oversight

South Carolina Governor's Office: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs.

Published by the Department of Education, Office of Inspector General on 2011-08-23.

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

           U.S. Department of Education

            Office of Inspector General



 American Recovery and
 Reinvestment Act of 2009
          South Carolina Governor’s Office:

      Use of Funds and Data Quality for Selected 

   American Recovery and Reinvestment Act Programs


                  Final Audit Report





                 South Carolina State House


ED-OIG/A04K0006                               August 2011
                                      UNITED STATES DEPARTMENT OF EDUCATION
                                           OFFICE OF INSPECTOR GENERAL

                                                                                                     AUDIT SERVICES
                                                                                                    ATLANTA REGION



                                                          August 23, 2011


David C. Seigler, CPA

Special Projects Manager, Office of State Budget

South Carolina Budget & Control Board

Edgar A. Brown Building

1205 Pendleton Street, Suite 529

Columbia, SC 29201


Dear Mr. Seigler:


This final audit report, Control Number ED/OIG A04K0006, presents the results of our

review of the “South Carolina Governor’s Office: Use of Funds and Data Quality for Selected

American Recovery and Reinvestment Act Programs.”


Statements that managerial practices need improvement, as well as other conclusions and

recommendations in this report, represent the opinions of the Office of Inspector General (OIG).

Determinations of corrective action to be taken will be made by the appropriate Department of

Education officials. 


This report incorporates comments you provided in response to our draft audit 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

officials, who will consider them before taking final Departmental action on this audit:


                                                    Ann Whalen

                                             Deputy Director for Programs

                                           Implementation and Support Unit

                                            U.S. Department of Education

                                        400 Maryland Ave., S.W., Room 7W206

                                               Washington, DC 20202


                                                  Michael Yudin

                                             Acting Assistant Secretary

                                   Office of Elementary and Secondary Education

                                           U.S. Department of Education

                                         400 Maryland Ave., S.W., 3W315

                                               Washington, DC 20202



 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
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
       Abbreviations, Acronyms, and Short Forms Used in this Report
_____________________________________________________________________________________________________________________



Department                          U.S. Department of Education

ESF                                 Education Stabilization Fund

FTE                                 Full-Time Equivalent

Governor’s Office                   South Carolina Governor’s Office

GSF                                 Government Services Fund

OMB                                 Office of Management and Budget

Recovery Act                        American Recovery and Reinvestment Act of 2009

SFSF                                State Fiscal Stabilization Fund

SCDC                                South Carolina Department of Corrections

USC                                 University of South Carolina
Final Audit Report
ED-OIG/A04-K0006                                                                       Page 1 of 11

                U.S. Department of Education – Office of Inspector General

           South Carolina Governor’s Office: Use of Funds and Data Quality for

               Selected American Recovery and Reinvestment Act Programs

                           Control Number ED-OIG/A04K0006


                                            PURPOSE
The American Recovery and Reinvestment Act of 2009 (Recovery Act) places a heavy emphasis
on accountability and transparency and, in doing so, increases the responsibilities of the agencies
that are impacted by the Recovery Act. Overall, the U.S. Department of Education (Department)
is responsible for ensuring that education-related Recovery Act funds reach intended recipients
and achieve intended results. This includes effectively implementing and controlling funds at the
Federal level; ensuring that recipients understand requirements and have proper controls in place
over the administration and reporting of Recovery Act funds; and promptly identifying and
mitigating instances of fraud, waste, and abuse of the funds. The South Carolina Governor’s
Office (the Governor’s Office) is responsible for the administration of Recovery Act funds
received from the Department.

The purpose of our audit was to determine whether the Governor’s Office (1) used Recovery Act
funds in accordance with applicable laws, regulations, and guidance; and (2) reported accurate,
reliable, and complete data in compliance with Recovery Act reporting requirements. This
report provides the results of our audit of the Governor’s Office and two entities receiving
Recovery Act funds: the University of South Carolina (USC), which is an institution of higher
education, and the South Carolina Department of Corrections (SCDC), which is a State agency.

We focused our audit on the use of funds and data quality related to State Fiscal Stabilization
Funds (SFSF) received through the Recovery Act. The SFSF consists of Education Stabilization
Funds (ESF) and Government Services Funds (GSF). Our audit covered the period February 17,
2009, through June 30, 2010.

The results of our review of funds awarded to the South Carolina Department of Education are
detailed in our audit report entitled “South Carolina Department of Education: Use of Funds and
Data Quality for Selected American Recovery and Reinvestment Act Programs,” Control
Number ED-OIG/A04-K0005, April 20, 2011.

                                            RESULTS

We found that Recovery Act funds were generally used in accordance with applicable laws,
regulations, and guidance at the entities reviewed—the Governor’s Office, USC, and SCDC.
The Governor’s Office required certifications on use of the Recovery Act funds and provided
guidance to recipients and subrecipients. The Governor’s Office required each recipient and
subrecipient to certify in writing that the funds would be used in accordance with Part III of the
South Carolina Appropriation Act and Title XIV of the Recovery Act. The Governor’s Office
also issued reimbursement guidance to recipients and subrecipients of Recovery Act funds. In
addition, the State established the South Carolina Stimulus Oversight, Accountability, and
Coordination Task Force as a centralized accountability group to oversee transparency and
accountability requirements associated with Recovery Act funds.
Final Audit Report
ED-OIG/A04-K0006                                                                       Page 2 of 11

SCDC and USC used Recovery Act funds for reimbursement of incurred payroll and nonpayroll
expenditures from July 1, 2009, to September 30, 2009. Although the use of funds was generally
in accordance with applicable laws, regulations, and guidance, we found that SCDC used $8,287
of the Recovery Act funds to pay for unallowable expenditures.

In addition, we found that the Governor’s Office did not report accurate job data to the Federal
government in compliance with reporting requirements in Recovery Act Section 1512.
However, Office of Management and Budget (OMB) guidance does not allow changes to prior
reports for the number of jobs. 1 Therefore, no corrections are required to the Governor’s Office
reported data. The Recovery Act Section 1512 reporting discrepancies are detailed in the Other
Matters section of this report.

In response to the draft audit report, the Governor’s Office concurred with our finding. Based on
its comments, we revised Recommendation 1.1 to allow SCDC to reobligate the disallowed costs
to allowable costs rather than remitting those funds because the grant period is still open. The
Governor’s Office comments are summarized after the finding and the entire comments are
included as an Enclosure.

                                                BACKGROUND

The Recovery Act was signed into law on February 17, 2009, in an unprecedented effort to
jumpstart the American economy. The Recovery Act has three immediate goals: (1) create new
jobs and save existing ones, (2) spur economic activity and invest in long-term growth, and
(3) foster accountability and transparency in government spending. To ensure transparency and
accountability of spending, recipients are required under Section 1512 of the Recovery Act to
submit quarterly reports on Recovery Act awards, spending, and job impact. According to
OMB, the reports must contain specific detailed information on the projects and activities funded
by the Recovery Act in order to provide the public with transparency for how Federal dollars are
being spent. The reports are also expected to facilitate accountability for the timely, prudent, and
effective spending of the Recovery Act funds.

South Carolina Governor’s Office

The Governor’s Office was awarded a total of $348 million in SFSF Recovery Act funds. 2 As
shown in Table 1, the Governor’s Office awarded $185 million to the South Carolina
Department of Education; $78 million to 19 institutions of higher education; $22 million to the
Board of Technical and Comprehensive Education; and the remaining $63 million to 22 State
agencies. As of June 30, 2010, the Governor’s Office had drawn down approximately
$254 million (73 percent) of the Recovery Act funds awarded. It has until September 30, 2011,
to expend SFSF Recovery Act funds.




1
    OMB Memorandum M-10-34, issued September 24, 2010.

2
    The Governor’s Office is the prime recipient of ESF and GSF Recovery Act funds.

Final Audit Report
ED-OIG/A04-K0006                                                                                  Page 3 of 11

                     Table 1: Governor’s Office SFSF Recovery Act Funding
                                            Total Amount          Drawdowns as           Percent of Total
                 Entities
                                              Awarded            of June 30, 2010         Award Drawn
    South Carolina Department of
                                            $184,922,339           $120,515,373                  65
      Education
    Institutions of higher education         $78,111,085            $55,104,824                  71
    Board of Technical and
                                             $21,811,254            $15,125,987                  69
      Comprehensive Education
    State agencies                           $63,159,485            $63,159,485                 100
                  Total                     $348,004,163           $253,905,669                  73

The Governor’s Office awarded $23,945,887 in ESF funds to USC, and $22,000,000 in GSF
funds to SCDC. Collectively, the two entities we reviewed received about $46 million in
Recovery Act funds.

                                                 FINDING

FINDING − Minor Noncompliance Related to Use of Recovery Act Funds

Although SCDC’s use of funds was generally in accordance with applicable laws, regulations,
and guidance, we found that SCDC used $8,287 of the Recovery Act funds to pay unallowable
nonpayroll costs. For 1 of 50 SCDC expenditures reviewed, 3 SCDC paid $8,287 for nonpayroll
charges on invoices submitted in December 2008 and January 2009, before the Recovery Act
was enacted. 4 The Governor’s Office did not detect the improper payments because SCDC had
prepared journal entries to transfer the previously incurred costs to the SFSF fund. However,
SCDC did not review the expenditures to ensure that the transferred costs included only
allowable costs for reimbursement through the Recovery Act. In addition, the Governor’s Office
did not monitor SCDC to ensure that the nonpayroll expenditures were accurate.

The “Guidelines for Grantees and Auditors State Fiscal Stabilization Fund Program,” dated
December 24, 2009, states that the Department has authorized States to use SFSF funds to
support allowable obligations that were incurred as of February 17, 2009, the date the Recovery
Act was enacted. However, the Governor’s Office did not provide sufficient oversight and
monitoring to ensure that expenditures were allowable and in accordance with applicable laws,
regulations, and guidance. Without adequate oversight and monitoring, the Governor’s Office
did not detect SCDC’s improper payments of $8,287.



3
  From SCDC’s universe of 268 nonpayroll expenditures representing more than $15.5 million, we judgmentally 

selected a sample of 50 expenditures representing more than $2.6 million. See Scope and Methodology section for

additional detail.

4
  The one expenditure with the error was related to 113 invoices totaling $315,090. Of those 113 invoices,

8 invoices (totaling $8,287) were submitted prior to the implementation of the Recovery Act. 

Final Audit Report
ED-OIG/A04-K0006                                                                     Page 4 of 11

RECOMMENDATIONS

We recommend that the Director for the Implementation Support Unit require the Governor’s
Office to—

1.1	 Reobligate the $8,287 in unallowable Recovery Act funds to allowable costs before the end
     of the award period.

1.2	 Implement an oversight and monitoring plan to ensure that previously incurred costs that
     State agencies transferred to Recovery Act funds were incurred after enactment of the
     Recovery Act.

Auditee Comments

The Governor’s Office concurred with the finding. The Governor’s Office acknowledged that
although SCDC certified that it had expended grants funds in accordance with applicable
guidance, SCDC did not properly review those charges. In response to draft Recommendation
1.1, the Governor’s office requested that SCDC be allowed to apply the $8,287 in disallowed
costs to allowable costs rather than remitting those funds because (1) the grant period is still
open, and (2) SCDC incurred eligible expenditures for which they could have been reimbursed.

In response to Recommendation 1.2, the Governor’s Office stated SCDC was appropriated an
additional $40.4 million of ARRA Stabilization Funds in Part III of the State’s Annual
Appropriations Act for FY 2010–2011. In addition, the Governor’s Office stated that it is
requiring SCDC to provide adequate documentation for expenditures, including invoice dates, to
ensure charges are allowable and within the grant period.

OIG Response

Based on the Governor’s Office’s comments, we revised Recommendation 1.1 to allow SCDC to
reobligate the disallowed costs to allowable costs before the end of the grant award period.

Regarding Recommendation 1.2, while the Governor’s Office comments addressed future
monitoring for SCDC, they did not address an oversight and monitoring plan for the remaining
State agencies. Because SCDC is one of 22 State agencies receiving Recovery Act funds and the
only one we reviewed, we maintain that the Governor’s Office needs to implement an oversight
plan to ensure that expenditures for the remaining 21 State agencies were incurred after
implementation of the Recovery Act. As such, we did not make any changes to
Recommendation 1.2.
Final Audit Report
ED-OIG/A04-K0006                                                                    Page 5 of 11

                                    OTHER MATTERS

The Governor’s Office reported inaccurate job data to the Federal government. Specifically, we
identified four State agencies—Clemson University Public Service Activities, South Carolina
School for the Deaf and Blind, South Carolina Law Enforcement Training Council, and the State
Library Commission—that reported a total of 28.17 full-time equivalent (FTE) jobs created or
retained in the March 31, 2010, quarterly report to the Governor’s Office. However, the
Governor’s Office reported 4 FTE jobs for the same reporting period to FederalReporting.gov,
24.17 FTE jobs fewer than what was reported to the State. In addition, for the quarter ending
June 30, 2010, the Governor’s Office reported 14 jobs as created or retained; however, the State
agencies did not report any jobs created or retained for the same period. We are not
recommending correcting the reported number of jobs because OMB Memorandum M-10-34,
issued September 24, 2010, states that changes to prior reports may not be initiated for the
“number of jobs” field.

The Governor’s Office did not comment on the Other Matters section of the report.

                             SCOPE AND METHODOLOGY

The purpose of our audit was to determine whether the Governor’s Office (1) used Recovery Act
funds in accordance with applicable laws, regulations, and guidance; and (2) reported accurate,
reliable, and complete data in compliance with Recovery Act reporting requirements. Our audit
covered the period February 17, 2009, through June 30, 2010.

We performed this audit at the Governor’s Office, USC, and SCDC. Our audit focused on the use
of funds and data quality related to the SFSF funds received through the Recovery Act. For the
use of funds, we reviewed claims and expenditures incurred from February 17, 2009, through
June 30, 2010. For data quality, we reviewed Recovery Act Section 1512 quarterly reporting
periods that ended December 31, 2009; March 30, 2010; and June 30, 2010.

To gain an understanding of the Recovery Act requirements applicable to these grants and the
areas of use of funds and data reporting, we obtained background information on the grants and
the audited entities. We also reviewed Federal laws, regulations, OMB Circulars, and Recovery
Act-specific guidance issued by OMB and the Department.

To achieve our objectives, we did the following:

       •	 reviewed the internal control structure, policies, and procedures the Governor’s
          Office used to award, expend, and report Recovery Act funds;
       •	 examined prior reviews conducted by the South Carolina State Auditor for the State’s
          single audit report for the year ending June 30, 2008;
       •	 reviewed the single audit report for USC and SCDC for the year ending June 30, 2010;
       •	 reviewed the grant application from the Governor’s Office;
Final Audit Report
ED-OIG/A04-K0006                                                                      Page 6 of 11

       •	 obtained from the Department the amount of Recovery Act SFSF grant funds the
          Governor’s Office received;
       •	 obtained a list of institutions of higher education and State agencies that received
          SFSF Recovery Act funding from February 17, 2009, through June 30, 2009;
       •	 reviewed the award documents and certifications for the State, USC, and SCDC;
       •	 interviewed officials at other State agencies, including the South Carolina Office of
          the State Auditor, the Office of the State Treasurer, and the Office of the State
          Comptroller;
       •	 reviewed and tested Governor’s Office controls for requesting, receiving, managing,
          and disbursing Recovery Act funds to subrecipients;
       •	 reviewed and tested Governor’s Office procedures for collecting and reporting data
          required by Section 1512 of Recovery Act data to FederalReporting.gov;
       •	 interviewed key program, accounting, and reporting officials at USC and SCDC; and
       •	 reviewed and tested supporting documentation for payroll and nonpayroll
          expenditures at USC and SCDC.

To assess the control structure of the use of Recovery Act funds, we reviewed the procedures for
approving and accounting for expenditures and interviewed officials responsible for
procurement, accounting, payroll, and personnel. To determine whether the Governor’s Office
awarded and reported Recovery Act funds correctly, we judgmentally selected one institution of
higher education and one State agency from a list of all subrecipients and State agencies that
received Recovery Act SFSF funding. We selected these two recipients because each was
awarded the largest amount of SFSF Recovery Act funds and, at the time of our review, had
expended the majority of the allocated amounts. We also reviewed the expenditures of the SFSF
Recovery Act grant and tested data to ensure that the data were being reported correctly on
quarterly reports.

To test the SFSF grant expenditures at USC, we selected a random sample of 64 of 307 payroll
and 15 of 1,496 nonpayroll expenditures from two departments. To determine the reliability of
the payroll data, we reviewed employee hardcopy files, human resources records, and employee
pay stubs. For SCDC, we selected a random sample of 72 of 903 payroll expenditures from 6 of
33 correctional facilities selected for testing and 50 of 268 nonpayroll expenditures from all
33 correctional facilities. (See Table 2.) To determine whether the employee data were reliable,
we reviewed a judgmental sample of 26 employee hardcopy files.
Final Audit Report
ED-OIG/A04-K0006                                                                                 Page 7 of 11

                                    Table 2: Universe and Sampling
                    Entities        Dollar Universe Sample Dollars Sample Size
                 USC
                    Payroll            $8,125,675            $2,951,699               64
                    Nonpayroll         $9,228,704            $1,253,398               15
                 SCDC
                    Payroll            $1,462,296 5           $509,854                72
                    Nonpayroll         $15,511,744           $2,613,677               50

For the sampled payroll expenditures, we reviewed personnel files, earnings statements,
timesheets, and employee certifications to verify that the employees existed and that their salary
charges were supported and allowable. For the sampled nonpayroll expenditures, we reviewed
purchase orders, invoices, payment batches, receiving reports, and cancelled checks to verify that
the expenditures were supported and allowable.

We also reviewed the Governor’s Office procedures for collecting and reporting data required by
Section 1512 of the Recovery Act and traced data to source documentation. Specifically, we
reviewed and tested data elements to include the amount of the subaward, disbursements, jobs
created or retained, and vendor payments.

To determine whether the data reported were accurate, reliable, complete, and in compliance
with Recovery Act reporting requirements, we compared data in supporting documents provided
by the Governor’s Office, USC, and SCDC with data reported in FederalReporting.gov. In
addition, we reviewed all the 1512 data from the institutions of higher education and State
agencies. The South Carolina Comptroller’s Office developed a Lotus-based spreadsheet to
collect and consolidate data from the State agencies. The South Carolina Department of
Education used a web-based spreadsheet to collect and consolidate data from the subrecipients. 6
We assessed the reliability of data contained in the spreadsheets by tracing reported data from
USC and SCDC to the South Carolina Comptroller’s Office and South Carolina Department of
Education consolidation reports and to Recovery.gov. Based on the work performed, we
concluded that the data were sufficiently accurate and reliable for the purposes of the audit.

We relied on computer-processed data contained in the accounting systems of the Governor’s
Office, USC, and SCDC for the purposes of testing expenditures for payroll and nonpayroll
transactions. We assessed the reliability of these data by tracing selected expenditures to source
documents. Based on our testing, we determined that the computer-processed data were
sufficiently reliable for the purposes of this audit.



5
  The total dollar universe was $6,519,378. However, SCDC used only 22.43 percent of its Recovery Act funds on

payroll, which reduced the total payroll universe to $1,462,296.

6
  The institutions of higher education submitted Section 1512 Recovery Act data to the Commission of Higher

Education, which consolidated the reports and submitted them to the South Carolina Department of Education.

Final Audit Report
ED-OIG/A04-K0006                                                                    Page 8 of 11

We conducted our work at the Governor’s Office, SCDC, USC, and our offices from January
2010 through April 2010 and from November 2010 through February 22, 2011. We discussed
the results of our review and recommendations with officials from the Governor’s Office, USC,
and SCDC on May 24, 2011.

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.
Final Audit Report
ED-OIG/A04-K0006                                                                                              Page 9 of 11

                                                    Enclosure


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          Rkllard Etksu.m, CPA                                                             C.rlio M.lAftio, Jr.
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                                                     July 26, 2011

                                           MANAGEMENT'S HESPONSE



       Ms. Denise Wempe
       Regional Inspector General for Audit
       U.S. Depanment of Education
       OIG - Office of Audit Services
       61 Forsyth Street SW, Suite 19T30
       Atlanta, Goorgia 30303

       Dear Ms. Wempe:

       1l1is is response to the finding noted in your examination of the State ojSouth Carolina Governor's
       Office: Use oj Funds and Data Qualityjor selectedAmerican Recovery and Reinvestment Act·
       Programs. Control Number ED-OIG/A04K0006, for the period February 19,2009 through June 30,
       2010.

       Finding - Minor NoneomplisnI::e Related to Use of R«overy Ad Funds


       We concur with your finding thai South Carolina's Department of Corrections (SCDC) incorrectly
       charged $8,287 of non·payroll expenditures related to invoices submitted prior to February 19,2009
       (before the Recovery Act was enacted). Although the SCDC certified to us that the reimbursable
       expenditures were allowable and within the grant period. they failed to perform II proper review ohOOse
       charges.

       The SCDC WAS Approprialed an additional $40,428,008 of ARRA Stabilization Funds in Part III of the
       Slate's Annual Appropriations Act for FY2010-11. We are requiring that SCDC provide adequate
       documentation ofthc:se expenditures, including invoice dates, in order to ensure those charges are
       allowable and within the grant period.

        Rather than remitting the $8,287 ofdisallowed costs, we are requesting that SCDC be allowed to apply
        those funds to allowable costs since the grant period is still open and because SCDC incurred millions of
        dollars in eligible expenditures for ....-hich they could have been reimbursed.

       Thank. you for your cooperation and assistancc: in this malter.
Final Audit Report
ED-OIG/A04-K0006                                                                                       Page 10 of 11



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         Richard Eckstrom, CPA                                                         Curtn M. Lolli.,Jr.
           Complroller General                                                             Tnuurer
                Co-Chair                                                                    Co-ChaiT




       Respectfully,



      �.�f.+
       David C. Seigler, CPA
       S pecial Projects Manager, Soulh Carolina Officc of State Budget
       (Acting Administrator of ARRA State Fiscal Stabilization Funds/or the Slale o/South Carolina)



       cc: 	   Ms. Jamie Shuster -Governor's Office 

               Ms. Jennifer Milir - Comptroller General's Officc 

               Mr. Frank Rainwater - State Treasurer's Office 

               Ms. Marcia Adams - Executive Director's Office 

               Mr. Les Boles - Office of State Budget 

        Anyone knowing of fraud, waste, or abuse involving
         U.S. Department of Education funds or programs
     should call, write, or e-mail the Office of Inspector General.

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                                Or e-mail:
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