provided to Title I students throughout
the year and submitted documentation to PRDE. These documents demonstrate that PRDE
adequately documented this expense in accordance with the cost principles in OMB Circular A-
87.

     20) Office Equipment Repair Expenditures

In April 2007, COSEY billed PRDE $119 for costs it incurred repairing office equipment. As
OIG acknowledges, PRDE submitted supporting documentation that included a purchase order
and a copy of check that was not cancelled. OIG stated that the documentation provided did not
indicate if the expenses were allowable.

PRDE has documents that include an invoice, a request for services, a payment authorization,
and a copy of a check ($118.56). 53 The purpose of these costs was to repair a building.
Therefore, these documents demonstrate that PRDE adequately documented this expense in
accordance with the cost principles in OMB Circular A-87.

     21) Property Insurance Expenditure

In April 2007, COSEY billed PRDE $6,850 for insurance costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included a payment stub. OIG
stated that the documentation provided did not specify the type of insurance paid.

The documents submitted by PRDE evidence that the insurance paid to Liberty Finance covered
both commercial property liability and commercial general liability. 54 In addition to the payment
stub, PRDE has also submitted a cancelled check. As noted above, this insurance policy was
purchased in November 2006 for a number of premises where private school students receive

51
   See EX 20.
52
   See EX 21.
53
   See EX 22.
54
   See EX 2, 23.
equitable services. These documents demonstrate that PRDE adequately documented this
expense in accordance with the cost principles in OMB Circular A-87.

     22) Electricity Costs Expenditures

In May 2007, COSEY billed PRDE $39,732 for electricity costs it incurred. As OIG
acknowledges, PRDE submitted supporting documentation that included payment orders and
copies of checks. OIG stated that the documentation provided did not provide a justification for
the amount billed by each school.

The documents submitted by PRDE include requests for services, an invoice for the Humacao
region ($10,399.74), an invoice for the Ponce region ($16,799.58), an invoice for the San
German region ($5,066.54), an invoice prepared for the Fajardo region ($7,773.14), and several
copies of checks that were not cancelled. 55 The purpose of these costs was to pay the electricity
used by the regions of Humacao, Fajardo, Ponce, and San German for various schools where
private school students receive equitable services. COSEY allocated part of its electric bill to the
services provided to Title I students throughout the year and submitted it to PRDE. Therefore,
these documents demonstrate that PRDE adequately documented this expense in accordance
with the cost principles in OMB Circular A-87.

     23) Travel Expenses

In June 2007, COSEY billed PRDE $2,303 for travel costs it incurred. As OIG acknowledges,
PRDE submitted supporting documentation that included a statement certifying local travel and
copies of three cancelled checks (one for $769, one for $769, and one for $767). OIG stated that
the COSEY did not justify the reason for local travel and did not indicate if the expenses were
allowable.

PRDE has documents that include a statement certifying local travel, copies of the
aforementioned three cancelled checks, and the trip agenda. 56 The purpose of this trip was to
pay for staff to visit schools and attend program activities at different educational regions. These
funds are allocated for such travel expense within Puerto Rico twice a year. Therefore, the Title
I program received a demonstrable benefit as a result of these expenditures.

     24) Office Rental Expenditures

In June 2007, COSEY billed PRDE $25,000 for costs it incurred by renting an office. As OIG
acknowledges, PRDE submitted documentation that included purchase and payment orders,
copies of 10 checks. OIG stated that the documentation provided did not indicate if the expenses
were allowable.

PRDE has submitted documents that include 10 invoices, copies of 10 checks (each in the
amount of $2,500), and 10 payment authorizations. 57 The purpose of these costs was to pay the
rent of the buildings used by the various private schools for their summer camp programs.
Therefore, these documents demonstrate that PRDE adequately documented this expense in
accordance with the cost principles in OMB Circular A-87.
55
   See EX 24.
56
   See EX 25.
57
   See EX 26.
     25) Equipment Rental Expenditures

In June 2007, COSEY billed PRDE $508 for costs it incurred by renting office equipment. As
OIG acknowledges, PRDE submitted documentation that included a payment stub. OIG stated
that the documentation provided did not indicate if the expenses were allowable.

PRDE has submitted documents that include an invoice, a payment authorization, and a check
($507.92). 58 The purpose of these costs was to pay for the rental of a photocopier. These
documents demonstrate that PRDE adequately documented this expense in accordance with the
cost principles in OMB Circular A-87.

     26) Conservation and Repair of Equipment Expenditures

In June 2007, COSE billed PRDE $414 for costs it incurred by conserving and repairing office
equipment. OIG stated that PRDE provided no source documentation for this expenditure.

PRDE has submitted documents that include invoices, a request for services, authorization for
payments, and two checks ($350 and $67.31). 59 The purpose of these costs was to pay for the
conservation and repairing of equipment at “Collegio Mi Cuido y Educación,” a location in
which equitable services for students are provided. Therefore, these documents demonstrate that
PRDE adequately documented this expense in accordance with the cost principles in OMB
Circular A-87.

     27) Trailer Expenditures

In June 2007, COSEY billed PRDE $350 for costs it incurred when renting a trailer. As OIG
acknowledges, PRDE submitted documentation that included a third party invoice. OIG stated
that the documentation provided did not indicate if the expenses were allowable.

PRDE has submitted documents that include an invoice prepared by COSEY, a payment
authorization prepared by COSEY, and a check ($350). 60 The purpose of these costs was to pay
for the rental of a trailer at the Paoliny campus. Therefore, these documents demonstrate that
PRDE adequately documented this expense in accordance with the cost principles in OMB
Circular A-87.

     28) Property Insurance Expenditures

In June 2007, COSE billed PRDE $13,699 for insurance costs it incurred. As OIG
acknowledges, PRDE submitted documentation that included two payment stubs and two
cancelled checks. OIG stated that the documentation provided did not specify the type of
insurance paid.

The documents submitted by PRDE evidence that the insurance paid to Liberty Finance covered
both commercial property liability and commercial general liability. 61 In addition to the two
58
   See EX 27.
59
   See EX 28.
60
   See EX 29.
61
   See EX 2, 30.
payment stubs, each for $6,849.52, PRDE has also submitted a cancelled check. As noted above,
this insurance policy was purchased in November 2006 for a number of premises where private
school students receive equitable services. These documents demonstrate that PRDE adequately
documented this expense in accordance with the cost principles in OMB Circular A-87.

      29) Office Equipment Expenditures

In June 2007, COSE billed PRDE $3,619 for costs incurred for the purpose of purchasing office
equipment. As OIG acknowledges, PRDE submitted documentation that included an invoice
prepared by a third party, two purchase orders, and a check that was not cancelled. OIG stated
that the documentation provided did not indicate if the expenses were allowable.

PRDE has documents that include three invoices prepared by COSEY ($1,904.60, $761.84, and
$952.30), 3 requests for services, three payment authorizations, a check ($3,618.74), and a copy
of bids from various contractors. 62 The purpose of these costs was to pay for computer desks for
several schools in which students are provided equitable services. Therefore, these documents
demonstrate that PRDE adequately documented this expense in accordance with the cost
principles in OMB Circular A-87.

Administrative Costs Incurred by COSEY

OIG found that PRDE charged administrative costs to its Title I program that lacked adequate
and reliable documentation in the amount of $9,594 for fiscal year 2006-2007. OIG stated that
PRDE’s lack of proper monitoring of the Title I services provided by COSEY prohibited PRDE
from identifying costs that were unallowable under Title I.

      1) Rental Car Expenditures

In November 2006, COSEY billed PRDE $1,166 for a rental car. As OIG acknowledges, PRDE
submitted supporting documentation that included an invoice from October 2006-November
2007. OIG stated that the documentation provided did not indicate if the expenses were
allowable since COSEY billed PRDE prior to the November 1, 2007 contract.

The documents submitted by PRDE include an invoice from October 2006-November 2006.63
The purpose of these costs was to pay for the rental car that COSEY primarily used to deliver
equipment and materials to various colleges, correspondence, and reports to the Office of Federal
Affairs (OFA). COSEY’s contract with PRDE was extended until October 2006 and COSEY
continued to lease this particular car. Therefore, the Title I program received a demonstrable
benefit as a result of these expenditures.

      2) Travel Expenditures

In April and May 2007, COSEY billed PRDE $1,836 for travelling outside of Puerto Rico. As
OIG acknowledges, PRDE submitted supporting documentation that included invoices for three
employee trips to professional development seminars. OIG stated that these expenses were
unallowable.
62
     See EX 31.
63
     See EX 32.
PRDE has documents that include various invoices for these trips, payment authorizations,
promotional materials, agendas, confirmation letters, and registration forms. 64 Specifically,
COSEY paid for employees to travel to Toronto, Canada, Seattle, Washington, and Orlando,
Florida for the professional development of its employees. Therefore, the Title I program
received a demonstrable benefit as a result of these expenditures.

     3) Videotaping Expenditures

In June 2007, COSEY billed PRDE $550 for the making of a videotape for Title I teachers. As
OIG acknowledges, PRDE submitted supporting documentation that included an invoice and a
payment authorization. OIG stated that the documentation provided did not indicate if the
expenses were allowable.

PRDE has documents that include an invoice, payment authorization, an agenda of the program,
an attendance sheet, and an evaluation of the videotape. 65 The purpose of these costs was to use
the videotaping as a means to foster professional development. Therefore, the Title I program
received a demonstrable benefit as a result of these expenditures.

     4) Catering Service Expenditures

In June 2007, COSEY billed PRDE $264 for catering services at the Colegio Dr. Roque Diaz
Tizol. As OIG acknowledges, PRDE submitted supporting documentation that included an
invoice, a payment authorization, quotes from various vendors, and request for services. OIG
stated that the documentation provided did not indicate if the expenses were allowable.

PRDE has submitted an invoice, a payment authorization, quotes from various vendors, request
for services, an agenda of the workshop, an attendance sheet, an evaluation of the workshop, and
an itemized list of the breakfast food ordered for this particular workshop. 66 The purpose of
these costs was to provide food for a workshop on reading materials and technology. Therefore,
the Title I program received a demonstrable benefit as a result of these expenditures.

     5) New Trailer Expenditures

In June 2007, COSEY billed PRDE $5,136 for the purchase of a new trailer As OIG
acknowledges, PRDE submitted supporting documentation that included an invoice, price
quotation from a vendor, request for services, and a payment authorization. OIG stated that the
documentation provided did not indicate if the expenses were allowable.

The purchase of this trailer was cancelled and the money was returned. The documents submitted
by PRDE include a check to Hacienda (Puerto Rico’s Treasury Department) from COSEY. 67
Therefore, the Title I program was not charged for this particular item.

Salary Costs Incurred by COSEY

64
   See EX 33.
65
   See EX 34.
66
   See EX 35.
67
   See EX 36.
OIG found that PRDE charged salary costs to its Title I program that lacked adequate and
reliable documentation in the amount of $350,292 for fiscal year 2006-2007. These charges
specifically related to COSEY. As OIG acknowledges, PRDE submitted payroll summaries and
copies of checks issued. However, OIG stated that the documentation provided did not specify
employees’ positions, or the schools or offices where the employees worked.
PRDE has submitted detailed payroll records of Title I employees related to the provision of
services to private schools students, employee contracts, employee time and attendance records,
and a list of employee positions, including the schools where each employee worked. 68 The
documents provide evidence of the employees’ positions and the facilities in which they worked.
Furthermore, these documents demonstrate that PRDE adequately documented these expenses in
accordance with the cost principles in OMB Circular A-87. Because these documents also
demonstrate that PRDE’s Title I program received a benefit, these salary costs are allowable.

OIG Recommendation to Review Contractors’ Documentation.

As noted above, OIG recommended that the Assistant Secretary for Elementary and Secondary
Education (OESE) require PRDE to review the contractors’ supporting documentation for the
$17,413,659 paid to ensure compliance with Title I requirements. 69 OIG bases its
recommendation on its perceived lack of adequate and reliable documentation. However, as the
documents submitted with this response demonstrate, PRDE has documentation for nearly all of
the specifically questioned expenditures in the Draft Audit Report. Because PRDE has proven
that it has adequate, reliable documents for its contractors, it would be unnecessary and unduly
burdensome for PRDE to review all expenditures made to NETS, Braxton and COSEY for the
2006-2007 award year.

Conclusion

In closing, PRDE respectfully disagrees in whole with the Draft Audit Report findings and
request that the findings be reconsidered, revised, and that the recommendations for repayment
be withdrawn before the issuance of a final audit report. The serious flaws in audit methodology
led to obvious errors in the Draft Audit Report and raise questions as to the management of the
audit as a whole, such that the findings and recommendations should be reviewed and
withdrawn.




68
     See EX 37(a)-(f).
69
     OIG stated that PRDE paid $4,402,543 to NETS, $8,767,124 to Braxton, and $4,243,992 to COSEY.