oversight

Puerto Rico: Final Recovery Act Expenditures Supplemental Report

Published by the Department of Education, Office of Inspector General on 2013-02-20.

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

                                   UNITED STATES DEPARTMENT OF EDUCATION
                                                        OFFICE OF INSPECTOR GENERAL

                                                                                                                    AUDIT SERVICES
                                                                                                                   Atlanta Audit Region


                                                                     February 20, 2013

                                                                                                    Control Number
                                                                                                    ED-OIG/A04M0014
Hon. Alejandro García Padilla
Governor of Puerto Rico
Office of the Governor
P.O. Box 9020082
San Juan, Puerto Rico 00902-0082

Hon. Rafael Román Meléndez
Secretary
Puerto Rico Department of Education
P.O. Box 190759
San Juan, Puerto Rico 00919-1759

Dear Hon. García Padilla and Hon. Román Meléndez:

As part of a nationwide U.S. Department of Education (Department) Office of Inspector General
(OIG) review of final expenditures under the American Recovery and Reinvestment Act of 2009
(Recovery Act), we reviewed Recovery Act expenditures at the Puerto Rico Department of
Education (PRDE). The purpose of the nationwide audit was to determine whether selected local
educational agencies obligated and spent final Recovery Act funding on reasonable, allocable,
and allowable activities in accordance with applicable Federal requirements. The OIG plans to
issue an audit report to the Department to present the results of the nationwide audit. The
purpose of this final audit report, “Puerto Rico: Final Recovery Act Expenditures Supplemental
Report,” is to separately address internal control weaknesses at PRDE so that PRDE can take
appropriate corrective action.

Our review covered January 1 through December 31, 2011, and Recovery Act expenditures for
the State Fiscal Stabilization Fund, Education Stabilization Fund (ESF); Title I Part A of the
Elementary and Secondary Education Act (Title I); and Part B of the Individuals with
Disabilities Education Act (IDEA) grant programs.




 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
Final Report
ED-OIG/A04M0014                                                                                        Page 2 of 17



                                               BACKGROUND


The Department awarded $529.7 million in ESF funds to the Office of the Governor of Puerto
Rico (Governor’s Office) and the Governor’s Office identified and distributed the funds among
four subrecipients, including three public institutions of higher education 1 and PRDE. PRDE
received $404.2 million, while the three public institutions of higher education received the
remaining $125.5 million. The Department also awarded PRDE about $386.4 million in Title I
funds and $109.1 million in IDEA funds.

Across the three grants, PRDE received awards totaling $899.8 million, as shown in Table 1.
The grant obligation period for Recovery Act ESF and IDEA ended September 30, 2011. For
Recovery Act Title I funds, PRDE received a waiver extending the grant obligation period to
September 30, 2012, and the liquidation period to December 29, 2012.

                  Table 1: Recovery Act Grant Award Amounts for PRDE
                   Recovery Act Grant                              PRDE
                      ESF                                   $404,245,489
                      Title I                                386,407,681
                      IDEA                                   109,098,472
                      Total                                 $899,751,642
                  Source: Grant information provided by PRDE and the Governor’s Office.

Our audit covered expenditures from January 1, 2011 to December 31, 2011.



                                              AUDIT RESULTS


PRDE generally obligated and spent Recovery Act ESF, Title I, and IDEA funds in accordance
with applicable laws, regulations, guidance, and program requirements. However, we found that
$3.5 million in computer equipment was not used as intended because the required software had
not been installed. In addition, PRDE overpaid $7,000 of its Title I Recovery Act funds for
professional services not rendered by the University of Puerto Rico (UPR). Further, we
identified control weaknesses in PRDE’s procurement process; specifically, PRDE did not
follow proper procurement procedures when using Recovery Act funds to purchase equipment
totaling more than $3.4 million. In addition, as of September 30, 2012, PRDE had a remaining
balance of $35.3 million that had yet to be drawn down from the Department, representing more
than 9 percent of its $386.4 million Title I allocation. PRDE received a waiver to extend the
Title I grant obligation period to September 30, 2012, and the liquidation period to December 29,
2012. However, as discussed in the Other Matters section of this report, this significant
remaining balance raises concerns about PRDE’s ability to liquidate its remaining funds on
allowable costs that were obligated before the end of the grant period.

1
    University of Puerto Rico, Conservatory of Music of Puerto Rico, and the School of Plastic Arts of Puerto Rico.
Final Report
ED-OIG/A04M0014                                                                                   Page 3 of 17

In response to the draft report, PRDE stated that it carefully reviewed the specific
documentation, policies, and procedures related to the findings and recommendations included in
the report and outlined a corrective action plan to address our recommendations. In addition,
PRDE provided evidence that it corrected Finding No. 2 related to an overpayment of $7,000 of
Title I funds to the UPR. As a result of PRDE’s corrective actions, no further action is necessary
for Finding No. 2. PRDE’s comments are summarized after the recommendations section of
each finding. The full text of PRDE’s comments is included as an Enclosure to the report.

FINDING NO. 1 – Computer Equipment Not Used as Intended

PRDE’s Technology and Curriculum Unit staff developed the Educational Touch Project (the
project) for 49 schools that demonstrated superior performance on the Puerto Rican Academic
Achievement Tests. 2 The project was intended to help teachers and students develop and
integrate technological skills into the educational process for the core subjects of English,
Spanish, mathematics, and science. As part of the project’s work plan, 3 on September 30, 2011,
PRDE acquired 6,125 tablet computers at a cost of $568 each for a total of $3.5 million in Title I
funds to be used in the 49 participating schools. However, as of December 5, 2012, more than a
year after acquiring the tablet computers, the teachers and students had not been able to use the
tablet computers for the intended purpose because the required software had not been installed.

We visited 3 of the 49 participating schools to conduct a physical inventory of the tablet
computers and other computer equipment 4 purchased as part of the project and to determine
whether the schools were using the equipment in accordance with the intended purpose. During
our site visits, we found that except for the tablet computers, the schools were using the majority
of the equipment received in accordance with the project’s work plan. The three schools 5 we
visited received 125 tablet computers each, and according to the school directors and teachers
interviewed, most of the tablet computers were not being used as intended because the required
software had not been installed. Specifically, at the Diego Vázquez Elementary school, none of
the tablet computers were being used. Adrián Medina and José Julián Acosta schools were using
about 50 and 26 tablet computers, respectively. However, they were using other software that
had been installed and not the software required by the work plan.

According to 34 C.F.R. § 80.32(b) and (c), a State must use, manage, and dispose of equipment
acquired under a grant by the State in accordance with State laws and procedures, and other
grantees and subgrantees must use the equipment in the program or project for which it was
acquired as long as needed, whether or not the project continues to be supported by Federal
funds.

In addition, Article 16, Section F of Regulation 11 of the Puerto Rico Department of Treasury
establishes controls for the use and accountability of government fixed assets. Specifically, the

2
  Test designed to evaluate the student’s academic achievement in the core subjects of English, Spanish,
mathematics, and science.
3
  The work plan established the purpose of the project, resources needed (personnel and equipment), and how the
project would be implemented.
4
  The equipment included 3D servers, interactive whiteboards, speakers, microphones, projectors, and tablet
computers.
5
  Diego Vázquez Elementary school located in Caguas, Adrián Medina school located in Humacao, and José Julián
Acosta school located in Ponce.
Final Report
ED-OIG/A04M0014                                                                         Page 4 of 17

regulation states that the head of an agency is responsible for the custody, care, protection,
conservation, and proper use of all property under the agency’s jurisdiction or possession.

Although PRDE developed a work plan to implement the project, PRDE’s Technology and
Curriculum Unit did not adequately coordinate with the Central Procurement Office (CPO) to
purchase and install the required software before the tablet computers were delivered to the
schools. The lack of coordination delayed implementation, and the teachers and students have
not been able to use the tablet computers for the intended purpose in accordance with the
project’s work plan. According to the Director of PRDE’s Technology and Curriculum, none of
the tablet computers were being used for the intended purposes because the required software
had not been installed. As of December 5, 2012, PRDE had not purchased the required software.

The extensive delays in implementing work plans adversely affected the desired outcome of
developing and integrating technological skills into the educational process through professional
development for teachers and the creation of educational technological environments that would
promote academic gain. In addition, having invested $3.5 million in tablet computers without an
adequate implementation work plan could affect the useful life of the equipment and could result
in Federal education funds being wasted if the equipment is not used as intended or not used at all.

Recommendations:

We recommend that the Assistant Secretary for the Office of Elementary and Secondary
Education require PRDE to—

1.1   Conduct proper procurement procedures to acquire the required software needed for the
      tablet computers so that schools can use the tablet computers in accordance with the
      project’s work plan.

1.2   Develop and implement proper project management procedures to ensure timely
      coordination between the purchase of software, equipment, and professional services
      needed to avoid extensive delays in implementing work plans.

1.3   Provide guidance to the schools on temporary alternative allowable uses of the tablet
      computers until they can be used in accordance with the project’s work plan.

PRDE Comments

PRDE neither agreed nor disagreed with our finding, but it described corrective actions intended
to address Recommendations 1.1 and 1.2. According to PRDE, it published a request for
proposals and attempted to procure the software to be used with the tablet computers, but it was
unable to do so before the September 30, 2012, deadline for obligating Title I Recovery Act
funds. PRDE stated that it is in the process of identifying an alternate funding source to procure
the software so that the tablet computers can be used in accordance with the project’s work plan.
PRDE added that it will update its procurement procedures to ensure that when both software
and hardware are required to implement a project’s work plan, the procurement of one will be
contingent on the procurement of the other.
Final Report
ED-OIG/A04M0014                                                                      Page 5 of 17

OIG Response

If implemented, PRDE’s actions appear to address Recommendations 1.1 and 1.2. However, as
of December 26, 2012, PRDE was still in the process of identifying an alternate funding source
to acquire the required software so that teachers and students can use the tablet computers in
accordance with the project’s work plan. PRDE also had not updated its project management
procedures to ensure timely coordination between the purchase of software, equipment, and
professional services needed to avoid extensive delays in implementing work plans. In addition,
PRDE did not address Recommendation 1.3.

FINDING NO. 2 – Overpayment for Professional Services

PRDE overpaid the UPR $7,000 in Title I Recovery Act funds for professional services not
rendered. According to the Professional Development and Comprehensive Program’s work plan,
PRDE contracted with the UPR to provide training to certify and recertify science and
mathematics teachers in the subjects of chemistry, physics, biology, and mathematics.

During our review of one of the payments made to the UPR, we found that PRDE overpaid the
UPR $7,000. PRDE reviewed a UPR invoice for $1,197,000 and found supporting
documentation for only 88 of the 171 teachers the UPR claimed. The other 83 teachers PRDE
was billed for were either not eligible or had been double billed. PRDE discovered the error, but
paid the UPR $623,000 for the 88 teachers instead of the $616,000 that it should have paid. The
error resulted in the UPR receiving an overpayment of $7,000. We also reviewed other invoices
for this contract to determine whether ineligible teachers had been billed or whether double
billing occurred, but we did not find any additional instances of improper billing.

According to 34 C.F.R. § 76.702, States and subgrantees must use fiscal control and fund
accounting procedures that ensure proper disbursement of and accounting for Federal funds. In
addition, 34 C.F.R. § 80.20(b)(3) states that grantees and subgrantees must maintain effective
control and accountability for all grant and subgrant cash.

Although PRDE’s invoice review process was effective in identifying that UPR had not
submitted sufficient documentation to support the amount billed, PRDE still made a payment
without ensuring that its underlying calculations were correct. As a result, PRDE improperly
paid $7,000 for training.

Recommendation:

We recommend that the Assistant Secretary for the Office of Elementary and Secondary
Education require PRDE to—

2.1   Return to the Department $7,000 in overpayments made to the UPR.

PRDE Comments

PRDE agreed that it overpaid $7,000 in Title I Recovery Act funds to the UPR for professional
services rendered, and PRDE implemented a corrective action that addressed
Final Report
ED-OIG/A04M0014                                                                                   Page 6 of 17

Recommendation 2.1. Specifically, after we notified PRDE of the finding in the July 2012 exit
conference, PRDE reviewed the transaction that resulted in the overpayment to the UPR and
deducted the overpayment from a subsequent invoice, dated January 23, 2012. 6 The subsequent
invoice was for the training of 36 participants at a cost of $7,000 each; PRDE adjusted the
amount due, paying for 35 instead of the 36 participants to account for the prior overpayment of
one participant.

OIG Response

PRDE provided sufficient evidence that it recovered the $7,000 overpayment, which addresses
Recommendation 2.1. PRDE provided a copy of the invoice from which the $7,000 previously
overpaid to the UPR was deducted, as well as the corresponding payment voucher showing the
adjusted payment. As a result, no further corrective action is necessary to address Finding 2.

FINDING NO. 3 – PRDE Did Not Follow Proper Procurement Procedures

PRDE’s CPO did not follow proper procurement procedures for five purchases, totaling more
than $3.4 million. Four of the purchases were funded with Title I Recovery Act funds and one
purchase was funded with IDEA Recovery Act funds. Specifically, PRDE’s CPO did not follow
procurement policies and procedures for sole-source purchases and for purchases up to $50,000.
For the five purchases, PRDE’s CPO awarded (1) three sole-source purchases to two vendors for
$3.4 million using Title I Recovery Act funds; (2) one purchase to another vendor for $15,995
also using Title I Recovery Act funds; and (3) one purchase for $33,000 to a vendor using IDEA
Recovery Act funds. Although PRDE had procurement policies and procedures in place, a
purchasing officer did not follow them and the supervisors did not enforce them. Specifically,
supervisors approved purchases without having adequate documentation to support that the
lowest and best offer was obtained. In September 2011, PRDE’s former chief procurement
officer 7 and five additional PRDE officials, including the purchasing officer who processed the
purchases mentioned in this finding, were indicted by a Federal grand jury on multiple charges
related to their procurement activities.

Title I—Sole-Source Purchases

In August and September of 2011, as part of the project’s work plan discussed in Finding No. 1,
PRDE awarded three sole-source purchases to two vendors for $3.4 million—one to García,
Quiñones y Asociados, Inc., for $1.2 million and two to Audio Visual Concepts, Inc., totaling
$2.2 million, as shown in Tables 2, 3, and 4 below. PRDE’s CPO approved and awarded the
three purchases without documenting PRDE’s effort to search and exhaust all available
resources, including all possible sources of information such as the Puerto Rico General Services
Administration bidders’ registry, commercial phonebooks, Internet Web sites, companies that
supplied similar products, catalogs, and others. Article 13, Section 13.3.2.1.1 of PRDE’s
Procurement Policies and Procedures requires such effort to identify more than one supplier for
all the goods and services to be procured and document justification for the selection of a vendor.

6
  PRDE is behind in paying invoices; therefore, it paid the January 2012 invoice on September 6, 2012. Both the
original overpayment and the subsequent deduction were on invoices for the same contract, contract number 2011-
AF0225.
7
  Resigned in December 2010.
Final Report
ED-OIG/A04M0014                                                                     Page 7 of 17


Table 2: Summary of Sole-Source Purchase from García Quiñones y Asociados, Inc.
(Purchase Order No. 176358; August 13, 2011)
             Item Description              Quantity   Price Each       Amount
 Portable 3D server                              49      $12,095           $592,655
 Customized computers                            49         1,195            58,555
 Locking wall brackets                           49           225            11,025
 Dust covers                                     49            85             4,165
 3D stereoscopic science software                49         2,895           141,855
 3D science software                             49         2,950           144,550
 3D stereoscopic mathematics software            49         2,450           120,050
 Projectors and installation                     98         1,775           173,950
                                Total                                    $1,246,805

Table 3: Summary of Sole-Source Purchase from Audio Visual Concepts (Purchase
Order No. 178196; August 30, 2011)
              Item Description             Quantity   Price Each       Amount
 Interactive whiteboard dual touch             245        $5,800         $1,421,000
 Wireless adapters                             245            580           142,100
 Document camera                               245          1,065           260,925
 Single license for mathematics learning         49           169             8,281
 software
                                 Total                                    $1,832,306

Table 4: Summary of Sole-Source Purchase from Audio Visual Concepts (Purchase
Order No. 179533; September 13, 2011)
            Item Description               Quantity   Price Each       Amount
 Audio systems with speakers and               245        $1,310          $320,950
 microphones
                               Total                                        $320,950

According to 34 C.F.R. § 80.36(a), when a State is procuring property and services under a grant,
it will follow the same policies and procedures it uses for procurements from its non-Federal
funds.

Article 13, Section 13.2 of PRDE’s Procurement Policies and Procedures requires a formal
competitive procurement process when the purchase request exceeds $50,000, and Section 13.3.2
states that a sole-source purchase can be conducted only when PRDE determines that no other
suppliers in the market can provide the goods and services needed. The policy further states that
promoting a fair and just competition will promote the best quality products and services at the
best possible price.

Title I—Copier Purchase

PRDE’s CPO did not maintain adequate supporting documentation to confirm that it followed
proper procurement procedures for a purchase order awarded to PMB School Office Solution
(PMB) in July 2011. The purchase was for a copier for $15,995 funded with Title I Recovery
Act funds. We found that PRDE’s CPO did not have the required documentation to support that
Final Report
ED-OIG/A04M0014                                                                                       Page 8 of 17

PRDE received and evaluated the three required quotes in accordance with PRDE’s Procurement
Policies and Procedures for purchases up to $25,000.

Although we found evidence of four requests for quotes prepared and addressed to Express
Office Products, Vázquez Office Equipment, National Copier, and PMB, the only quote
available for us to review was the one received from PMB. The price according to PMB’s quote
did not match the amount PRDE paid for the copier. PMB’s quote for the copier was $8,692, but
PRDE paid $15,995, or $7,303 more than the quoted price. We also reviewed the information in
PRDE’s financial accounting system to determine whether the CPO had documented the
procurement process and the three required quotes in the system. We found that the quoted
prices from just two vendors had been entered—$16,895 for National Copier and $15,995 for
PMB. However, we did not find a quote for National Copier to support the $16,895 entered in
the system as the quoted price, and PMB’s quote was $7,303 less than the amount entered into
the system. We also found that the purchase order was processed by one of the PRDE
purchasing officers indicted by a Federal grand jury in September 2011 on charges of conspiracy
to commit bribery concerning programs receiving Federal education funds.

IDEA—Wheel Chair and Inclusion Chairs Purchase

PRDE’s CPO awarded a purchase order to Félix Merced Díaz, doing business as Materiales
Didácticos in January 2011. However, PRDE could not provide adequate documentation to
support that it followed proper procurement procedures. PRDE purchased a wheel chair and four
inclusion chairs 8 for $33,000, funded with IDEA Recovery Act funds. 9 During our review of the
supporting documentation, we found that PRDE’s CPO did not have the required documentation
to support whether it received and evaluated the five required quotes in accordance with PRDE’s
Procurement Policies and Procedures for purchases from $25,000 to $50,000. The only support
available consisted of the vendor’s invoice for $33,000.

We also reviewed the information on PRDE’s financial accounting system to determine whether
the procurement process and the five required quotes had been documented in the system.
However, no other information related to quotes had been entered in the system to support that
the purchase was made in accordance with PRDE’s Procurement Policies and Procedures. We
also found that the purchase order was processed by one of the PRDE purchasing officers
indicted by a Federal grand jury in September 2011 on charges of conspiracy to commit bribery
concerning programs receiving Federal education funds.

Article 13, Section 13.1 of PRDE’s Procurement Policies and Procedures require three different
informal procurement processes for purchases up to $50,000. Section 13.1.3.1 requires that for
informal procurement processes below $6,000, a minimum of three quotes must be requested by
phone, fax, or other means of communications available. Section 13.1.3.2 requires that for
procurement processes between $6,000 and $25,000, a minimum of three quotes must be
requested in writing and obtained either by mail, e-mail, fax, or any other form of written


8
  Inclusion chairs provide adequate positioning support for children and adults who are insufficiently supported by
standard classroom or desk chairs.
9
  Of the total purchase amount, $15,000 was used for a wheel chair and $18,000 for four inclusion chairs at
$4,500 each.
Final Report
ED-OIG/A04M0014                                                                         Page 9 of 17

communication. Section 13.1.3.3 requires that for procurement processes from $25,000 to
$50,000, a minimum of five written quotes must be obtained.

Although PRDE had a procedure in place for sole-source purchases that required purchasing
officers to document their effort to search and exhaust all available resources to identify more
than one supplier for all the goods and services to be procured, the purchasing officer instead
documented the process with notarized letters from García Quiñones y Asociados, Inc., and
Audio Visual Concepts, Inc., affirming they were the only authorized distributors. This situation
also occurred because the supervisor did not enforce the required procedures. The former CPO
Director 10 indicated that apparently there was a time in which purchasing officers were not
following proper procurement policies and procedures due to the amount of purchases that
needed to be processed. The former CPO Director also indicated that in October 2011, and due
to audit findings related to the noncompliance with sole-source purchases, CPO began providing
guidance and training to purchasing officers and personnel from other areas within PRDE to
ensure personnel followed proper procurement policies and procedures, especially for sole-
source purchases.

The former CPO Director indicated that aside from the information provided during the audit,
CPO did not find any additional documentation to support that the purchasing officer followed
PRDE’s Procurement Policies and Procedures. As previously mentioned, in September 2011
PRDE’s former chief procurement officer and five additional PRDE officials, including the
purchasing officer that processed the purchases mentioned in this finding, were indicted by a
Federal grand jury on multiple charges related to their procurement activities. This indictment
and the findings contained in this report call into question all of the activities conducted by the
six PRDE officials that were indicted. It also demonstrates that before the indictment, these
officials created and operated in a very weak internal control environment that allowed them to
circumvent established policies and procedures for personal gain.

Approving the purchases without conducting proper procurement procedures limited free and
open competition and may have prevented PRDE from obtaining the best quality products at the
best possible price. In addition, not conducting proper procurement procedures negatively
affects the confidence and trust that taxpayers have in the government. We also noted that
PRDE entered into a Compliance Agreement and a Memorandum of Agreement with the
Department in 2004 and 2007, respectively. Both agreements included provisions to improve
PRDE’s procurement processes.

Recommendations:

We recommend that the Assistant Secretary for the Office of Elementary and Secondary
Education, in coordination with the Assistant Secretary for the Office of Special Education and
Rehabilitative Services, require PRDE to—

3.1      Return to the Department $7,303 paid in excess to the vendor for the purchase of the
         copier.



10
     Interim CPO Director from December 6, 2010, through July 31, 2012.
Final Report
ED-OIG/A04M0014                                                                     Page 10 of 17

3.2   Establish and consistently implement adequate controls, including effective oversight and
      monitoring processes to ensure that proper procurement procedures are followed, in
      accordance with Federal and State laws and regulations and the applicable agreements with
      the Department.

3.3   Ensure that CPO employees are adequately trained to effectively perform their duties in
      accordance with PRDE’s Procurement Policies and Procedures.

3.4   Review all of the purchases processed by the six officials indicted by a Federal grand jury
      in September 2011 to determine whether additional irregularities or fraudulent transactions
      occurred.

PRDE Comments

PRDE stated that it takes this finding very seriously and has established and fully implemented
controls, including effective oversight and monitoring processes to ensure proper procurement
procedures. According to PRDE, the performance of purchasing officers is monitored weekly
and vendor evaluation reports are completed monthly. PRDE added that it revamped its
procurement policies and procedures manual, which is pending finalization and approval. In
addition, PRDE expressed its commitment to ensuring all CPO staff are adequately trained to
effectively perform their duties in accordance with PRDE’s Procurement Policies and
Procedures. Finally, PRDE stated that it fully understands the gravity of the concern regarding
the six officials indicted by a Federal grand jury in September 2011 and takes seriously the
process of reviewing all purchases processed by these officials.

OIG Response

PRDE did not address Recommendation 3.1. If implemented, PRDE’s actions appear to address
Recommendation 3.2, 3.3, and 3.4. PRDE provided an organizational chart showing the CPO
structure. However, PRDE did not submit further evidence documenting that it has taken the
action described in its response.



                                    OTHER MATTERS


In December 2011 PRDE received a waiver to extend the grant obligation period for its Title I
funds until September 30, 2012, and the liquidation period to December 29, 2012. However, as
of September 30, 2012, PRDE had a remaining balance of $35.3 million, representing more than
9 percent of its $386.4 million Title I allocation. This significant remaining balance raises
concerns about PRDE’s ability to liquidate its remaining funds on allowable costs that were
obligated before the end of the grant period. Because of this, we suggest that the Assistant
Secretary for the Office of Elementary and Secondary Education consider following up with
PRDE during a future monitoring visit to determine whether the funds were obligated and
liquidated appropriately.
Final Report
ED-OIG/A04M0014                                                                                    Page 11 of 17



                        OBJECTIVE, SCOPE, AND METHODOLOGY


The objective of the nationwide audit of final Recovery Act expenditures was to determine
whether selected local educational agencies (including PRDE covered by this report) obligated
and spent final Recovery Act funding in accordance with applicable Federal requirements. The
purpose of this supplemental report was to address our findings related to PRDE’s questioned
costs and internal control weaknesses so that PRDE can take appropriate corrective action.

Our review covered January 1 through December 31, 2011, and Recovery Act expenditures for
three education-related grants: 11 (1) ESF, 84.394; (2) Title I, 84.389; and (3) IDEA, 84.391.

To determine whether Recovery Act expenditures were obligated and spent in accordance with
applicable Federal requirements, we interviewed fiscal and program officials responsible for
administering Recovery Act grants and the closeout processes. In addition, we interviewed
teachers and school directors to determine whether goods and services funded with Recovery Act
grants were received. We reviewed PRDE’s policies and procedures to gain an understanding of
their processes for procurement and grant closeout. We also reviewed and considered the results
and findings of prior Single Audit reports, internal audit reports, as well as an OIG audit report
on the Recovery Act.

For the findings contained in this report, we performed a limited assessment of PRDE’s policies
and procedures by judgmentally selecting samples of personnel and nonpersonnel expenditure
transactions to determine whether the costs charged to Recovery Act grants complied with
applicable Federal requirements. Using a risk-based approach, we selected
nonpersonnel transactions for each grant (1) exceeding PRDE’s threshold amounts;
(2) representing high dollar amounts; (3) posting transactions the last month of the grant period;
(4) including transactions under, but within 10 percent of the threshold amounts; and
(5) containing a variety of costs based on the transaction’s description. For nonpersonnel
expenditures incurred from July 1, 2011, through December 31, 2011, we selected a total of
56 transactions totaling $30.4 million from a universe of 4,198 transactions totaling
$41.4 million in ESF, Title I, and IDEA nonpersonnel expenditures during our audit period.

For personnel expenditures incurred from January 1, 2011, through September 30, 2011, we
tabulated expenditures by month to find months of peak activity. To determine peak activity, we
tabulated a total of 29,006 transactions totaling $46.7 million in ESF, Title I, and IDEA
personnel expenditures.

Because we used a risk-based model to judgmentally select samples of expenditure transactions,
the results presented in this report cannot be projected to the universe of expenditures for the
period covered by our testing.

We relied on computer-processed data contained in PRDE’s financial accounting system for
purposes of determining Recovery Act grant awards, revenue, expenditure, and refund amounts.

11
     We also provide the Catalog of Federal Domestic Assistance number assigned for grant-tracking purposes.
Final Report
ED-OIG/A04M0014                                                                       Page 12 of 17

We reconciled PRDE’s Recovery Act grant amounts with the amounts in PRDE’s financial
accounting system. We also reviewed the Fiscal Year 2010 financial and Single Audit reports
for findings related to internal controls that might negatively affect data reliability. Further, we
interviewed PRDE officials to gain an understanding of the accounting systems and verify grant
amounts. Based on our reconciliation, the information identified in Single Audit reports, and the
information obtained through interviews, we determined that the computer-processed data were
sufficiently reliable for the purposes of this review.

We performed fieldwork at PRDE from March through July 2012, and held an exit meeting on
July 19, 2012.

We conducted the audit work related to this supplemental report 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.



                            ADMINISTRATIVE MATTERS


Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinion of the Office of Inspector General.
Determinations of corrective actions 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.

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:

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

                              Michael K. Yudin
                              Acting Assistant Secretary
                              Office of Special Education and Rehabilitative Services
                              U.S. Department of Education
                              400 Maryland Avenue, SW
                              Washington, D.C. 20202
Final Report
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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


Enclosure
Final Report
ED-OIG/A04M0014                                                                 Page 14 of 17

                            Enclosure: PRDE Comments
PRDE provided several attachments with its response. These attachments will be made available
on request.
Final Report
ED-OIG/A04M0014   Page 15 of 17
Final Report
ED-OIG/A04M0014   Page 16 of 17
Final Report
ED-OIG/A04M0014   Page 17 of 17